What is a PBM?

What is a Pharmacy Benefits Manager (PBM)?

Pharmacy Benefits Managers work on behalf of a self-insured employer to give their employees access to medications and manage healthcare spending. They work between the pharmaceutical industry and employers, promising lower costs and a seamless healthcare process.

In reality, a lack of transparency in the industry has led to profiteering and is a significant contributor to the outrageous pharmacy costs across the nation. The AffirmedRx CEO, Greg Baker, R.Ph discussed these same problems earlier this year.

A PBM’s Incentives Are Core to the Problem

What is a PBM’s incentive? A PBM makes money by receiving a percentage of the total drug costs of a self-insured body. The more money the employer spends on medications, the more the PBM makes in the traditional structure. It makes for a dangerous conflict of interest incentivizing the PBM to make the prescription drugs cost more. They do this by avoiding generic medications in favor of the more expensive brand-name pharmaceuticals with the same active ingredient, the same effect on the body and the exact delivery method.

Employers often pay for these more expensive versions of the medications, and the PBM reaps the profits.

At times, name-brand medication will be needed. AffirmedRx discusses these topics to clinically optimize your plan, ensuring members’ health is at the forefront of care instead of maximizing profits. If these topics aren’t discussed, most traditional PBMs will optimize the plan for high costs to maximize profit.

High Costs Are Made Possible by a Lack of Transparency and Industry Consolidation

The three largest PBMs are owned and operated by the same national health care enterprises that encompass 80% of all pharmaceutical drug purchases nationwide. It’s the same company in different clothing. It makes it hard for a traditional PBM to align themselves with the employer, as doing so would end up costing the health care enterprise that owns them.

This also makes transparency difficult. Usually, you would be able to see where money is coming in and how much, but with the company funds tied together, this becomes impossible.

Introducing the Group Purchasing Organization

Group Purchasing Organizations must be part of the conversation when discussing what is a PBM due to their involvement in the traditional PBM structure.

Each of the largest three PBMs utilizes an additional middleman called a Group Purchasing Organization (GPO). This extra layer, they claim, is to provide a unified front against the health care industry to negotiate harder and further reduce the costs of your medications, like a union might for better benefits and higher wages. The reality is that these organizations are deeply entrenched with the health care establishment and take their share of profit, causing a further increase in the cost of prescription medication to the employer.

GPOs also reduce transparency. The PBM must report specific figures to the employer, but the GPO does not. That means any bloat or profiteering at the GPO layer goes unseen by the employer while the costs are still passed on. AffirmedRx’s model removes the GPO layer to maximize transparency.

Shifting Employer Focus from Rebates to Total Manufacturer Revenue

Large employers with real negotiating power often miss what is essential. They typically negotiate, intending to get 100% of the rebates passed back to them, but they miss major contractual loopholes that allow a traditional PBM to absorb much of this capital. For instance, contracts will often cap the total amount of rebates that can be passed on to the employer instead of taking a percentage—anything left over they can absorb to boost their profits.

Additionally, fees have become the name of the game for many of these PBMs. They consistently add more costs into the contract in the form of claims processing and transaction fees that initially go unnoticed or unappreciated by employers but end up significantly impacting the cost of their plan.

Traditional PBMs Use Contracts to Their Advantage

PBMs use the definitions section precisely what is and isn’t a brand-name drug (called a formulary) to push employers’ health care costs higher and improve their financial performance.

Every employer should be vigilant about how they are defining the drugs in their formulary and remain vigilant every time something is redefined.

Understand “What is a PBM” and Know What You Are Signing

The complexity of these contracts makes it easy for gotchas to hide. Before you sign any contract, you should be sure of:

  • How is the PBM driving the lowest possible net cost?
  • Do they encourage generic drug use?
  • What measures are in place to ensure clinically effective treatment at the lowest cost?

When taking into consideration “what is a PBM,” there are many things you should know about the typically opaque industry. AffirmedRx was founded with the mission to improve health care outcomes by bringing clarity, integrity and trust to pharmacy benefit management. Read more about AffirmedRx and the changes they bring to the traditional PBM structure.

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