Since the late 1980s, the vast majority of outpatient prescription drug benefits in the United States have been administered by pharmacy benefit managers (PBMs). In addition to providing the administrative services required to process pharmacy claims, PBMs perform two additional functions. First, they aggregate together the demand of the covered lives enrolled in pharmacy benefits programs in order to increase negotiating leverage with pharmaceutical manufacturers and pharmacies, with the result that they are able to obtain substantial discounts from both the manufacturers who make the drugs, and the pharmacists that dispense them. Second, they conduct a variety of utilization management programs intended to ensure the medical necessity of the drugs being described, and the cost-effectiveness of the drugs chosen to fill each prescription. Taken together, these cost management tools give PBMs the ability to deliver pharmacy benefits at a substantially lower cost than would apply if drugs were obtained on an uninsured retail basis.

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