Pharmacy benefit management (PBM) plays an integral role in facilitating access to prescription drugs for millions of Americans covered by health insurance plans. While the concept of PBMs is quite complex, understanding how they operate helps shed light on key dynamics impacting drug costs and availability. This article aims to provide an overview of PBMs and their significance in the U.S. healthcare landscape.
What is a PBM?
A PBM acts as an intermediary between health plans, pharmacies, and drug manufacturers. Their core functions include developing and maintaining formularies, negotiating rebates from drug companies, processing and paying prescription drug claims from pharmacies, and building pharmacy networks for health plans. By centralizing drug benefit administration, PBMs help lower costs for both health plans and patients through economies of scale, rebate negotiations, and utilization management programs.
The three largest PBMs – CVS Caremark, Express Scripts, and OptumRx – cover over 90% of the insured U.S. population. They contract with health plans, self-insured employers, labor unions, and government programs like Medicare and Medicaid. PBMs differ from health plans in that they do not directly insure or bear insurance risk but rather offer services on a fee-for-service basis.
Formulary Development and Management
One of the most impactful roles of PBMs is development and ongoing stewardship of formularies for their health plan clients. A formulary is a list of prescription drugs approved for coverage, with each drug assigned to different tiers reflecting cost-sharing levels. PBM pharmacists and doctors determine which drugs are included and how they are tiered based on clinical effectiveness and cost.
Formularies incentivize use of lower-cost generic and preferred brand drugs through lower copays. PBMs continually evaluate drugs for formulary placement or changes in tier based on new clinical data and rebate agreements. They also develop managed drug utilization programs like prior authorization, step therapy, and quantity limits to steer usage toward lower-cost, evidence-based treatment options. By encouraging generic fills and preferred brands, formulary management aims to contain drug plan expenses.
Rebate Negotiations with Drug Companies
A major focus of PBMs is negotiating rebates and administrative fees from pharmaceutical manufacturers. Rebates are paid by drug companies to PBMs in exchange for formulary placement decisions that result in increased utilization and market share for their products. The rebate system is highly lucrative for PBMs and opaque in terms of actual amounts generated per drug.
PBMs channel a portion of rebates back to health plans to lower premium costs or fund benefit enhancements. However, such pass-through amounts have diminished over time amid ongoing consolidation in the PBM sector. Rebates are also a source of lucrative undisclosed revenue for PBMs operating their own pharmacies like CVS Health. The rebate system’s impact on drug costs has come under scrutiny in recent years as list prices rise.
Pharmacy Networks and Dispensing Operations
Another role of PBMs is assembling nationwide pharmacy networks for prescription fulfillment. Contracted network pharmacies – both brick-and-mortar locations and mail service pharmacies – agree to dispense drugs to covered members for negotiated reimbursement rates. These networks may be limited, steering volume to preferred pharmacies like CVS/Caremark and OptumRx, which also operate their own mail order and retail operations.
Mail order dispensing through PBM-owned pharmacies allows bulk purchasing advantages leading to lower costs per prescription. However, it removes patient choice in where to fill a scrip. When PBMs have a conflicting role as drug benefit manager as well as a dispensing pharmacy, it raises concerns around objectivity and potential for self-dealing with formulary decisions. Controlling both sides of dispensing arrangements gives PBMs enormous leverage in drug supply chain negotiations.
Impact on Drug Prices and Healthcare Landscape
Critics argue that the current PBM system lacks transparency and facilitates rising list prices through non-disclosure of large rebates. PBM contracts can also result in higher costs being passed on to some patients through formulary design, copays, and proprietary pharmacy networks. On the other hand, PBM supporters counter that they have succeeded in curtailing overall drug trend increases through negotiation prowess and managed care tools.
As healthcare costs rise, the need for close oversight of PBM practices has become paramount. Policymakers are considering bills mandating greater transparency into drug prices, rebates, and PBM contracting. Consolidation has also reduced competition in the sector. Overall, understanding these intermediaries illuminates ongoing drug pricing debates and efforts to balance pharmaceutical innovation with affordability across the system. Going forward, PBMs are positioned to play an even more strategic role in healthcare reform affecting 100 million Americans.
In conclusion, pharmacy benefit management is a complex but important component of prescription drug availability and affordability in the U.S. While PBM practices remain controversial, their scale and expertise help lower overall drug plan expenses. Careful evaluation and reform aims to maintain these financial benefits while enhancing patient interests, choice, and market transparency in an era of rising healthcare and pharmaceutical costs. Understanding the inner workings of PBMs sheds light on ongoing drug pricing debates and challenges.
