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What is a Pharmacy Benefit Manager?

  • March 2, 2021
  • RPh on the Go

A Pharmacy Benefit Manager is a critical component in the healthcare system, especially in the United States. The system is complex and requires multiple stakeholders working together through negotiation and cooperation to benefit all involved.

Understanding Pharmacy Benefit Management

Pharmacy benefit management involves companies that serve as liaisons between pharmacies, insurance companies, and manufacturers. This service aims to lower costs for insurers and insurance companies. As drug prices increase, this service’s importance is clear: to keep drug prices under control for insurers while establishing a way to distribute medicines on a large scale.

The role of pharmacy benefit management is crucial and creates a working relationship between individuals, insurance companies, drug manufacturers, and pharmacies. The American healthcare situation is relatively messy, and a Pharmacy Benefit Management system can help keep all the moving pieces working together. Under this plan, everyone benefits. Insurance companies save money on drug costs through rebates, pharmacies receive discounts based on drug volumes, manufacturers receive preferred placement in health plans, and the PBM itself profits from the spread between the prices it negotiates.

What is the Role of a Pharmacy Benefit Manager?

A Pharmacy Benefit Manager, or PBM, is a vital middleman. Operating as an intermediary between several stakeholders, the PBM serves to lower costs, establish a supply chain, and negotiate transactions.

Individuals pay premiums to insurance companies and co-pays to pharmacies for prescription drugs, but many consumers do not realize what happens behind the scenes. The Pharmacy Benefit Manager negotiates costs with drug manufacturers to lower prices, so that manufacturers get priority on a plan’s formulary. The PBM also negotiates with pharmacies, mainly dealing with drug distribution, reimbursements, and dispensing fees. The manager makes a profit by taking a part of the rebates that manufacturers provide.

Pharmacy Benefit Management Industry Overview

The Pharmacy Benefit Management industry consists of third-party operators advocating for multiple players in the healthcare industry. The healthcare arena is complex, and PBMs provide remedies for loopholes and inconsistencies among stakeholders. Between the years of 2019 and 2025, the benefit management industry is expected to grow by over 7% globally.

The industry is dominated by a small number of service providers, although several smaller operators are slowly gaining traction and market share. In 2017, the worldwide market size was estimated to be 405.4 billion dollars, with an expected value of 625 billion in 2025. In the United States alone, the market size was valued at 368.3 billion dollars in 2018 with over 9% annual growth projected.

The primary services that PBMs provide include specialty pharmacy services, benefit plan design and consultation, and drug formulary management. The industry is segmented into government health programs, employer-sponsored programs, and health insurance management.

Pharmacy Benefit Management Companies

PBMs operate throughout the world. However, the United States recently had a 97% market share, with the EU running in second place with a 2% share. More countries are warming up to the idea of Pharmacy Benefit Management systems, including many smaller European nations. The dominant companies in the PBM industry worldwide are CVS Health (Aetna), Express Scripts (Cigna), and OptumRx (part of United Health).

Pharmacy Benefit Management Companies in the U.S.

The big 3 – CVS Health/Aetna, Express Scripts/Cigna, and OptumRx/United – enjoy significant control of the Pharmacy Benefit Management industry in the United States. Humana Pharmacy Solutions follows these companies and is gaining some market share. With more than 70% of claim value, the three leading players service the majority of the healthcare industry. Other prominent vendors in the PBM business include Anthem, Centene, Excelera, MedalistRx, Navitus Health Solutions, and WellDyneRx.

What is the Difference between a PBM and Insurance?

Although a Pharmacy Benefits Manager and an insurance company may seem similar, there are notable differences. Individuals pay premiums to insurance companies and do not directly interact with a PBM. Similarly, consumers pay a co-pay or pay cash to the pharmacy, but pharmacies negotiate with the PBM behind the scenes. So, while insurance companies provide direct services to individuals, they act as clients to PBMs, who help them lower drug costs. For an individual, think of insurance like your bank, and a Pharmacy Benefits Manager like a credit card – the PBM only manages transactions between the pharmacy and the insurance.

What has convoluted the industry is all of the consolidation occurring. The largest PBMs own the largest pharmacies, which are merging with the most substantial health plans, leading to unprecedented vertical integration.

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