Generating Millions in Revenue

What is a PBM?

What is a PBM?

Colin McWatters |

If you are an American who has health insurance, chances are you have a pharmacy benefit manager (PBM) working behind the scenes to help you access and afford your prescription drugs. But what exactly is a PBM and what do they do?

A PBM is a company that administers prescription drug plans for various sponsors, such as employers, unions, health plans, Medicare Part D plans, and others. PBMs negotiate with drug manufacturers and pharmacies to secure lower prices and rebates for their clients and members. They also design and manage drug formularies, which are lists of preferred drugs that are covered by the plan. PBMs may also offer other services, such as mail-order pharmacies, specialty pharmacies, clinical programs, and adherence programs.

According to the Pharmaceutical Care Management Association (PCMA), the national association representing America's PBMs, PBMs administer prescription drug plans for more than 275 million Americans. PCMA claims that PBMs save their clients and members an average of 40% to 50% on their annual drug costs compared to what they would pay without PBMs.

The PBM industry is highly consolidated, with three major players dominating the market: CVS Health (including Caremark and Aetna), the Express Scripts business of Cigna, and the OptumRx business of UnitedHealth Group. These three PBMs processed about 77% of all equivalent prescription claims in 2020. The top six PBMs handled more than 95% of total U.S. equivalent prescription claims.

The PBM industry is also undergoing vertical integration, which means that PBMs are merging or partnering with other entities in the health care system, such as insurers, providers, and specialty pharmacies. This creates more opportunities for coordination and efficiency, but also raises some concerns about competition and transparency.

PBMs play a vital role in the U.S. health care system by helping millions of Americans access and afford their prescription drugs. However, they also face many challenges and criticisms, such as rising drug prices, complex rebate arrangements, lack of regulation, and consumer dissatisfaction. As the demand for prescription drugs continues to grow, PBMs will need to adapt and innovate to meet the needs of their clients and members.