PBMs in Healthcare & How They Affect Drug Spending

It often goes overlooked that behind every health plan is actually another entity known as a Pharmacy Benefit Manager (PBM). PBMs are behind the scenes allocating which medications and benefits are included in an organization\’s drug plan.

What Is a PBM?

A Pharmacy Benefit Manager, or PBM, manages and administers the drug benefits program within an employer health plan. Essentially, a PBM is a middle man whose job is to help employers get the most out of their drug plan. Contrary to common understanding, pharmaceutical benefits are managed by a separate entity outside of the health plan provider. PBMs will cover all prescription drug claims and craft the list of drugs that the plan will cover. This plan is also referred to as the drug formulary.

What Do PBMs Do?

The primary responsibility of a PBM is to ensure employees have access to proper medications and are thus able to maintain greater degrees of health. PBMs have several responsibilities, such as:

  • Negotiating deals and rebates

  • Managing claims

  • Handling all distribution details

  • Providing additional pharmacy benefits and services

  • Performing any drug utilization reviews

PBMs will often negotiate with large pharmacies in order to offer employers competitive pricing and a wide range of medications. They can also offer advice to employers on what drug plan would work best for them as well as which clinical programs they may need access to.

Utilizing a PBM also opens up a larger number of pharmaceuticals. This way employees will have access to a greater number of medications. PBMs can work to mitigate rising prescription costs. Because they establish large networks of pharmacies, patients will have greater access to medications.

What Are the Two Types of PBM Contracts?

When looking to work with a PBM, you will need to consider a series of factors, all of which can help you to determine what type of contract will best meet your needs and the needs of your organization. The two types of contracts to consider are a traditional and a transparent contract.

In a traditional contract, many PBMs will not pass on the rebates that are granted to them by manufacturers. This is problematic since, most of the time, those rebates are intended to support discounts for prescriptions. These contracts also include clawbacks, which are essentially ways for PBMs to collect excess money on prescriptions. For example, if a patient needs a medication that costs less than the copay amount, the PBM can then collect the amount exceeding the prescription cost. Lastly, these contracts often lack transparency. They, in essence, hide the costs of medications and prescriptions from the patients, who then have no way of knowing the reason behind such high prescription costs.

Transparent contracts are exactly what they sound like: a PBM who maintains an allegiance to ethical and transparent practices. They will base their pricing on the actual price as opposed to hiding costs by utilizing clawbacks and hoarding rebates. These PBMs will pass on all rebates to the insurance carrier. They will in turn charge an administrative fee to bring in money. This is known as a “pass through”.

Source: Bernie Portal

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