PBM Comparison: Big Versus Next-Generation PBMs

In pharmacy benefit management (PBM), the choice between “The Big 3”/Large PBMs and next-generation PBMs can significantly impact healthcare outcomes, cost management and service quality. Both next-gen and large PBMs offer distinct advantages and face unique challenges. Here, we provide a PBM comparison and explore these differences in detail, focusing on agility, practicality, customizability, and profitability.

1. Agility

Next-Generation PBMs: Agile and Responsive

Quick Decision-Making: Next-gen PBMs often have streamlined decision-making processes, allowing them to quickly adapt to changes in the healthcare landscape or regulatory environment. This agility can lead to innovation and faster implementation of new policies or technologies.
Tailored Solutions: Next-gen PBMs tend to offer more personalized service. They can swiftly adjust their services to better meet the needs of their clients and members.
Innovative Solutions: With fewer layers of bureaucracy, right-sized PBMs can be more innovative, leveraging new approaches and technologies (like cloud-based solutions) to enhance service delivery and cost management.

Large, Traditional PBMs: Structured but Less Flexible

Bureaucratic Processes: Large PBMs have multiple layers of management and approval processes, which can slow down their ability to make changes or implement new strategies.
Standardization Challenges: While large PBMs benefit from standardized processes, this can also hinder their ability to customize services for individual clients.
Less Responsive: The sheer scale of operations can make large PBMs less responsive to immediate changes or unique client needs. This can lead to slowness to adopt new technologies due to cumbersome implementation challenges due to the organization’s sheer size. For example, large PBMs may use an older, inflexible DOS-based computer system as opposed to newer, safer technologies.

2. Practicality

Next-Generation PBMs: Practical and Hands-On

Focused Expertise: Next-gen PBMs often specialize in specific markets or services, allowing them to provide tailored and practical solutions that align with their clients’ needs.
Cost-Efficiency: Next-gen PBMs might offer more cost-effective solutions due to lower overhead costs and a focus on essential services with clear models versus vertical integration.
Customer Relationships: The close-knit nature of next-gen PBMs enables better relationship management and increased transparency, resulting in a more practical and hands-on approach to service delivery.

Large, Traditional PBMs: Comprehensive but Complex

Broad Scope: Large PBMs may offer a wide range of services and have the infrastructure to support complex operations. However, this comprehensive approach can sometimes lead to less practical solutions for specific client needs and create complex models that drive up costs.
Higher Costs: The extensive operations, potential vertical integration and larger staff base of large PBMs contribute to higher costs, which can be passed on to clients.
Complex Systems: The systems used by large PBMs can be complex and less intuitive, which creates ambiguity and potentially complicates the user experience for clients and members.

3. Customizability

Next-Generation PBMs: Highly Customizable

Tailored Solutions: Next-gen PBMs are better positioned to offer customized solutions that align with their clients’ specific needs and preferences. This customization can include personalized formulary designs, benefit structures and member support services. Customized solutions mean a more patient-centric focus and provide the services you need without overpaying for ambiguous programs.
Flexible Contracts: They can negotiate and adapt contract terms more easily, offering more flexibility in service agreements.
Direct Client Interaction: The ability to interact directly with clients allows next-gen PBMs to make real-time adjustments and provide bespoke solutions. This also generates a level of accountability and keeps communication lines open and transparent.

Large, Traditional PBMs: Limited Customization

Standardized Quality: Large PBMs often have standardized packages that may not be easily customizable to fit individual client needs. This can result in a one-size-fits-all approach.
Inflexible Contracts: The scale of large PBMs can lead to more rigid contract terms that may not accommodate the specific needs of every client.
Limited Personal Touch: With a focus on volume over quality, the size and structure of large PBMs can create a more impersonal experience, which can limit the ability to offer tailored services and cloud the lines of communication.

4. Profitability

Next-Generation PBMs: Modest Profits

Transparency: Next-gen PBMs function on clear, open pricing models without hidden fees, creating a “nothing to hide” mentality. Next-gen PBMs are transparent and clear in communicating their operational costs with their customers.
Focused Growth: Their growth strategies focus on building strong relationships and delivering high-quality services, leading to steady but modest profitability.
3-5% Margin: AffirmedRx, as a next-generation PBM, maintains a 3-5% margin, focusing on patients over profits and saving lives.

Large, Traditional PBMs: Opaque and Opulent

Opaque: Large PBMs commonly use size, market control, hidden fees and complex models that drive up costs and prioritize profits over patients.
Higher Revenues: Large PBMs benefit from economies of scale and have access to larger revenue streams. However, these financial structures can be complex, less transparent and allow for hidden profit.
Increased Costs: The scale and complexity of operations contribute to higher costs, which can affect profitability and lead to higher prices for clients and, ultimately, patients.
Profit Pressure: The pressure to maintain profitability can drive large PBMs to adopt aggressive cost-cutting measures or focus on high-revenue opportunities, many times at the expense of service quality or their clients.
30-50% Margin: Large PBMs have a 30-50% margin focused on shareholder interests. This shareholder focus can drive the company’s attention away from patient-centricity and toward profits.

Conclusion

A deep dive in comparison of PBMs can help when choosing between a next-generation and a larger PBM. The choice ultimately depends on an organization’s specific needs and priorities.

AffirmedRx takes pride in the benefits we can offer as a next-generation PBM. Our autonomy allows AffirmedRx to excel in agility, practicality and customizability, offering a more personalized and flexible approach, while focusing on your members. Large PBMs can leverage economies of scale, but often at the expense of flexibility, clarity and the personal touch. This can lead to a lack of transparency and overpaying for ambiguous services or programs. All of these aspects are important considerations when comparing PBMs.

Understanding these differences can help organizations with weighing the next-gen vs. large PBMs, which allows them to make informed decisions about their pharmacy benefit management needs, balancing factors like responsiveness, cost and customization to find the best fit for their unique requirements.