Pharmacy benefit managers (PBMs) are entities that manage prescription drug benefits on behalf of health insurance plans. PBMs, thus, can be considered as extensions of health insurance plans. This oversight can include commercial health plans, self-insured employer health plans, Medicare Part D plans, union plans, state government employee plans, managed Medicaid plans, and so on.
PBMs essentially can touch all aspects of the health insurance industry as it relates to medications. When thinking of the general pharmacy ecosystem, PBMs serve as a middle player between drug manufacturers, health insurance plans, and pharmacies. PBMs have frequent interactions with all three of these entities.
PBMs were established to help increase the efficiency of health insurance plans while concurrently lowering costs for both health insurance plans and plan enrollees. However, PBMs commonly are the recipients of negative attention from common media outlets. Given the stark polarity that PBMs can evoke, this article is meant to be a neutral discussion that serves as an introductory dialogue that describes the roles that PBMs are intended to serve.
PBMs have a variety of primary core functions:
- Prescription adjudication services at pharmacies (see Table 2)
- Formulary management services for health insurance plans (see Table 2)
- Utilization management services for health insurance plans (see Table 2)
- Provide mail order prescription services for health insurance plans
- Negotiate rebates with drug manufacturers to pass cost savings onto health insurance plans and plan enrollees
- Negotiate discounts with drug manufacturers to pass cost savings onto health insurance plans and plan enrollees
- Help to reduce waste while improving patient adherence
For individuals interested in gaining an introductory knowledge about PBMs and what their roles are, there are four resources listed below to help further delve into this topic:
- Illustration 1: Where PBMs Fit in the Pharmacy Ecosystem
- Table 1: Tertiary Resources to Utilize (Stratified by Bias Type)
- Table 2: PBM Introductory Terminology
- Table 3: List of Major United States PBMs
Illustration 1: Where PBMs Fit in the Pharmacy Ecosystem
Illustration 1 is an oversimplified concept map that demonstrates the basics of how a PBM is the intermediary player between drug manufacturers, health insurance plans, and pharmacies. Many other concept maps are available that are increased in complexity and provide a more thorough overview of how funds and services are distributed amongst the players in the map above.
Table 1: Tertiary Resources to Utilize (Stratified by Bias Type)*
| Bias Type | Resource |
| Neutral | National Academy for State Health Policy RxResource PBM Directory |
| Anti-PBM (Negative) | PBM Watch National Community Pharmacists Association PBM Story Book TruthRx |
| Pro-PBM (Positive) | Drug Channels Pharmacy Benefit Management Institute Pharmaceutical Care Management Association |
Table 1 describes a sampling of resources to utilize when conducting preliminary research about what a PBM entails. As the topics of PBMs are polarizing in nature due to government and media profiles of them, it is helpful to read through a variety of different resources that are written from varying perspectives. By reading through a combination of neutral, negative, and positive perspectives, a learner can begin to form their own opinions of PBMs based on published evidence.
Table 2: PBM Introductory Terminology*
| Term | Definition |
| Adjudication | The way a health insurance plan decides how much it will pay for certain expenses. A pharmacy typically ‘adjudicates’ a prescription on a patient’s health insurance plan to receive communication from the PBM as to what the patient’s copay will be at the pharmacy. |
| Average Wholesale Price (AWP) | A measurement of the price paid by pharmacies to purchase drug products from wholesalers in the supply chain. Wholesalers are middle entities between manufacturers and pharmacies (see Illustration 1). |
| Beneficiary | A person who is covered by a health plan (also known as an ‘enrollee’ or ‘member’). |
| Clawbacks | A copay clawback occurs when a PBM charges the patient a copay or cost that is higher than the price the PBM negotiated with the pharmacy for the medication and the PBM keeps the difference for itself. |
| Coordination of Benefits (COB) | Instances in which a beneficiary is entitled to benefits from more than one plan or carrier. |
| Copay | This is the dollar amount a beneficiary pays for health care expenses. In most plans, they pay this after meeting a deductible limit. |
| Deductible | The amount a beneficiary pays for covered services before the health insurance plan begins to pay. |
| Drug Tiers | A formulary is typically divided into drug tiers and most insurance formularies have 4 drug tiers. Drug tiers categorize medications in order of prescribing preference for a health insurance plan. Tiers are determined by drug cost, drug cost compared to other drugs, drug availability, clinical effectiveness, delivery methods, and storage. |
| Drug Utilization Review (DUR) | An authorized, structured, ongoing review of prescribing, dispensing, and use of medication(s). |
| Formulary | A formulary is a list of drugs, both brand and generic, that are covered within a certain health insurance plan. |
| Maximum Allowable Cost (MAC) | A payer or PBM-generated list of products that includes the upper limit or maximum amount that a plan will pay for generic drugs and brand name drugs that have generic versions available. This tends to negatively impact independent pharmacies moreso than chain pharmacies. |
| Medicare Part D | The portion of Medicare that covers drug expenses. |
| Network | A network is a group of health care providers. It includes doctors, dentists, pharmacies, and hospitals. In regard to pharmacies, there are open networks, preferred networks, and restricted networks depending on the plan type. |
| Out-of-Pocket Expense | These are medical costs that a beneficiary must pay. Copays and deductibles are examples of out-of-pocket expenses. |
| Payor | This is a synonym for a health insurance company/plan. |
| Pharmacy Services Administration Organization (PSAO) | A unified group of independent pharmacies that negotiate prescription-dispensing contracts with PBMs, Medicare/Medicaid programs, and health plans. |
| Rebate | Prescription drug rebates are generally paid by a drug manufacturer to a PBM (who then shares a portion with the health plan). Rebates are mostly used for high-cost brand-name prescription drugs in therapeutic classes where there are interchangeable products. These aim to incentivize PBMs and health insurers to include the pharmaceutical manufacturer’s products on their formularies and to obtain preferred “tier” placement. |
| Specialty Drug | Specialty drugs are high-cost medications that require special monitoring, handling, administration, and clinical support. They are typically filled through a specialty pharmacy rather than a typical retail pharmacy. |
| Specialty Pharmacy | A type of pharmacy that specializes in managing the handling and service requirements of specialty drugs, including dispensing, distribution, reimbursement, case management, and other services specific to patients with rare and chronic diseases. |
| Spread Pricing | Spread pricing is when health plans contract with PBMs to manage their prescription drug benefits, but the PBMs keep a portion of the amount paid to them by the health plans for prescription drugs instead of passing the full payments on to pharmacies. This tends to negatively impact independent pharmacies moreso than chain pharmacies. |
| Utilization Management (UM) | UM is a series of processes to help ensure that a patient is getting correct drug(s) while also helping to make drugs more affordable. Examples of UM in practice include prior authorizations (PAs), quantity limits, and step therapy. |
There are many terms that are utilized in PBM-related discussions. A bulk of the baseline terms that are utilized are included in Table 2. However, other resources external to Pharmacist Consult describe additional terms that are increased in complexity from what is mentioned above. But, these terms may be outside of the purview of everyday individuals and may be more relevant for healthcare professionals.
Table 3: List of Major United States PBMs*
| PBM Name | Associated Insurance Company | Associated Specialty Pharmacy |
| CVS Caremark | Aetna | CVS Specialty |
| Express Scripts | Cigna | Accredo |
| Humana Pharmacy Solutions | Humana | Humana Pharmacy |
| OptumRx | UnitedHealthcare | BriovaRx |
There are a plethora of PBMs that operate in the United States. However, the top 4 are listed within Table 3. CVS Caremark, Express Scripts, and OptumRx account for more than 80% of prescription claims in the United States; the top 6 PBMs handle more than 95% of them.
References:
- Glossary. Phoenix Pharmacy Benefits Management. Accessed 26 November 2020.
- NCPA Issue Brief: Copay Clawbacks and So-Called ‘Gag’ Clauses. National Community Pharmacists Association. Published 22 March 2018. Accessed 26 November 2020.
- The Need for Legislation Regarding “Maximum Allowable Cost” (MAC) Reimbursement. National Community Pharmacists Association. Accessed 26 November 2020.
- Dusetzina SB, Conti RM, Yu NL, et al. Association of Prescription Drug Price Rebates in Medicare Part D With Patient Out-of-Pocket and Federal Spending. JAMA Intern Med. 2017 Aug 1; 177(8): 1185–1188. doi: 10.1001/jamainternmed.2017.1885
- Medicaid & CHIP, Pharmacies. CMS Issues New Guidance Addressing Spread Pricing in Medicaid, Ensures Pharmacy Benefit Managers are not Up-Charging Taxpayers. CMS.gov. Published 15 May 2019. Accessed 26 November 2020.
- Pharmacy Benefit Managers: Do We Need Them At All? Patients Rising. Published 9 February 2017. Accessed 26 November 2020.
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