What is a PBM?
The Need for PBMs
Modern medicine has become increasingly reliant on prescription drugs for the treatment of illness. The result has been steadily increasing expenditures on prescription drugs. This growth now poses a major challenge to public and private sponsors of health benefit plans. To address this challenge, plan sponsors — including insurers, employers, Medicare drug plans and many state Medicaid programs — have increasingly turned to pharmacy benefit managers (PBMs) to help them with the design and management of drug benefits.
Over the past 20 years, the share of the health care dollar spent on pharmaceuticals has nearly doubled. New medications and broader insurance coverage have increased drug expenditures and the need for pharmacy benefits management. PBMs have a difficult mission: to increase prescription drug access while reducing cost growth.
Role of PBMs
PBMs offer a set of core services to clients designed to contain drug expenditures. Key tools include claims administration; pharmacy network management; negotiation and administration of product discounts, including manufactures rebates; mail-service pharmacy; and specialty pharmacy services.
In addition, PBMs provide a range of services that are designed to improve the value of their clients’ prescription drug benefits. These services include formulary development, and consultation on the design of the prescription drug benefit component of a client’s health plan. Most PBMs also provide their clients with a set of clinically based services designed to improve the appropriateness, safety, and quality of pharmacy benefits.
These tools or services may also improve the cost-effectiveness of the client’s drug benefit and include such activities as drug utilization review (DUR), clinical prior authorization, consumer and physician education, disease management, and patient adherence programs.
While some PBMs are independently owned and operated, some are subsidiaries of managed care plans or of major chain drug stores. Independent PBMs tend to draw their clients from employers, health plans, unions, and government health plans. PBMs owned by health insurers primarily serve the members of their plans.
PBMs evolved from claims administration and mail-service pharmacies to pharmaceutical administrators and care managers. Today, most PBMs offer a range of sophisticated administrative and clinically based services that enable them to manage drug spending for their clients by enhancing price competition and increasing the cost-effectiveness of the medications covered under client health plans.
Role in Managing Drug Costs
PBMs do not directly handle prescription medications (other than through their mail-service and specialty pharmacies). Instead, they aggregate the buying clout of millions of enrollees through their client health plans, enabling plan sponsors and individuals to obtain lower prices for their prescription drugs through price discounts from retail pharmacies, discounts and rebates from manufacturers of pharmaceuticals, and the efficiencies of mail-service pharmacies.
Held accountable by clients for their ability to manage drug spending, PBMs also bring to the drug distribution pipeline clinical tools aimed at reducing inappropriate prescribing by physicians, reducing medication errors, and improving patient adherence and health outcomes.
Plan sponsors typically wish to balance controlling costs against minimizing change for their members, while ensuring access to needed care. As sophisticated purchasers, most plan sponsors use a competitive bidding process to specify their requirements and contract with the PBM that best meets their needs.
Independent panels of experts known as Pharmacy and Therapeutics (P&T) Committees ensure that the use of PBM tools is clinically appropriate.
Plan-sponsor choices to use the appropriate PBM tools can produce significant savings over unmanaged expenditures.
Resources & References
- Video: What is a pharmacy benefit manager? Express Scripts. October 8, 2015.
- Pharmacy Benefit Managers (PBMs): Generating Savings for Plan Sponsors and Consumers. Visante. Sept 2011.
- Pharmacy Benefit Managers (PBMs): Tools for Managing Drug Benefit Costs, Quality, and Safety. Health Policy Alternatives. 2003.
- White Paper: The Management of Specialty Drugs. sPCMA. February 2016.
- Pharmacy Benefit Managers (PBMs): Generating Savings for Plan Sponsors and Consumers.Visante. 2016.