The Ins and Outs of Pharmacy Benefit Managers (PBMs)

It’s hectic enough being an independent pharmacist. Every decision, no matter how big or small, rests on your shoulders. You’re highly involved in just about every single aspect of how your business operates. However, there is one part of the industry that is sometimes beyond your control: prices.

Enter pharmacy benefit managers (PBMs).

What are Pharmacy Benefit Managers?

PBMs are defined as “companies that manage prescription drug benefits on behalf of health insurers, Medicare Part D drug plans, large employers, and other payers.”

In theory, PBMs are incredibly helpful in helping pharmacists strike great deals with other third parties. PBMs work to provide their clients with the most cost-efficient and highest quality services possible.

They are essentially the negotiators behind a pharmacy’s operations.

Some of the largest PBMs include:

  • Express Scripts
  • CVS Caremark
  • OptumRx
  • Humana Pharmacy Solutions
  • Prime Therapeutics

Because the independent pharmacy industry thrives on competition and innovation, pharmacists are encouraged to go the extra mile in providing the best possible services to their customers. The same goes for PBMs.

The field is growing at a rapid pace, meaning there will be more bidders and potential suitors wanting to represent your pharmacy. More bidders mean more competition, meaning there will be more incentive to create the best possible deal.

Much has been said about PBMs. They are among the most polarizing entities in the industry. In general, however, PBMs do more harm than good for the industry.

To some, PBMs are the “single biggest influence on the soaring price of prescriptions,” so it is important to know what they are, what they do, and how they affect the pharmaceutical industry.

What Do Pharmacy Benefit Managers Do?

As Arielle Kane puts it, “[PBMs] don’t make [medications], they don’t distribute them, and they don’t sell them.”

Calling them “a clear case of the law of unforeseen consequences,” Kane argues that PBMs were once a necessary mediator between patients and third parties but are now seen as a profit-driven and power-hungry entity with a large influence on the industry.

Not unlike the pharmaceutical industry itself, critics suggest that PBMs beget high drug prices and deliberately use the competitive aspect of the industry to their advantage.

Examples include insurance plans requiring patients to fill at certain pharmacies, choose from a limited of covered prescribers, or fill their prescriptions via mail order. These limitations force patients to essentially settle for their healthcare needs rather than finding one that works perfectly for them.

What’s more, PBMs show up in areas other than a patient’s formulary. They can even influence the industry on the pharmacy floor itself.

Discount cards are an example of a PBM-backed program. Those little plastic cards look especially enticing during the beginning of the year when patients’ deductibles are sky-high.

Though paying the inflated prescription price goes towards paying off that deductible, patients are often attracted to the sudden savings provided by a discount card. While they do save money in the short term, it spells a troubling end come December.  

Economics of PBMs

Understanding the true inner workings of both the pharmaceutical industry and PBMs requires some knowledge of economic theory.

A study by the National Library of Medicine found instances of PBMs prohibiting pharmacists from disclosing information on lower-cost prescription alternatives, presumably in the name of profit and their own bottom line.

Referred to as a “gag clause,” it effectively prevents pharmacists from truly helping their patients because they have to exclusively work within a tightly mandated formulary.

These restrictions are also troublesome for independent pharmacists. Newer independents likely won’t have much leverage in negotiating deals with PBMs. They might have to settle with what they’re given.

It’s a necessary concession, especially when you’re trying to get your pharmacy off the ground, but it doesn’t make it any less painful at times.

A Potential Bright Side

Per Medicap Pharmacy, independents have an apparent bargaining advantage when they “band together and create pharmacy administrative organizations (PSAOs).”

However, negotiations between PSAOs and PBMs mainly boil down to a take-it-or-leave-it dynamic. While the group of pharmacies can indeed strive for the best possible deal, PBMs can easily require patients to go to other pharmacies and drive those independents into financial straits.

There are plenty of PBMs who truly work to look out for their clients and strike the best possible deal. Hospital nonprofit Meridian Health Systems said it saved $2 million in its first year with the help of a “transparent PBM.”

Transparency is perhaps the most effective agent of change for some of PBMs’ business practices.

Kane suggests that health plans can have more negotiating leverage if they knew the cost of making certain medications. The lack of transparency is illustrated by the cost of the generic cancer drug imatinib mesylate, where the price given by different state Medicaid programs varies by hundreds of dollars.

Legislation on PBMs

Several states have passed significant legislation to require PBMs to be licensed or registered within the state department —or, in the case of North Dakota, not have them at all.

North Dakota’s Pharmacy Ownership Law prohibits chain pharmacies from operating in the state, basically being a haven for independents.

Though PBMs have reasoned that such a law is unjust and that they cannot be regulated in such a way, the Eighth Circuit of the U.S. Court of Appeals recently ruled in favor of the state’s practice to empower local pharmacies.

Moving Forward

PBMs have a strong presence in the industry, for better or worse.

Though some of them do plenty of good, much of their business practices reflect some of the flaws that currently define the pharmaceutical industry. There is no need to panic or break the emergency glass if you have to work with one.

It is, however, essential to know what PBMs do and what they can do to help achieve your goals as an independent pharmacist.