The Highly Competitive PBM Marketplace

The American health care system is evolving to meet the rapid advances in medical technology and the rising expectations of patients. The explosive demand for high-quality health care, in turn, drives the demand for organizations that are cost-effective, efficient, and provide consumer-friendly clinical and administrative services. With respect to prescription drugs, these organizations are pharmacy benefit managers (PBMs), a vital link in the prescription drug supply chain that works to create affordable access to prescription drugs.  

pbm marketplace growthPBMs use inter-manufacturer competition to help drive the lowest net drug costs. Similarly, PBM clients (e.g., employers and health plans) use competition amongst PBMs to help achieve the goal of lower costs and high-quality care for patients – if one PBM doesn’t succeed, another will step in. In my experience working with PBMs, I find there is a common misconception about the size and amount of competition in our industry. How many PBMs do you think are currently operating in the U.S.? If you are new to the industry, you might think the answer is just a few.

The PBM marketplace is actually highly competitive (see for example this FTC statement). According to our new analysis, using data from the Pharmacy Benefit Management Institute (PBMI), there are 70 (non-specialty) PBMs currently active in the marketplace. And six new PBMs opened since 2019, an  increase of nearly 10 percent. 

From my perspective, 70 actors in a marketplace suggest one that is diverse and competitive. As a comparison, consider that the top 3 automakers in the U.S. sold 45% of all new cars in the fourth quarter of 2020 and the top 6 sold 74%. Even with this market domination by a few companies, the entire marketplace with its 22 automakers is fairly characterized as very competitive. 

PBMs are competing to offer the most innovative, efficient, and cost-effective services to clients. Employers, unions, health plans, and public programs don’t have to hire a PBM, they choose to. Clients often choose their PBM through a bidding or proposal process, which allows them to contract with the PBM that best meet their unique needs. 

Over 266 million Americans have prescription drug benefits, and the PBM industry is growing and innovating in order to meet their needs.

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