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March 7, 2024

Understanding the dance of pharmacy benefit managers in the health care shuffle

The health care industry can sometimes feel like one giant dance floor, but it’s one where every business dances to its own tune. Some do an energetic salsa, while others groove to a disco beat. On such a big floor, your business can run into the occasional partner with moves you don’t recognize.

One of these potential partners is pharmacy benefit managers (PBMs). Their moves don’t always stay the same from song to song. In fact, there are some instances where they dance to a completely different tune. The key to keeping up with PBMs is understanding their potential moves and how they can fit into your prescription plans.

What is a pharmacy benefit manager (PBM)?

In theory, PBMs act as the administrators of the pharmacy world. They work with employers, drug manufacturers, and pharmacies to help with everything from picking out what prescriptions will end up on a formulary to deciding what prices the drugs will cost. In simpler terms, PBMs exist to help employers create prescription offerings that suit their budget and the health needs of their employees. In a market that seemingly gets more expensive every year, a PBM can be a great partner for businesses to get the most bang for their buck as they create their prescription plans.

PBMs, like any other business, can have multiple priorities. When working with drug manufacturers, some PBMs focus on ensuring that they get profitable returns. However, as they make more money, employers find themselves dealing with expensive prescription drugs that fail to satisfy their employees’ needs. Even more, some of these drugs may be unnecessary. What does the future look like for PBMs, and how can CFOs and HR executives protect themselves from misalignment?

Where is the PBM industry heading?

According to NPR, there are about 70 PBMs in the U.S. Arriving through mergers, a trio of giant PBMs controls 80% of the prescription drug market, each bringing in tens of billions of dollars in revenue annually. With the consolidation of PBMs also comes the growing power that they hold over the drug market.

As they work on negotiating prices and crafting a formulary, PBMs work heavily with the drug manufacturers in the early stages. In these moments, drug companies do what they can to get their products on the formularies of whatever PBM they’re working with. To close the deal, these drug companies offer incentives (usually in the form of rebates) to PBMs. While some of the rebate goes to employers, PBMs retain the bulk of it.

Suppose two drugs treat the same condition. One drug costs $100 per month for the patient and comes with no rebate. The other costs the patient $2,600 a month, but the pharmaceutical company pays the PBM $1,500 every time the drug gets filled. While the second drug is 26 times more expensive than the first, that doesn’t mean a PBM won’t add it to their formulary. Why would they include such a costly option? Because it’s the best drug on the market? Not necessarily. Some PBMs add the higher-priced drug because it can help their bottom line. While the PBM makes a nice profit, this benefit of the rebate doesn’t always reach the employer who finds themselves with a pricy medication that may or may not fit their needs.

In general, PBMs can significantly impact how effective an employer’s prescription plan is. Every year, these groups can decide to change the formulary. They could remove one drug or increase the price of another. Whatever they change, the employers must deal with the consequences. These annual tweaks can make constant formulary changes seem normal for the market. Just because some PBMs want to change the prescription plan doesn’t mean your business must fall in line. Other options can be more accommodating to your needs.

How can employers keep pace with PBMs?

Employers can take steps to control their health plans. Not every rule that PBMs put out to the employer needs to be followed, especially if it hinders the employer’s health goals.

One step employers can take is partnering with an advisor independent of PBMs. Working with independent advisors can help employers meet the needs of their workforce. Some advisors and consultants may also have a conflict of interest with employers–this is true of any advisor or consultant that has its own pharmacy coalition. The intended goal of these groups is to aggregate the health information of all the employers’ workforce and then negotiate on behalf of the employer with PBMs to get proper prescription drug prices. However, similar to PBMs, some coalitions can focus more on putting money into their pockets rather than creating the ideal prescription plan for the employer. Some of these coalitions have become joint ventures between the PBM and the consultant, where the employer is on the outside looking in.

Another step is working with a partner to proactively manage pharmacy spending. As employers adjust their pharmacy planning, transparency with employees will be another vital step to execute. Employers may need to drop a drug from their formulary for various reasons, such as rising prices. The key is to keep employees in the loop with these changes as soon as they happen.

How can Marsh McLennan Agency help your business?

Our national pharmacy practice, Rx Solutions, knows the ins and outs of how PBMs operate. When you work with us, our knowledge becomes your power.

Manage your pharmacy costs with the help of specialists who've spent decades working inside PBMs. When you anticipate PBM’s moves, your business can keep pace with their contracts and negotiation strategies.

Why wait? Learn more about how Rx Solutions can help you take the lead.