A Pharmacy Benefit Manager (PBM) is a third-party intermediary between employers that sponsor group health plans that include a prescription drug benefit and retail pharmacies that sell prescription drugs to plan participants.
PBM is a middleman in the drug industry. What do we mean by that?
They are either engaged by an insurance company to administer a fully-insured plan’s drug benefits or by a Third-Party Administrator on behalf of an employer sponsoring a self-funded health plan. Often, they are owned by an insurance company. For example, the PBM with the largest market share is CVS Caremark, which is owned by CVS Aetna.
The stated purpose of PBMs is to reduce the cost of prescription drugs to the consumer. However, it is unclear whether PBMs actually accomplish this goal.
A PBM determines which drugs an insurance company or self-funded health plan will pay for. In addition, a PBM negotiates the price of a drug with the manufacturer of the drug. However, the PBM does not pay the drug company for the drug. It is the pharmacy that pays the drug company. A PBM also determines how much an insurance company or an employer’s self-funded plan will reimburse the pharmacy for the drug. In some cases, a PBM will reimburse a pharmacy less than the price that the pharmacy paid for the drug.
PBMs may be paid an administrative fee by the insurance company or the TPA. In addition, PBMs often negotiate rebates with drug manufacturers. Whether PBMs result in cost savings to insurance companies, self-funded health plans or consumers may depend upon the regulatory environment of the states where a PBM does business.