Alternatives to Traditional PBMs

As traditional PBMs come under increased scrutiny for their contributions to rising prescription drug costs, some prescription drug plan sponsors are seeking alternatives. In 2016, 20 large employers, including companies such as Coca Cola, Marriott, and American Express, formed the Health Transformation Alliance for the purpose of breaking away from "existing marketplace practices that are costly, wasteful, and inefficient, all of which have resulted in employees paying higher premiums, copayments, and deductibles every year," which includes issues with prescription medications. Combined, these 20 employers represent nearly 4 million covered lives.

However, not all companies or plans have the market power to form such an organization, but there are other tools they can utilize to achieve greater transparency and lower prescription drug costs. These tools include utilizing a transparent PBM as opposed to a traditional PBM or using a pharmacy benefit administrator (PBA) as opposed to a PBM.

Transparent PBMs

Transparent PBMs differ from traditional PBMs in that they don't profit from spreads on drugs or any secret incentives. Instead, they take a flat administrative fee for each prescription. According to the Fortune article "Painful Prescription," one plan sponsor saw their prescription drug spend drop by $2 million in the first year after switching to a transparent PBM.

Click here for a list of transparent PBMs.


A second option for some plan sponsors, usually health plans themselves, is utilizing a PBA to administer prescription drug benefits. In this model, PBAs handle administrative services for the plan sponsor, such as claims processing and data reporting, while the plan sponsor handles other traditional PBM functions such as formulary management, rebate negotiations and directly contracting with pharmacies for network participation.

For more information on the differences between PBMs and PBAs, view the Pro Pharma PBM vs. PBA Presentation.

Each of these alternatives provide increased transparency to plan sponsors and can help lower prescription drug spending by eliminating unknown price spreads and replacing them with a uniform, flat rate.