May 23, 2024

Pharmacy Benefit Management: An Overview

Pharmacy benefit management is a system of managing prescription drug costs and benefits for employers and health plans. PBMs help ensure that patients have access to prescription drugs that treat conditions like high blood pressure, diabetes, depression and more. They help control costs while still providing affordable medications to those in need. This article provides an overview of what PBMs are and how they operate.

What is a PBM?
A pharmacy benefit manager, or PBM, is a third-party administrator of prescription drug programs. PBMs are primarily responsible for developing and maintaining the drug formulary, contracting with pharmacies, negotiating discounts and rebates with drug manufacturers, and processing and paying prescription drug claims.

Some of the key services provided by PBMs include developing a drug formulary, negotiating rebates from drug manufacturers, contracting with retail pharmacies, mail order pharmacies and specialty pharmacies, processing and paying prescription drug claims, performing drug utilization review and managing drug utilization.

PBM Formulary Development
One of the primary functions of a PBM is to develop a formulary, which is a list of prescription drugs covered by a particular health plan or insurer. The PBM clinical team evaluates safety and efficacy data to determine which drugs offer the best clinical outcomes at the lowest cost for inclusion on the formulary.

Drugs are assigned to different tiers on the formulary, with lower tier assignments generally meaning lower co-pays for members. Drugs may be excluded from the formulary or placed on a higher cost tier if there are less expensive alternatives that provide similar clinical outcomes. This encourages use of lower cost, clinically equivalent drugs.

Negotiating Rebates and Discounts
PBMs negotiate rebates and other discounts directly with drug manufacturers on behalf of health plans. These rebates and discounts are based on the total drug spend with a manufacturer and can amount to billions of dollars annually across all plans. Larger PBMs are able to negotiate deeper discounts due to their higher volume.

The rebates negotiated are passed on to clients, allowing them to offer more competitive premium rates. PBMs also contract with retail pharmacies and set reimbursement rates for prescription drugs, again in a way that balances costs with access for patients. This includes negotiating discounts when pharmacies fill mail order prescriptions.

Processing Claims and Utilization Management
PBMs serve as the intermediary between health plans, pharmacies, and drug manufacturers. They develop clinical programs and manage utilization to ensure patients are receiving appropriate, high-quality and cost-effective pharmacy benefit services. This includes:

– Processing and adjudicating prescription drug claims from pharmacies.
– Performing drug utilization review to identify inappropriate drug usage, interactions or overutilization.
– Managing a mail order and/or specialty pharmacy to dispense drugs through mail delivery.
– Developing adherence and medication therapy management programs.

Growth of PBMs
The pharmacy benefit management industry has grown significantly in recent decades due to rising prescription drug costs and efforts to contain healthcare spending. It is estimated that PBMs currently help negotiate over $500 billion in drug spending annually in the United States across both public and commercial plans.

Large PBMs like CVS Health, Express Scripts and UnitedHealth’s OptumRx negotiate on behalf of hundreds of health plans, employers and government programs like Medicare and Medicaid. They aim to strike the right balance between controlling costs and providing medications for those in need. Oversight remains important to ensure PBMs act in the best interest of clients and patients.

In summary, pharmacy benefit managers play a critical role in developing prescription drug benefit programs and negotiating rebates and discounts with manufacturers to help make medications more affordable. Their services help control the rapidly growing costs of pharmaceuticals while still providing access to needed treatments. PBMs aim to continually improve the overall pharmacy benefit to benefit patients, health plans and society as a whole.

1. Source: Coherent Market Insights, Public sources, Desk research
2. We have leveraged AI tools to mine information and compile it