The Employer's Guide Blog for Overseeing PBMs

The Definition of Oversee: to watch over and direct (an undertaking, a group of workers, etc.) in order to ensure a satisfactory outcome or performance.

Big companies form an alliance to find ways to reduce pharmacy costs

The path that prescription drugs take from the lab to your medicine chest is a long and complicated one. And the journey is made still more complex by the role of a very important, but little understood middleman known as the pharmacy benefits manager.

These companies fill a crucial role by negotiating with drug makers on behalf of health plans, unions, and some employers to get the best price, which is particularly critical as the cost of medicines is ever-rising. Yet PBMs also stir controversy over concerns they may not always pass along savings — called rebates — they negotiate for their clients, but instead pocket those funds to fatten their own bottom lines.

So a group of more than two dozen of the largest US corporations — including such household names as Macy’s, Coca-Cola, and American Express — recently formed an alliance to find ways to reduce health care costs. And one idea is to overhaul the way that PBMs are paid. Whether they have the clout to succeed is unclear, but Wall Street estimates the members of the alliance collectively spend $3 billion per year on pharmaceuticals.

The goal is to provide some transparency into a murky world — and it’s long overdue. To keep it simple, the Health Transformation Alliance, as it’s called, may seek to rewrite their contracts in order to eliminate any undisclosed drug company rebates that PBMs might hold back for themselves. Instead, the companies would pay PBMs for the actual cost of medicines, plus an agreed-upon fee.


Presumably, this would lower corporate health care bills that, in turn, could lower employee costs. There have been previous efforts over the years by corporate America to peel back the PBM curtain, but this approach would amount to a radical shift for the largest PBMs – notably, Express Scripts, CVS Caremark and United Healthcare’s Optum — which collectively manage about 70 percent of the pharmacy benefits in the United States.

Right now, though, big PBMs have the upper hand.

For instance, in their contracts with drug makers, a PBM may classify a rebate they’ve negotiated as a type of fee, allowing them to keep it rather than pass it on to their clients. This places the client at a big disadvantage because the contracts are proprietary, which makes it hard to know what the rebates really look like in the first place.


Tyrone Squires, MBA, CPBS

I am the proud founder and managing director of TransparentRx, a fiduciary-model PBM based in Las Vegas, Nevada. We help health plan sponsors reduce pharmacy spend, by as much as 50%, without cutting benefits or shifting costs to employees.

Leave a Reply