Health and Fitness

How does Pharmacy Benefits Management pricing work?

PBMs are companies that handle prescription drug benefits for health insurers, Medicare Part D drug plans, major employers, and payers. By negotiating with drug manufacturers and pharmacies to reduce drug spending. PBMs have a substantial impact on how insurers determine overall drug costs, how patients get drugs, and how pharmacies are compensated. PBMs have come under increasing attention in recent years for their involvement in driving up prescription drug costs and spending.

What role do pharmacy benefit managers have in determining how much we spend on prescription drugs?

PBMs sit in the centre of the prescription drug distribution chain. This is due to the fact that they:

  • develop and maintain lists, or formularies, of covered pharmaceuticals on behalf of health insurers, which have an impact on which prescriptions patients use and how much they pay out of pocket.
  • utilise their purchasing power to wrangle rebates and discounts from pharmaceutical manufacturers
  • deal directly with individual pharmacies to compensate beneficiaries for medications dispensed.

According to the federal Centers for Medicare and Medicaid Services. PBMs’ capacity to negotiate higher rebates from manufacturers has aided in lowering prescription prices and slowing the growth of drug spending over the previous three years. However, PBMs may have an incentive to promote expensive pharmaceuticals over more cost-effective ones. Due to the fact that PBMs frequently earn rebates based on a percentage of the manufacturer’s list price. They receive a higher rebate for costlier pharmaceuticals than they do for drugs that may give superior value at a lower cost. As a result, those who have a high-deductible plan or copays based on the list price of a medicine may face increased out-of-pocket payments.

Employers may become apprehensive at the mere mention of pharmacy benefits. There is considerable uncertainty regarding why prescription prices are increasing so rapidly. And if Pharmacy Benefit Managers (PBMs) are doing an adequate job of managing those costs.

We want to assist business executives like you in comprehending the context and gaining visibility into the pharmaceutical benefit industry’s inner workings. Finally, this knowledge can assist you in ensuring that your business and employees receive the maximum value from your pharmaceutical benefits plan.

The landscape: Trends in Prescription Drug Use

For Americans, pharmacy benefits are the most frequently used element of health care. Indeed, a recent analysis from Express Scripts indicates

In 2019, nearly 19 medications were dispensed per individual – with more than three-quarters of those prescriptions going to people with chronic diseases.

We are on the verge of a perfect storm of new high-cost medications, rising chronic disease rates, frequent medication use, and quickly escalating brand-name prescription prices. As a result? The total amount spent on prescription medications by Americans increased to $335 billion in 2018. And is expected to reach $511.1 billion by 2025.

That is unfavourable for enterprises. The primary issue of the self-funded employer in the health care domain is now the rapidly increasing financial risk associated with prescription medications. Consider a self-insured firm with 1,000 employees; a few large pharmaceutical claims could push them over the over. Specialty medications are a significant contributor to prescription drug expenditures.

Read More: The Best way to choose Health insurance

The primary drivers of this increase in expenditure are the increasing costs of brand and speciality medications. Specialty pharmaceuticals are the most expensive class of medications used to treat rare or chronic disorders. They are typically biological in nature and require medical supervision, patient support, as well as expert handling and administration of the medication. “Drug benefit administration has surpassed speciality benefit administration in importance.”

Specialty medicine spending today frequently exceeds 50% of the overall pharmaceutical cost for a given employee demographic. According to the 2019 Trends in Specialty Drug Benefits report from the Pharmacy Benefit Management Institute. Drug benefit administration has become synonymous with specialised benefit management for a large number of businesses. Employers are constantly looking for new methods to save prescription drug expenditures.

Financial hazards linked with speciality and high-priced brand medications are substantial and expanding. As large purchasers of prescription medications for their public employee drug plans. Several state governments are implementing risk mitigation measures immediately.

Employers in the private sector lag further behind. Without alternative road map to follow, the majority continue to attempt to resolve the issue through competitive bidding. They visit their broker or adviser and use the typical spreadsheet approach to select a supplier with cheaper administrative fees and bigger rebates.

Others, however, such as the Midwest Business Group on Health. Have realised the importance of increasing their awareness of the entire process. They’re enrolling in training and inquiring about the path prescription medications go from producers to their employees’ medicine cabinets. And they’re wondering: What’s going on along the way that’s costing so much? How can this be improved?

The supply chain for prescription drugs: A hard learning curve

As seen by the aforementioned PBMI report, some employers are feeling the pinch. They’re discovering that their lack of information has put them at a disadvantage in compared to more informed supply chain stakeholders.

In an eye-opening piece, Henry Eickelberg summarised the employer’s susceptibility as follows:

“With rare exceptions, no other area of responsibility within the plan sponsor’s whole organisation comes close to consistently issuing an unrestricted financial ‘put option’ on the company’s bank account.”


Few employers have the capacity or persistence to develop an experienced PBM’s professional market knowledge. However, it is necessary to recognise that there are alternatives to the standard PBM approach. Which can be opaque and rife with potentially conflicting motivations.

Employers should be aware that there are numerous ways to exert control over the management of their pharmacy benefit – in the best-case scenario. Negotiating unfettered insight into all manufacturer revenues and drug pricing based on genuine costs plus a reasonable price for services.

Hassan Qureshi SEO

Experienced Search Engine Optimization Specialist with a demonstrated history of working in the information technology and services industry.

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