Understanding how PBMs work
In the U.S., 266 million people get their outpatient medications through a Pharmaceutical Benefit Manager (PBM). PBMs are middlemen that manage outpatient pharmacy benefits and claims on behalf of a health insurance plan or employer. They do this by negotiating retail drug prices through bulk purchasing, setting co-pays and formulary design, and steering patients to certain medication substitutes.
PBMs were responsible for an estimated 72% of the $457 billion spent on prescription drugs in the U.S. in 2015. Furthermore, the three largest PBMs – Express Scripts, CVS Health (Caremark), and OptumRx – own an estimated 72% of the prescription claims market share. PBMs can save businesses millions of dollars every year, however, recent events have caused many people to be skeptical of the PBM business model. The opaque pricing system and the use of negotiated rebates and kickbacks have made it difficult for businesses to determine the true value of PBMs.
Finding a PBM that saves your business money
Despite the recent skepticism, the right PBM can still offer significant value to your business. From offering one-on-one medication counseling to patients, to designing more patient-friendly medication labels and creating more convenient ways to pick up and refill medications, PBMs now impact nearly every part of the prescription drug supply chain. For disabled or frail patients, their mail order programs can overcome compliance barriers associated with in-store pickups. In some instances, PBMs have reduced health care costs by switching patients to generic medications or comparable alternatives when clinically appropriate. PBMs also have bulk purchasing leverage to negotiate lower drug prices with manufacturers.
However, the lack of transparency around prices charged to health plans threatens the PBM claim of lowering health care costs for businesses. A spread, in drug pricing, refers to the difference between the amount the PBM pays a pharmacy and the amount the PBM bills a health plan or employer for the same drug. For instance, a PBM may buy insulin from a pharmacy for $150 then charge a health plan or employer $200 for that insulin as part of a negotiated agreement with the health plan. This $50 difference is known as the spread and is one of the major strategies PBMs use to generate profits.
Most employers are not aware of spread pricing, and if they are, they have no way of knowing how big the spread is for each of the hundreds of different medications on their drug formulary. Due to the complexity of drug pricing, the advent of new drugs, and a changing patient population, most employers and health plans are unable to understand how much money they are actually saving through their PBM.
In order to receive the benefits that PBMs offer without the risk of being overcharged, the PBM you choose for your business must have reasonable spreads, transparent pricing, and a high pass-through percentage (the amount of the rebate or discount that is shared with the patient in order to cut costs.
Trusted PBM Consultants
Restoring Medicine has vetted the following consulting firms to ensure they provide honest and fair pricing for their services as well as offering the correct types of pharmacy benefit and health insurance plans for your business. For help choosing the right PBM, health plan, or insurance broker, we recommend the following firms:
*Restoring Medicine does not accept sponsorship from any health plan or PBM