The Employer's Guide Blog for Overseeing PBMs

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The “TROUBLES” with Pharmacy Benefit Managers

Whenever U.S. policymakers and business executives discuss health care, the issue of ever increasing costs quickly arises. And for good reason. According to a recent analysis by the Kaiser Family Foundation, U.S. per capita expenditures on health care are expected to increase from $9,695 in 2014 to $15,618 in 2024, an average annual growth rate of 5%. 

Drug therapy, compared to hospital treatment and surgical procedures, is often the most efficient form of medical treatment. But it is costly nonetheless. For 2014, prescription drug costs made up 9.8%of total annual health care expenditures,with total retail prescription drug spending accounting for $297.7 billion. That is a 12.2% increase over 2013. 

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To hold drug costs down, many private employers, insurers, and even states and the federal government use pharmacy benefit managers (PBMs). PBMs are third-party administrators of prescription drug programs. Some 266 million Americans—approximately 82% of the total U.S. population—are covered by these programs as part of their commercial health plans, self-insured employer plans, Medicare Part D plans, the Federal Employees Health Benefit Program, state government employee plans, and Managed Medicaid plans. 

Cost-saving PBM services have evolved since they first became popular in the early 1970s. Where they once simply facilitated prescription billing, today they use complex business models to manage prescription drug program services for employers and health care insurance companies.They also negotiate rebates from drug manufacturers and discounts from retail pharmacies, offer patients more affordable pharmacy channels and more effective delivery channels, encourage the use of cost-saving generics and affordable brands, reduce waste by efficient processing of claims and improving patient compliance with medication, and manage high-cost specialty medications. 

How have PBMs performed? A February 2016 report for the Pharmaceutical Care Management Association estimated cost savings as a result of PBM services over the decade 2016–2025 will be approximately $654 billion. A June 2016 report by the National Center for Policy Analysis identified PBM services as one of the top five factors expected to affect medical costs through 2017. 

But all are not platitudes for the PBM industry. A November 2015 report for the National Community Pharmacists Association identified three legislative and regulatory concerns raised by legislators, policymakers, customers, and pharmacies about business practices in the PBM industry: 

■ a lack of accuracy and transparency in PBM revenue streams 
■ potential conflicts of interest by retail pharmacy networks with PBM-owned mail-order and specialty pharmacies 
■ unclear generic drug pricing and Maximum Allowable Cost payment calculations.


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.

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