A World Without PBMs: A Lesson from Economics

When six different committees in Congress hold a total of 11 hearings on one industry, it’s probably not surprising there will be statements that are so far-fetched they go unnoticed. Well, during one of the multitude of hearings focused on pharmacy benefit companies, a congressman actually quipped about what would happen if Congress legislated pharmacy benefit companies out of existence. Perhaps to the lawmaker’s surprise, I’ll take the bait and offer an interesting thought experiment: What would a world without PBMs look like?

According to University of Chicago economics professor Casey Mulligan, pharmacy benefit companies provide many services to participants across the healthcare system. For example, they negotiate rebate savings for employers and other payers, reward drug innovation for drug companies, manage pharmacy network participation for pharmacies, and promote generic drugs and better health outcomes for patients. (If you are interested in a longer discussion of these services, see my previous blog post on the subject.) The value to society of all of these services is a whopping $145 billion. Every. Single. Year. 


A World Without Pharmacy Benefit Companies:

The Value Lost Each Year

↓ 40%

↓ $58 B

What would happen to the creation, promotion, and management of all of these services if pharmacy benefit companies no longer provided them? The answer would not be that the services all go away — surely their importance is too great for that. Rather, employers, unions, and other organizations would have to bring those services in-house, which would be exceptionally inefficient. Given the inefficiencies resulting from hundreds of thousands or even millions of organizations needing to provide these services for themselves, including negotiating for lower drug costs at a vastly reduced scale compared to one of 73 PBMs negotiating on their behalf, probably 40 percent of the total value would be lost, or a loss of $58 billion in value every year.  

Circling back to our original question, what would happen if we eliminated pharmacy benefit companies?  The answer would appear to be a loss of $58 billion per year in value.  Pharmacy benefit companies hold a unique role in the drug payment and supply chain, as they touch – and benefit – nearly all the other participants. But ultimately, the greatest value is providing patients with affordable access to their prescription drugs and improved health outcomes for their lives.