By Healthcare Brew Staff
less than 3 min read
Definition:
Pharmacy benefit managers (PBMs) are often called “middlemen” because they’re like bridges between insurers and pharmacies. They were created in the 1960s when insurance companies first started covering drugs.
How does it work?
On behalf of payers, PBMs negotiate with drugmakers to create formularies, or lists of drugs each plan will cover. Formularies mostly include generics because they’re cheaper than brand-name drugs. Then, PBMs negotiate with manufacturers to determine how much plans will pay for each drug on the formularies (these payments are known as rebates), which then impacts how much pharmacies get paid for dispensing the drugs. A percentage of a drug’s price is divvied up between the PBM and insurer.
How have the industry and federal agencies responded?
PBMs have been widely criticized due to the chokehold they seem to have over the pharma industry, which has resulted in lots of lawsuits.
In September 2024, the Federal Trade Commission (FTC) filed a suit that accused the top three PBMs—CVS Health’s Caremark, Cigna’s Express Scripts, and UnitedHealth Group’s Optum Rx, which control 80% of the market—of inflating the price of insulin and boosting their own profits as a result. Though the PBMs countersued, claiming the suit was “unconstitutional,” the FTC released a follow-up report in January alleging the three had also inflated prices for cancer, HIV, and other drugs by “thousands of percent.” A December NYT investigation then found that PBMs received roughly $400 million a year in rebates for Purdue Pharma’s OxyContin.
Where do retail pharmacy owners factor in?
The retail pharmacy industry has been struggling since the Covid-19 pandemic ended, but experts say CVS has a leg up on its competition thanks to its in-house PBM, Caremark, which it acquired in 2007.
