What is a Pharmacy Benefit Manager (PBM)?

Learn About Pharmacy Benefit Managers and What They Do

CVS Health is a pharmacy benefit manager.
CVS Health is a pharmacy benefit manager. Justin Sullivan/Getty Images

A pharmacy benefit manager, also known as a PBM, is a company that administers or handles the drug benefit programs that you receive as an employee or that you pay for as part of your health insurance plan. Pharmacy benefit managers typically process and pay prescription drug claims for insurance companies, and they are also responsible for creating and updating your health plan’s drug formulary.

History of Pharmacy Benefit Managers (PBMs)

Pharmacy benefit managers were not always a major force in our healthcare system.

In fact, the first PBMs were introduced in the 1970s when their primary role was simply to serve as an intermediary that made formal judgments on prescription drug claims. By the 1980s, however, these PBMs took on a larger role in the processing of prescription drug claims as healthcare and prescription costs began to quickly increase.

By the late 2000s, the role of pharmacy benefit managers changed from handling prescription benefit claims to its current function as the manager of pharmacy benefits for health insurance plans. In their newly expanded role, PBMs began to take on more responsibilities in the healthcare insurance industry such as negotiating discounts with pharmaceutical manufacturers and even encouraging health plan participants to use preferred products like generic drugs over name brands to keep costs down.

Why Size Matters in Pharmacy Benefit Programs

Size matters when it comes to pharmacy benefit managers.

Growing larger in size allows PBMs to maximize their profits by utilizing scale economics. Also, the larger the company, the more leverage to negotiate reimbursement rates for health care items such as medications and care services. Since these companies can buy medications in large quantities directly from the drug companies, they are able to offer discounts on mail order medications.

In recent years, the healthcare insurance industry has become increasingly focused on managing the costs associated with specialty pharmaceutical products like new drug therapies for hepatitis C. That said, prescription-drug spending in the United States increased by more than 12% in 2015, which was the largest annual increase in over ten years. Everyone seems to be trying to prepare for what will happen to drug prices with the introduction of anticipated new drug therapies for other conditions like high cholesterol and cancer. There is no doubt that PBMs will be involved.

Largest Pharmacy Benefit Managers (PBMs)

While there are many pharmacy benefit managers (PBMs) throughout the United States, a majority of people are registered with a small number of PBMs. In fact, the five largest PBMs cover more than 50% of all patients with pharmacy benefits.

Below is a list of some of the largest pharmacy benefit managers. 

  • Express Scripts, Inc.
  • CVS Health (Formerly CVS Caremark)
  • UnitedHealth Group (Optum Rx)

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