In the ever-evolving landscape of healthcare, Pharmacy Benefit Managers (PBMs) play a pivotal role in the drug pricing ecosystem. Historically, their business model was heavily reliant on rebates negotiated with drug manufacturers. However, a recent report by healthcare equity researcher Nephron has shed light on a significant shift in the PBM profit paradigm over the past decade. This shift has seen PBMs pivot from their traditional rebate-centric model to one that emphasizes fees and specialty pharmacies as primary revenue sources. Here is a summary of the report, Trends in Compensation of PBMs and PBM Contracting Entities:

• Over the past decade, PBMs have shifted their profit sources from rebates negotiated with drugmakers to two primary areas: fees and specialty pharmacies.
• Profits derived from fees have increased fourfold since 2012, and those from specialty pharmacy have more than doubled.
• The report, by healthcare equity researcher Nephron, is based on a survey of biopharma companies from 2018 to 2022.
• PBMs are now relying less on commercial rebates and more on opaque fees and directing patients to pharmacies they own.
• Three major PBMs control about 80% of the market and charge fees to various stakeholders, including manufacturers and health insurers.
• In 2023, lawmakers held several hearings to address the lack of transparency in PBM pricing practices. Bipartisan efforts aim to increase clarity around costs.

• Fees charged to pharma companies have doubled over the last five years, reaching $7.6 billion in 2022.
• New types of fees, such as vendor fees and data portal fees, have emerged and grown significantly.
• Rebates negotiated with drugmakers have decreased as a profit source for PBMs, dropping from 46% of estimated profit in 2012 to 13% in 2022.
• Specialty pharmacy is now the largest PBM profit source, accounting for 39% of PBM profits.
• Other profit sources include rebates, pricing protection, spread pricing, and mail order.
• A qualitative survey revealed that PBMs are directing more fee proceeds to subcontractors, potentially reducing transparency.
• PBM fees are often tied to list prices, also known as wholesale acquisition costs. There’s an ongoing debate about delinking these fees from medicine prices.

The Nephron report underscores a transformative period in the PBM industry, highlighting the diversification of profit sources away from the once-dominant rebate model. With specialty pharmacies emerging as the most significant profit pool and the rise of new fee structures, the PBM landscape is undeniably changing. As lawmakers and industry stakeholders grapple with these revelations, the call for transparency and reform becomes even more pressing. The future of PBMs will undoubtedly be shaped by these discussions, with a potential focus on ensuring clarity, fairness, and value for all parties involved.