The Evolution of PBMs and the Pass-Through Pricing Model
The Original Purpose of PBMs and the Problem of Profit-Driven Opacity
Pharmacy Benefit Managers (PBMs) were initially introduced in the healthcare system with the goal of improving prescription drug access, affordability and management. In their early years, PBMs were seen as intermediaries that could streamline the prescription drug process by negotiating prices, managing drug formularies and ensuring that patients received the medications they needed at the most affordable rates. However, over time, PBMs have evolved from their original mission into complex and opaque entities that, in many cases, prioritize profits over the very objectives they were created to serve. In recent news, president-elect Donald Trump, referred to PBMs as “middle-men” that need to be “knocked out,” further highlighting the poor reputation PBMs have earned over the past several years. Traditional PBMs have embraced ambiguous pricing models and added to the opacity and confusion surrounding their role in the healthcare system, which has created the need for a patient-centric solution to reform the industry.
The Birth of PBMs: Cost Control and Access
PBMs were conceived in the 1960s and 1970s as a solution to rising prescription drug costs. At the time, the healthcare industry was grappling with the escalating costs of pharmaceuticals, and there was a growing recognition that drug prices could be negotiated to secure better deals for employers, insurers, and consumers. PBMs were positioned as agents who could manage prescription drug plans for insurers and employers, optimizing the formularies (the list of covered drugs) and leveraging their bargaining power to secure lower prices for medications.
The original purpose of PBMs was rooted in increasing the affordability and accessibility of prescription drugs. They worked to ensure that drugs were available at competitive prices, and in return, they would receive a small fee for their services. By managing drug benefits on behalf of large employers and health insurers, PBMs were expected to deliver savings to their clients and improve outcomes for patients through better medication management.
Opacity and the Erosion of Trust
While PBMs were initially created to bring clarity and efficiency to the drug pricing system, they have increasingly become sources of confusion, with the real costs of medications and PBM services often obscured. A combination of secretive rebate deals, hidden administrative fees, and complex pricing structures means that employers, insurers, and patients have limited insight into how their drug pricing is determined.
This opacity has caused significant dissatisfaction among stakeholders. Employers and insurers often struggle to understand how much they are actually paying for prescription drugs, and whether the PBM is working in their best interest. Patients, too, are left in the dark, unable to make informed decisions about their medications or fully understand the costs they are facing. The result is a lack of trust in the PBM system, as many feel that PBMs prioritize profits over patient outcomes.
In addition to the opaque nature of PBM operations, the growing consolidation of the PBM industry has only exacerbated the problem. A few large players dominate the market, and their scale allows them to wield significant influence over drug pricing negotiations. This concentration of power has further diminished the ability of employers and insurers to ensure that PBMs are acting in their best interest.
The Promise of Pass-Through Pricing
To create a more ethical business model for PBMs and enforce higher standards, the pass-through pricing model was proposed. This model honors transparency and simplicity when conveying the costs of prescription drugs to consumers. When applied correctly, pass-through pricing allows employers and insurers to pay the actual cost of a drug (the invoice price) plus a fixed, easily understood administrative fee to the PBM. This model aims to provide clarity around the pricing structure by defining each component of the overall cost and avoids the hidden markups that are often seen in traditional PBM pricing schemes.
Under pass-through pricing, PBMs pass on any discounts or rebates they negotiated with drug manufacturers directly to the clients—whether they were insurers or employers. The rationale behind this model eliminates any opacity around drug pricing, ensuring that clients only pay for what is necessary, with a clear breakdown of how much the PBM earned in administrative fees. In its purest form, this pricing structure is easily understood and is a step toward greater transparency and fairness in the pharmaceutical supply chain.
Solution: A Visionary PBM That Isn’t Profit-Focused
Ideally, a PBM is a true steward of public health, prioritizing patient outcomes and affordability over hidden profits. AffirmedRx embodies this ideal not by negotiating rebates and kickbacks for themselves but rather by working transparently with drug manufacturers, insurers, and employers to drive down costs and improve access to life-saving medications.
We understand the damage traditional PBMs have created in the industry by breeding distrust and animosity as a result of their profound greed. AffirmedRx recognizes the need for a more noble charge that focuses on patient outcomes and transparency instead of prioritizing profits. Our pass-through pricing model is clear, with no hidden fees or kickbacks. Employers and insurers can see exactly what they are paying for in our pass-through pricing model and how much is paid as an administrative fee. The discounts and rebates we negotiate are passed directly on to the end consumer—whether that’s the insurer, employer, or patient.
Additionally, AffirmedRx is patient-centric, focusing on outcomes rather than bottom-line profits. We are committed to ensuring that patients receive the right medications at the right time, leveraging data and technology to improve adherence and clinical outcomes. Our goal is not just to save money but to improve health outcomes by making necessary medications more affordable and accessible.
We value patient health and well-being, so we collaborate with physicians, patients, and insurers to improve the healthcare ecosystem. We aim to be a solution for a more sustainable healthcare system where cost-saving measures do not come at the expense of patient care while setting a new standard for the PBM industry.
Conclusion
PBMs were originally created with a clear purpose: to improve access to medications and make prescription drugs more affordable. However, as the industry has evolved, PBMs have become profit-driven entities shrouded in opacity. This has created the need for clarity and explanation around PBM pricing structures and business practices. A fully transparent pass-through pricing model is how AffirmedRx is solving the problem of opacity. We are committed to patient-centric excellence and provide an example of how other PBMs can better serve patients if they shift their focus from maximizing profits to genuinely improving patient care and reducing costs. Our ability to succeed hinges on our values of transparency, collaboration, patient-centricity and doing what is right. Always.
