PBMs offer health plans various services, including negotiating price discounts with retail pharmacists, negotiating rebates with manufacturers, and administering mail-order prescription services and claims processing systems.
These are third-party companies that intermediary between insurance companies and pharmaceutical producers. PBMs develop formularies, negotiate rebates with manufacturers, handle claims, establish pharmacy networks, conduct utilization reviews, and even mail-order specialty pharmacies.
With rising health care expenses. The role of PBMs is being re-examined in light of the rising cost of prescription medications. The high price of insulin and EpiPens has dominated much press coverage, with people forced to ration medicines due to the inability to pay copays.
In the 1960s, when insurers began offering prescription medications as a health plan benefit. PBMs were formed to assist insurers in controlling drug costs. Initially, PBMs determined which pharmaceuticals would be included in formularies and oversaw drug claims. PBMs began adjudicating prescription drug claims in the 1970s. Pharmaceutical firms began acquiring PBMs in the 1990s. Concerns about conflicts of interest prompted the Federal Trade Commission to issue divestment orders, igniting a wave of mergers and acquisitions within the PBM industry.
Today, there are 66 PBM companies, with the three most extensive – Express Scripts (an independent publicly-traded company), CVS Caremark (CVS Health’s pharmacy services segment and a subsidiary of the CVS drugstore chain), and OptumRx (UnitedHealth Group Insurance’s pharmacy services segment) – controlling approximately 89 percent of the market and serving more than 270 million Americans.
PBMs collaborate with pharmaceutical makers, wholesalers, pharmacies, and health insurance providers. Still, they are not involved in the physical delivery of prescription pharmaceuticals. Instead of negotiating and paying for them throughout the supply chain. When a new medication becomes available, the producer negotiations with wholesalers and Pharmacy Services Administrative Organizations (PSAOs), subsequently selling and distributing the medicines to pharmacies. PBMs negotiate contracts with pharmaceutical manufacturers on behalf of insurers and are compensated by manufacturers through rebates. PSAOs and wholesalers represent pharmacies in negotiating reimbursements with PBMs. PBMs then reimburse pharmacies for medications delivered to patients via health insurance carriers. PSAOs and PBMs are third-party companies that deal rebates and refunds on behalf of independent pharmacies. PSAOs represent and offer services to independent pharmacies and PBMs representing health insurers.
Profits are generated primarily from administrative fees, spread pricing, and shared savings. In addition, the PBM retains a portion of rebates or discounts negotiated with drug manufacturers.
The Pharmacy Benefit Management (PBM) Industry: An Overview
Like other sectors of the economy, insurance is a complex industry with several participants pursuing various interests and goals. This means that insurance firms are not the only players in this market. Indeed, it also encompasses reinsurance businesses, underwriters, and pharmacy benefit management companies.
PBMs act as the middleman for insurance companies to manage expenses. PBMs capitalize on this role by negotiating discounts with pharmaceutical manufacturers on behalf of insurance companies in exchange for introducing the manufacturer’s products to millions of customers. Additionally, these corporations negotiate contracts with pharmacies to establish networks of retail pharmacies for drug distribution.
PBMs get revenue from a variety of sources. For example, they charge service fees for the following:
- Negotiating with pharmacies, health insurers, and pharmaceutical manufacturers
- Prescription processing
- Managing pharmacies that accept mail orders
Review of Drug Utilization
PBMs play a critical role in ensuring the safety of pharmacy benefit plans. For example, drug Utilization Review is a life-saving program that requires a drug’s effectiveness, potential risks, and other safety concerns to be evaluated. In addition, due to their pharmacy networks, they have access to a patient’s prescription history. As a result, they can warn patients and physicians of potential adverse medication interactions when several prescriptions are combined.
Additionally, the PBM establishes precise criteria that must be met before particular pharmaceuticals can be delivered. Measures may include confirming the diagnosis, determining if a genetic component is present, ensuring the appropriate testing is performed, and involving a professional throughout therapy. This ensures that a patient follows the correct treatment protocol, does not exceed the recommended dosage, and genuinely responds to the medication.
On the back end, employers rely significantly on PBMs to provide them with trends and information about their plan’s performance and opportunities for improvement. Therefore, employers must maintain an open line of communication with their PBMs to ensure that their members receive the best treatment possible at the lowest possible cost.