Trends, Insights & Analysis

What is a Pharmacy Benefit Manager (PBM) and how Does a PBM Impact the Pharmacy Benefits Ecosystem?

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Who’s in charge of prescription benefits? Many people assume that prescription drug benefits come directly from a health insurance provider, when in fact, there’s a very important intermediary doing the bulk of the work for over 80% of employers in the U.S.

Pharmacy Benefits Managers, or PBMs, are companies that deliver prescription benefits. PBMs are hired by corporate employers, healthplans, labor unions, and other organizations to interface with drug manufacturers and process prescription-related claims. In short, PBMs are the connectors between employers, members, drug wholesalers, pharmacies, and drug companies working to facilitate the best possible health outcomes at the best possible costs.

 

What exactly do PBMs do?

PBMs have two main objectives: to reduce pharmacy drug spend within prescription benefits plans and to help patients achieve better health outcomes through greater access to appropriate medicationsTo do this, PBMs work with drug manufacturers, wholesalers, pharmacies, and plan sponsors.

Reduce Spend
  • PBMs negotiate pricing with a large network of retail or mail pharmacies and are able to offer patients and employers greater access to medications across multiple retail chains at competitive pricing.
  • PBMs also offer extensive clinical programs including quantity edits, step therapy, and prior authorizations to help employee benefits plan administrators ensure appropriate medication usage, safety precautions, and savings opportunities.
  • Further, PBMs should also serve as advisors for employers by providing advice and recommendations on different plan designs, clinical programs and more.
Increase Access to Medication
  • PBMs increase patient’s access to medications by negotiating directly with drug manufacturers or wholesalers. PBMs negotiate discounts from Wholesale Acquisition Cost (WAC) for quantity discounts that they are able to pass on to their clients. They also negotiate payments based on adherence programs.
  • Both of these negotiations allow PBMs to mitigate rising prescription costs and ensure that drugs are administered effectively and achieve the best result for the patient. By establishing a large network of retail or mail pharmacies, PBMs are able to offer patients and employers greater access to medications across multiple retail chains.

It’s fair to think of the PBM, pharmaceutical manufacturer, and employer relationship a little bit like a game of tug of war. The PBM is in the middle, connected between the manufacturer and the employer, and is being pulled in both directions. with the goal of getting both parties a fair deal and offering solutions to minimize Rx benefit costs.

 

How do PBMs work with Pharmaceutical Manufacturers?

The relationship between PBMs and pharmaceutical manufacturers is complicated.  There are quite a few money-driven challenges that make interactions between drug companies and PBMs difficult to navigate and understand.

As an intermediary between pharmaceutical companies and patients, PBMs are responsible for determining the affordability of a drug and putting programs in place to help patients access medications and use the most effective treatments. These programs include:

Rebate Programs
  • PBMs negotiate with pharmaceutical companies to determine what level of rebates the company will offer for certain drugs. Rebates are paid to the PBM. Depending on the contract between the PBM and employer, or plan sponsor, the PBM will pass all, some, or none of  the rebate to the employer or plan sponsor.
Formulary Coverage
  • A formulary is a list of drugs, both brand and generic, that are covered  within a certain plan. The list is determined by PBMs with the assistance of physicians and other clinical experts to include the drugs that will be most effective and affordable. Given the volume of medications that go through a PBM, when a drug is covered on the formulary, it’s much more likely to be prescribed by a physician. Ideally, a drug company wants to make sure their drugs are covered in order to reach the patients that need them.
Step Therapy Programs
  • Step Therapy programs are a type of prior authorization that applies to both traditional and specialty drugs. The program is designed to make sure that patients have at least tried a less expensive drug that’s proven effectiveness for a specific condition before moving onto a more expensive drug.
Prior Authorization Programs
  • Prior Authorization is a cost-savings feature that helps ensure the appropriate use of  prescription drugs.  Prior Authorizations is designed to prevent improper prescribing or use of certain drugs.

PBMs are also responsible for implementing other important programs designed to improve health outcomes such as: reducing waste and increasing adherence, managing high cost and high complexity specialty medications, and clinical drug management.

 

How do PBMs work with Employers?

When an employer signs a contract with a PBM to design and maintain a prescription benefits plan, they typically contract for a three-year relationship together. During the initial discovery phase, both parties work together, and in some cases with brokers and industry experts, to build their ideal pharmacy benefit plan by choosing from different deductibles, copayments, coinsurances, and clinical programs.

After the plan is designed, the employer relies on the PBM to correctly administer their prescription benefits, and to educate their employees about their coverage. PBMs typically offer call centers for member support and can answer questions about the in-network pharmacies or different copayments for different drugs. Most PBMs also offer websites or apps that offer easy access to information about eligibility, refills, pricing, and coverage rules.

Throughout the contract, PBMs are responsible for four main components of the agreement:

Claims Processing
  • PBMs are responsible for processing and paying prescription drug claims within a prescription benefits plan.
Rebate Reimbursement
  • As previously noted, PBMs negotiate rebate programs with pharmaceutical companies. There are many complicated models for rebate programs, but basically the PBM is in charge of administering these rebates. Depending on the contract between the PBM and the employer or plan sponsor, all, some, or none of the rebate amount goes back to the employer.
Clinical Programs
  • Clinical programs are designed to encourage the best clinical outcomes for members within a prescription benefits plan. PBMs review data and monitor drug usage on an ongoing basis to determine what adjustments should be made to achieve the overall goal: maintaining health benefits while reducing costs.
  • Clinical programs include: Prior Authorization, Quantity Limits, and Step Therapy and are all instituted to ensure the highest quality of care is delivered to the patient in the most appropriate setting.
Drug Utilization Review
  • It’s not always all about the money - PBMs play an important safety role within prescription benefits plans. Drug Utilization Review is a life-saving program that calls for the review of a drug to determine effectiveness, potential dangers, potential drug interactions, and mitigate other safety concerns. Since PBMs oversee their own pharmacy networks, they have access to a patient’s prescription history and can alert patients or physicians to potential negative drug interactions that could occur by mixing different prescriptions.
  • The PBM also sets specific criteria that has to be in place before certain drugs can be administered. Criteria could include: verifying the diagnosis, determining if there's a genetic component involved, making sure the right testing is done, and instituting a specialist during treatment. This is all in an effort to make sure a patient is taking the proper steps for treatment, isn’t exceeding the quantity needed, and is actually responding to the medication.

On the back end, employers rely heavily on PBMs to bring them trends and information regarding the performance of their plan and how to make improvements. It’s critical for employers to maintain an ongoing dialogue with their PBMs to ensure that their members are always receiving the best possible care at the lowest possible cost.

Truveris brings transparency to the complex prescription drug ecosystem. We help organizations manage their relationships with PBMs, and help you feel certain that you are maintaining affordable, high quality coverage for your employees.

Send us an email to learn how we can help facilitate your relationship with your current PBM, or help you find a PBM that’s right for you.

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Topics: Trends, Insights & Analysis

Posted by

Irina Prosmushkin

Senior Product Manager
Irina holds a Bachelor Degree in Pharmacy from Temple University, and brings over 17 years of experience bringing healthcare solutions to payers. Irina started her pharmacy career at a leading PBM in 1999, and has held a variety of management roles in mail service pharmacy operations, pharmacy compliance, clinical pharmacy, and clinical support. Irina’s focus at Truveris is to oversee current product offerings with a focus on improving clinical outcomes and managing costs. In the past, Irina held roles at OptumRx, and Express Scripts.