Understanding Pharmacy Benefit Managers: The Middlemen for Your Medications

Pharmacy Benefit Managers (PBMs) are companies that act as middlemen between insurers, drug manufacturers, and pharmacies. PBMs were initially created to help insurers contain drug spending, however, with rising insurance premiums and drug prices, many have argued that PBMs might be directly responsible for the increased health cost in the United States [1].

To understand the complicated relationship between PBMs, insurers, drug manufacturers, and pharmacies, let’s first define some terms:

• Formulary – List of medications covered by an insurance plan.
• Listed price – Wholesale cost (similar to MSRP on a car).
• Rebates – Money that drug manufacturers agree to pay PBMs each time medication is filled.
• Spread pricing – Difference between what PBMs charge the insurers for a medication and what PBMs actually pay the pharmacy for it.

PBMs contract with health insurers to develop and maintain formularies to determine what medication will be covered by the insurance plan and how much each medication will cost. This is the first drug price that is created between health insurers and the PMBs, however, this price is not shared with the public. Using these formularies as leverage, PBMs then negotiate with drug manufacturers for rebates in exchange for placement in more favorable formularies within the health insurer plans. The negotiation for rebates is based on the listed price of the medication, but often not the price PBMs actually pay. This creates a second secretive drug price that is only known between the drug manufacturers and PBMs. PBMs keep these rebates for profit, and it is unclear how much is shared with the health insurer. Lastly, PBMs contract directly with pharmacies for a set price for medications to be dispensed to the patient. This creates a third secretive drug pricing where PMBs pocket the difference; this is known as spread pricing [2].

The lack of transparency of PBMs affect patients’ health and leads to increasing costs in our healthcare system. Many federal legislations have been proposed for PBM reform, and legislation has been passed in many states that require a percentage of rebates negotiated by PBMs to be passed back to the insurance plan or the patient [3].

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References:

1. Gale A. If Pharmacy Benefit Managers Raise Drug Prices, Then Why Are They Needed? Mo Med. 2023 Jul-Aug;120(4):243-244. PMID: 37609464; PMCID: PMC10441264
2. Comer Releases Report on PBMs’ Tactics leading To Soaring Prescription Drug Prices, Press Release. 2021 December 10; [Google Scholar]
3. State Policy Options and Pharmacy Benefit Managers (PBMs)