What is a Pharmacy Benefit Manager (PBM) and how Does a PBM Impact the Pharmacy Benefits Ecosystem?

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Pharmacy Benefits Managers, also referred to as PBMs, are, in essence, the intermediaries of almost every aspect of the pharmacy benefits marketplace. Many people assume that pharmacy benefits come directly from the health insurance provider when, in reality, PBMs are doing the bulk of the work for over 80% of employers in the U.S.

PBMs are hired by corporate employers, health plans, labor unions, and other organizations, to interface with drug manufacturers and process prescription-related claims. In short, PBMs are the connectors between employers, members, drug wholesalers, pharmacies, and drug companies, working to facilitate the best possible health outcomes at the best possible costs. Having an effective pharmacy benefit strategy, and selecting the right PBM to meet an employer’s needs, is critical to ensuring the success of a benefits plan, optimizing spend, and protecting the well-being of employees.

What exactly do PBMs do?

PBMs have two main objectives: to curate pharmacy prescription benefits plan options; and to help patients achieve better health outcomes through greater access to appropriate medications.

To do this, PBMs work with drug manufacturers, wholesalers, pharmacies, and plan sponsors.

Reduce Spend

PBMs negotiate pricing with a large network of retail or mail pharmacies and are able to offer patients and employers greater access to medications across multiple retail chains at competitive pricing.

PBMs offer extensive clinical programs including quantity edits, step therapy, and prior authorizations, to help benefits plan administrators ensure appropriate medication usage, safety precautions, and savings opportunities.

PBMs often serve as advisors for employers by providing advice and recommendations on different plan designs, clinical programs, and more.

Learn how you can reduce your pharmacy benefits spend even further through competitive PBM procurement.

Increase Access to Medication

PBMs increase a patient’s access to medications by negotiating directly with drug manufacturers or wholesalers. PBMs negotiate discounts from Wholesale Acquisition Cost (WAC) for quantity discounts that they are able to pass on to their clients. They also negotiate payments based on adherence programs.

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PBMs mitigate rising prescription costs and ensure that drugs are administered effectively and achieve the best result for the health and wellness of the patient. By establishing a large network of retail or mail pharmacies, PBMs are able to offer patients and employers greater access to medications across multiple retail chains.

It’s fair to think of the relationship between the PBM, the pharmaceutical manufacturer, and the employer, a little bit like a game of tug-of-war. The PBM is in the middle, connected between the manufacturer and the employer, and is being pulled in both directions — with the goal of getting both parties a fair deal and offering solutions to minimize prescription benefit costs.

How do PBMs work with Pharmaceutical Manufacturers?

The relationship between PBMs and pharmaceutical manufacturers is complicated. There are a number of financially-driven challenges that make interactions between drug companies and PBMs difficult to navigate and understand.

As an intermediary between pharmaceutical companies and patients, PBMs are responsible for determining the affordability of a drug and putting programs in place to help patients access medications and use the most effective treatments. These programs include:

Rebate Programs

PBMs negotiate with pharmaceutical companies to determine the level of rebates the company will offer for certain drugs — rebates are paid to the PBM. Depending on the contract between the PBM and employer, or plan sponsor, the PBM will pass all, some, or none of the rebate to the employer or plan sponsor.

Formulary Coverage

A formulary is a list of drugs, both branded and generic, that are covered within a certain plan. The list is determined by PBMs with the assistance of physicians and other clinical experts to include the drugs that will be most effective and affordable. Given the volume of medications that go through a PBM, when a drug is covered on the formulary, it’s much more likely to be prescribed by a physician. Ideally, a drug company wants to make sure their drugs are covered in order to reach the patients that need them.

Step Therapy Programs

Step Therapy programs are a type of prior authorization that applies to both traditional and specialty drugs. The program is designed to make sure that patients have at least tried a less expensive drug that’s proven effective for a specific condition, before moving onto a more expensive drug.

Prior Authorization Programs

Prior Authorization is a cost-savings feature that helps ensure the appropriate use of prescription drugs. Prior Authorizations are designed to prevent improper prescribing or the improper use of certain drugs.

PBMs are also responsible for implementing other important programs designed to improve health outcomes such as: reducing waste and increasing adherence, managing high cost and high complexity specialty medications, and clinical drug management.

How do PBMs work with Employers?

When an employer signs a contract with a PBM to design and maintain a prescription benefits plan, they typically contract for a three-year relationship. During the initial discovery phase, both parties work together, and in some cases with brokers and industry experts, to build their ideal pharmacy benefit plan by choosing from different deductibles, co-payments, co-insurances, and clinical programs.

After the plan is designed, the employer relies on the PBM to correctly administer their prescription benefits, and to educate their employees about their coverage. PBMs typically offer call centers for member support and can answer questions about the in-network pharmacies or different co-payments for different drugs. Most PBMs also offer websites or apps that offer easy access to information about eligibility, refills, pricing, and coverage rules.

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Throughout the contract, PBMs are responsible for four main components of the agreement:

Claims Processing

PBMs are responsible for processing and paying prescription drug claims within a prescription benefits plan.

Rebate Reimbursement

As previously noted, PBMs negotiate rebate programs with pharmaceutical companies. There are many complicated models for rebate programs but, basically, the PBM is in charge of administering these rebates. Depending on the contract between the PBM and the employer or plan sponsor, all, some, or none of the rebate amount goes back to the employer.

Clinical Programs

Clinical programs are designed to encourage the best clinical outcomes for members within a prescription benefits plan. PBMs review data and monitor drug usage on an ongoing basis to determine what adjustments should be made to achieve the overall goal: maintaining, or improving, health benefits while reducing costs.

Clinical programs include: prior authorization, quantity limits, and step therapy, and are all instituted to ensure the highest quality of care is delivered to the patient in the most appropriate setting.

Drug Utilization Review

It’s not always about money — PBMs play an important safety role within prescription benefits plans, too. Drug Utilization Review is a life-saving program that calls for the review of a drug to determine effectiveness, potential dangers, potential drug interactions, and mitigate other safety concerns. Since PBMs oversee their own pharmacy networks, they have access to a patient’s prescription history and can alert patients or physicians to potential negative drug interactions that could occur by mixing different prescriptions.

The PBM also sets specific criteria that has to be in place before certain drugs can be administered. Criteria could include: verifying the diagnosis; determining if there’s a genetic component involved; making sure the right testing is done; and instituting a specialist during treatment. This is all in an effort to make sure a patient is taking the proper steps for treatment, isn’t exceeding the quantity needed, and is actually responding to the medication.

On the back end, employers rely heavily on PBMs to bring them trends and information regarding the performance of their plan and how to make improvements. It’s critical for employers to maintain an ongoing dialogue with their PBMs to ensure that their members are always receiving the best possible care at the lowest possible cost.

Truveris can help you find a PBM that best serves your organization’s needs – at up to 25% less than what you currently pay. Contact our team today to take the first step toward optimizing your PBM contract.

Truveris is a leading digital health company focused on delivering truth and clarity in pharmacy. Truveris’ proprietary technology, coupled with deep pharmacy expertise, helps to build a more efficient market that maximizes choice, accessibility and prescription drug affordability. Our solutions provide the insight and knowledge to help people lead healthier and more productive lives.

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