Everything You Need to Know About Pharmacy Benefit Management (PBM)

PBMs are the cornerstone of the healthcare system, acting as intermediaries between pharmacies, drug manufacturers, and insurance providers, and are key players in managing prescription drug benefits.

As such, understanding the role, development, and impact of PBMs on pharmacy services is crucial for consumers navigating the ins and outs of prescription medication management and healthcare providers.

So, I’ve compiled this in-depth guide to learn more about the role, development, and impact of PBMs on pharmacy services.

What is a Pharmacy Benefit Manager (PBM)?

A pharmacy benefit manager plays a significant role in providing pharmacy services by acting as a middleman between plan sponsors (employers and insurance companies), pharmacies, drug manufacturers, and pharmaceutical manufacturers.

How PBM Pharmacy Works: A Step-by-Step Breakdown

Below is a step-by-step breakdown of how PBM pharmacy works:

The Pharmacy Dispenses Medication to the Patient: The pharmacy stocks and dispenses the patient’s medication, incurring costs.
The Pharmacy Benefit Manager (PBM) Determines Copay and Reimbursement: The PBM sets the patient’s copay and decides the total amount it will reimburse pharmacies for each covered medication.
The PBM Pre-determines Reimbursement Rates: The PBM establishes a fixed reimbursement rate for the drugs covered under the health insurance plan, typically lower than the drug’s standard price.
The Pharmacy is Reimbursed At A Lower Cost: PBMs reimburse less than the standard medication price, so pharmacies often lose money when dispensing medications to patients.
The Pharmacy Can Appeal The Process: Pharmacies may appeal losses due to losses caused by transparency issues.

Why Are Pharmacy Benefit Managers Important for Healthcare Providers?

Pharmacy Benefit Managers are essential for healthcare providers as they work in three primary ways to deliver the prescription drug benefit. These include:

Improving Healthcare Outcomes: Evidence-based clinical programs, including drug utilization review, step therapy, formulary management, enforcement of quantity limits, and prior authorization, are used.
Reducing Costs and Spending: PBMs are cost-effective, using various financial strategies to reduce costs and spending and thus generate savings for the healthcare system.
Managing Pharmacy Networks: PBMs design and manage highly effective pharmacy networks to achieve cost savings for policy members.

Key Players in the PBM Industry and Their Influence on Pharmacy Practices

Four key players in the PBM industry collectively control 70% of the national PBM market.

These companies significantly influence pharmacy practices through reimbursement rates, drug pricing control, and formularies, often making it challenging for independent pharmacies to stay competitive.

Below are the four key players in the PBM industry and their influence on pharmacy practices:

CVS Health

CVS Health operates as a pharmacy chain and a PBM, allowing it to control reimbursements and pricing. However, its influence on pharmacy practices means independent pharmacies may face lower reimbursements, and patients are generally steered towards CVS-owned stores, ultimately impacting their financial viability.

OptumRx

OptumRx is a well-known UnitedHealth Group subsidiary that manages drug pricing, reimbursement, and formularies. Because it influences pharmacy practices, independent pharmacies may struggle with limited access to specific medications and lower reimbursements, and patients may be steered towards preferred pharmacies.

Express Scripts

Express Scripts is a division of Cigna that sets reimbursement rates and controls formularies. Their influence on pharmacy practices means pharmacies are limited to the drugs they are permitted to stock, and they may face low reimbursements, reducing revenue potential.

Prime Therapeutics

The well-known Blue Cross Blue Shield Companies own Prime Therapeutics, which sets reimbursement rates and manages drug benefits. Their influence on pharmacy practices means independent pharmacies have access to limited drug options, low reimbursement rates, and financial strain due to a lack of pricing transparency.

PBM Development: Trends and Innovations in the Pharmacy Industry

Regarding PBM development, there are trends and innovations in the pharmacy industry that should be noted. These include:

Trends

Biosimilars continue to disrupt markets, with Stelara being the next major milestone, which, with the help of market disruptors, has helped pave the way for Biosimilar adoption.
An increase in GLP-1 Therapies for weight loss and diabetes and expanded indications with the help of formulary management techniques like prior authorization to control GLP-1 costs and access.
The demand for true transparency with the help of transparent technologies and tools drives emerging PBM models.
Gene therapies and the high-value, high-cost equation with the help of innovative pricing models and PBM strategies.

Innovations

Data analytics and personalization
Advanced cynical programs
Value-based contracting
Digital health tools
Real-time benefit checks
Integrated care models
Pharmacogenetics
Local pharmacies and community-centered care

How PBM Pharmacies Impact Prescription Drug Costs

PBM pharmacies impact prescription drug costs in the following ways.

Price Negotiation and Rebates

PBMs negotiate drug prices but do not pass the savings on to patients. Pharmacy benefit managers secure significant rebates from drug manufacturers, but patients typically pay out-of-pocket expenses based on list prices, resulting in significantly higher patient costs.

Preferred Pharmacy Networks

PBMs steer patients toward affiliated pharmacies, reducing competition and impacting independent pharmacies. These steering practices can result in limited patient access, primarily in rural areas, and increased medication costs.

PBMs Evolving Role

Since PBMs negotiate drug prices, manage pharmacy networks, and create formularies, there has been an upsurge in concern over their increasing market share (they control roughly 79% of prescription drug claims). This has led to scrutiny over their impact on drug competition and costs.

Coverage Policies and Formulary

Formulary control lies with PBMs, who are responsible for determining which medications are covered and at what cost. More expensive medications typically receive a more favorable placement in exchange for more significant rebates. However, this practice results in an increase in out-of-pocket expenses for patients, primarily those undergoing oncology treatment.

Lack of Pricing Transparency

Rebate ad pricing structures in PBMs are not transparent, making it challenging to assess their full impact. However, efforts have been made to reform PBM practices, although this has been hindered by their avoidance of regulatory scrutiny and financial disclosure.

The Future of PBM Development: Challenges and Opportunities

Below are the challenges and opportunities for the future of PBM development.

Challenges

Rising Medication Costs: The cost of prescription drugs continues to climb, putting pressure on patients, employers, and insurers alike. PBMs play a crucial role in negotiating better pricing, but the challenge of affordability remains a top concern.
Ongoing Reform Efforts: With constant policy changes and healthcare reform discussions, PBMs must adapt quickly to new regulations that impact drug pricing, rebates, and reimbursement structures.
Regulatory Uncertainty: The future of PBM regulations remains unpredictable. From transparency requirements to rebate structures, evolving policies create both compliance challenges and operational uncertainties for PBMs and their partners.

Opportunities

New Medication Approvals: As pharmaceutical advancements bring new and more effective treatments to market, PBMs have the opportunity to negotiate access to these medications, improving patient outcomes while managing costs.
Expansion and Support: With growing demand for prescription drug management, PBMs can expand their services and offer additional support, such as enhanced patient engagement programs and medication adherence initiatives.
Improved Pricing and Contracts: As scrutiny over PBM pricing structures increases, there’s an opportunity for more transparent and value-driven contracts that benefit employers, insurers, and ultimately, patients.
Employer Reassessments of PBMs: More employers are taking a closer look at how PBMs operate and seeking better value from their partnerships. This shift encourages greater accountability, more competitive pricing models, and improved service offerings.

The Wrap-Up

PBMs are crucial in shaping pharmacy services; however, some aspects of their practices have raised concerns about pricing fairness and transparency.

As such, the future of PBMs will largely depend on addressing the challenges of PBMs’ future development while improving drug access and balancing cost savings. Contact me today to learn more about the role, development, and impact of pharmacy benefits managers (PBMs).