A Basic Guide to Pharmacy Benefit Managers (PBMs)

According to IQVIA, Americans paid $67 billion in out-of-pocket costs for prescriptions filled by retail pharmacies in 2019. 

Unfortunately, a variety of factors including growing technology, chronic conditions, and obesity continue to drive up drug prices in addition to new medications and increased use of high-cost meds year after year. The cost of prescriptions is one of the fastest-growing components of rising healthcare costs in the United States. 

With COVID-19 adding another level of complexity to healthcare, employers are finding it even more challenging than pre-pandemic to cut costs while still providing quality health care benefits to their employees. 

As a result, Pharmacy Benefit Managers (PBMs) are becoming more and more popular.  

What are Pharmacy Benefit Managers (PBMs)?

PBMs have been around a lot longer than many realize. When insurance companies added prescription drugs to many health care benefits in the 1960s, the PBM role was created. Initially, PBMs would process claims for insurance claims. However, their role has evolved tremendously over the years. 

The role of a Pharmacy Benefit Manager (PBM)

Today, PBMs are third-party administrators contracted by employers to provide prescription drug benefit management to their employees. They are also responsible for:

• examining claims 
• developing and managing pharmacy networks
• negotiating discounts and rebates with drug manufacturers
• developing and maintaining drug formularies
• establishing co-pays
• setting criteria for prior authorizations and the patient’s choice of pharmacy

In addition, a PBM provides resources and programs created to assist members in maintaining/improving their overall health. Working side by side with the member and their healthcare provider, a PBM can ensure the medications members take are safe and effective for their health conditions.

PBM companies in the United States

More than 80 PBM companies currently in the US offer consumers a wide range of drug plan options.

However, the healthcare system’s complexity combined with the urge to consolidate negotiating power has caused several PBMs, insurance companies, and pharmacies to merge. 

Coincidentally, the top three PBM companies as of 2020 are:

• CVS Health (Caremark and Aetna)
• Express Scripts (Cigna)
• OptumRx (UnitedHealth Group)

What employers need to know about working with a PBM

If you are an employer, working with PBMs allows you to improve prescription medication use, lower health care costs, and improve patient quality of care for your employees. 

From the beginning, you should expect your PBM to work with you to build the ideal pharmacy benefit plan for your employees by choosing:

• different deductibles
• co-payments
• co-insurance
• clinical programs

Once your plan is finalized, your PBM can distribute benefits and familiarize employees with their health care coverage. Educational resources often include call centers, websites, and apps to easily access information about co-pays for different medications, pharmacies currently in-network, etc. 

How PBMs work with insurance companies, pharmaceutical companies, and pharmacies

PBMs help insurance companies manage costs by negotiating with pharmaceutical manufacturers for discounts on medications. PBMs get the manufacturer’s drugs in front of millions of customers in exchange.

They also negotiate contracts with pharmacies to build networks of retail pharmacies for prescription drug distribution. 

Value of working with Pharmacy Benefit Managers 

Cost Savings

There are several ways PBMs create cost-savings:

• Negotiating discounts with pharmacies
• Offering cost-effective options such as pharmacy mail order fulfillment
• Guiding plan participants to more generic and lower-cost brands

Insight & understanding

PBMs can provide the employers they are working with reports about medicine utilization. This information helps decrease drug waste while supporting medication compliance.  

Up-to-date knowledge and expertise

Since PBMs are working directly with insurance and pharmaceutical companies, they can stay current with changes in prescription drugs. Employers then have the advantage of knowing industry changes in pricing, safety, and effectiveness. 

Final thoughts

The continual increase in prescription drug costs will emphasize managing the prescription drug benefit for employers.

It’s critical for companies to understand the role of their PBM, how they fit into their overall spending, and changes needed to their current health care plans to ensure that their members are constantly receiving the best possible care at the lowest possible cost.

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