PBM Resources

Pharmacy Benefit Managers, or PBMs, are largely unrecognized by most employees and even many employers, but they have a tremendous impact on U.S. health care decision-making.

PBMs are third party administrators contracted by health plans, employers, and government entities to manage prescription drug programs on behalf of health plan beneficiaries. While PBMs originated several decades ago as processors of prescription drug claims for health plans, earning a flat fee for each claim processed, some PBMs have evolved into behemoth corporations that affect nearly all aspects of the prescription drug marketplace. For example, three large companies – Express Scripts, CVS Health and OptumRx – cover more than 180 million lives, or roughly 78 percent of the market. Their annual revenues were a staggering $100.5 billion, $177.5 billion, and $60.4 billion in 2016, respectively.

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. Some entice plan sponsors to require plan beneficiaries to use a mail order pharmacy – often one owned and operated by the PBM – for certain medications. They also determine which medications will be covered by the plan or plan formulary, and drug manufacturers often pay “rebates” to PBMs to get their drugs onto those formularies. While their role goes largely unnoticed, the nontransparent nature of the traditional PBM business model can add hidden costs and lead to higher prices.

"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

The PBM Story: What They Say, What They Do, and What Can Be Done About It
PBMs say they reduce drug prices and increase patient access, but the facts just don't bear that out. A new NCPA resource tells the real story of how PBMs got their start as useful claims processors but then morphed into large corporations more interested in extracting profits from the prescription drug supply chain than in ensuring medication affordability and access.

And that's the real story: PBMs have done more to enrich themselves over the past 25 years than they have done to bring down drug costs.

Download The PBM Story (the 6-page pdf, the 12-page pdf, or the brief one-pager) and share it with your members of Congress, state legislators, other policymakers, local employers, and anyone else who needs to understand the discrepancy between what PBMs say and the actual effect they have in driving up prescription drug prices and limiting patient access to medications.

Watch our 3-minute video describing how PBMs raise prescription drug costs for patients.

Download our infographic showing how PBMs–large, wealthy companies that produce no tangible product–are profiteering on the backs of patients who are shouldering high out-of-pocket drug costs.

And finally, check out our PBM Manual  and list of recent media articles related to PBMs.

Alternatives to Traditional PBMs

It's important to note that some prescription drug plan sponsors are seeking alternatives to the traditional PBM model. In 2016, 20 large employers – including Coca Cola, Marriott, and American Express – formed the Health Transformation Alliance to break away from “existing marketplace practices that are costly, wasteful, and inefficient,” including issues with prescription medications. HTA now consists of over 40 major corporations and covers more than 6 million lives.

Not all companies or plans have the market power to form or join such an organization, but there are other options they can turn to in order to achieve greater transparency and lower prescription drug costs. One option is a Transparent PBM – a PBM that takes a flat administrative fee for each prescription and doesn't profit from spreads on drugs or secret incentives. One plan sponsor saw their prescription drug spend drop by $2 million in the first year after they switched to a transparent PBM.

Another option for plan sponsors and health plans is using a pharmacy benefit administrator, or PBA, instead of a PBM. PBAs handle administrative services for the plan sponsor, such as claims processing and data reporting, while the plan sponsor handles other functions such as formulary management, rebate negotiations, and contracting with pharmacies for network participation.

Each of these alternatives provides increased transparency to plan sponsors and can help lower prescription drug spending.