PBMs

"Expansions of prescription drug coverage over the past 10 years mean that PBMs are involved in a majority of prescription drug transactions today. In light of that fact, transparency regarding the PBM industry is needed so that purchasers of these services in both in the commercial and government sectors can make well-informed decisions."

—Applied Policy Report

What is a PBM?

Pharmacy benefit managers (PBMs) are third party administrators contracted by health plans, employers, unions, and government entities to manage prescription drug programs on behalf of health plan beneficiaries.

PBMs manage pharmacy benefits for over 253 million Americans, according to their trade group. Three large companies - Express Scripts, CVSHealth and OptumRx - cover more than 180 million lives, or roughly 78% of the market. In addition, their staggering annual revenues for 2014 were approximately $100 billion (Express Scripts), $139.4 billion (CVSHealth) and $31.97 billion (OptumRx).

PBMs originated several decades ago as processors of prescription drug claims for health plans, earning a flat fee for each claim processed. However, according to a report by Applied Policy, "Over the past decade, the role of PBMs in the delivery of health care has increased, due to a confluence of factors: coverage expansions under both the Medicare Part D prescription drug benefit and the Affordable Care Act, combined with an increase in prescription drug spending that has motivated commercial health plans and self-insured employers to outsource the management of their spending on outpatient prescription drugs."

Large PBMs have evolved into behemoth corporations that affect nearly all aspects of the prescription drug marketplace. PBMs determine which pharmacies will be included in a prescription drug plan’s network and how much said pharmacies will be paid for their services, entice plan sponsors to require plan beneficiaries to use a mail order pharmacy (often one owned/operated by the PBM) for certain medications, and determine which medications will be covered by the plan or the plan formulary. For access to the formulary, drug manufacturers often pay "rebates" to the PBM. However, an article by Business Insider questioned whether rebates encourage PBMs to favor pricier medications on their formularies.

PBMs claim these practices reduce prescription drug costs, but this assertion has been challenged in USA Today and other media outlets by a variety of experts.

While PBMs play an oversized role in the marketplace, the lack of transparency in the largest PBMs and the lack of meaningful competition affects, patients, pharmacists, plan sponsors, and ultimately taxpayers who fund government sponsored programs such as Medicare Part D, TRICARE and the federal employee health benefit program (FEHBP).