What Is a Pharmacy Benefit Manager (PBM)?

A pharmacy benefit manager (PBM) is a company that provides prescription drug benefits to consumers on behalf of health insurers, employers, and other healthcare payers. The roughly 70 PBMs in the United States provide drug benefits plan coverage for 266 million people, which is roughly four out of five people with private or public health plans.
 

Why Are PBMs Needed?

Consumers spent more than $575 billion on prescription medications in 2021. Today, 6 out of 10 people take one prescription medicine while 4 in 10 take four or more prescriptions. PBMs work behind the scenes, making sure consumers have access to:

• Short-term medications to treat an illness or injury.
• Maintenance medications needed to treat an ongoing condition.
• Highly specialized medications and therapies that can only be created through a specialized pharmacy.

Beyond managing access to a variety of medications, PBMs also employ clinical experts and pharmacists who coordinate care by monitoring prescriptions for interactions to help ensure that medications are used safely and taken as directed.
 

How Do PBMs Increase Access for Consumers?

A PBM’s pharmacy network ensures access to needed prescription drugs and treatments while lowering drug costs. Each PBM develops and maintains its own network of pharmacies. Typically, these networks include four types of contracted pharmacies:

• Retail, which include national chains and regional chains.
• Local, independent pharmacies.
• Mail-order, which send 90-day supplies of regularly taken medications, typically at reduced prices, directly to consumers’ homes.
• Specialty, which distribute medications that may require special storage, dosing, or administration.
   

How Do PBMs Improve Consumer Health Outcomes?

PBMs ensure the availability of safe and effective prescription medicines and therapies needed to improve health outcomes by developing, executing, and monitoring evidence-based programs.

This includes managing a drug formulary, which is a continually updated list of evidence-based covered prescription medications. It also includes drug utilization review and management, which continually improves drug therapy by evaluating the prescribing, administration, and use of medications through:

• Reducing the risk of inappropriate use or waste for specific medicines by limiting quantities.
• Step therapy, by starting treatment with clinically appropriate yet less costly, lower-tier medicines before moving to more expensive and less effective options.
• Prior authorization, reducing the use of inappropriate or unnecessarily costly therapies; can also help people avoid potentially dangerous medication combinations or those that may be addictive.
   

How Do PBMs Create Cost Savings?

PBMs can save consumers and payers between 40% and 50% on prescription drugs and related medical costs. PBMs leverage guaranteed volumes when negotiating with drug manufacturers to secure the most favorable pricing. PBMs will negotiate rebates to lower drug prices as part of their business practices. They also negotiate discounts with pharmacies, providing cost savings directly to consumers.

Consumers can take advantage of lower prices by using pharmacies in their PBM’s network. Network pharmacies agree to set fees for their medications and services, which lowers the cost of prescription drug claims. Consumers receive the lowest prices when using their network’s preferred pharmacies that have contracted at lower reimbursement rates.

PBMs play an instrumental role in increasing access to safe and effective medications while simultaneously advocating for and negotiating lower prices for consumers and customers.