Taking prescription drugs may be more American than apple pie. According to the Centers for Disease Control and Prevention (CDC), almost half the people in the United States report taking at least one drug in the past 30 days. (Comparatively, almost 1 in 10 Americans say apple pie is their favorite pie.)
Who decides which drugs are covered by your health insurance plan and at what price? You may think that your drug manufacturer, health insurance company, or employer sets the rules and prices for prescription drug coverage — and they all play a role.
But the most important influencer on drug coverage in the U.S. may be one you’ve never heard of: the pharmacy benefit manager (PBM). Given the influence that PBMs have over covered drugs and their costs, you may want to understand who they are and how they work.
What is a pharmacy benefit manager?
PBMs are companies that manage drug coverage for health insurers, large employers, and other companies that pay for health benefits, such as labor unions or government agencies. These companies sit between your health insurance company and drug manufacturers. In other words, PBMs are the middleman.
PBMs do a few things that can directly affect you and your access to drugs:
- Manage drug benefits on behalf of health insurers and employers
- Create prescriptions or preferred drug lists, which specify which drugs will and will not be covered under an insurance plan
- Negotiate drug prices with drug manufacturers, including rebates and discounts
- Negotiate the prices paid to pharmacies for the drugs they carry
- Pharmacy claims processing for insurers and their members
- Create pharmacy networks to fill prescriptions for health plan members
- Manage mail order pharmacies for specialty products
Access to some medicines is determined by whether they initially make it into the formulary and is then affected by the price of the medicine. Your out-of-pocket drug costs are usually based on negotiated prices set by the PBM.
Who owns the PBMs?
PBMs are usually for-profit companies. Some are very large. The three largest PBMs reportedly cover more than 275 million Americans and bill almost 90% of the market. Some PBMs are independent. Others are owned by health insurance companies and/or large retail or specialty pharmacies.
What are the pros and cons of PBMs?
The main argument in favor of PBMs is that they can help reduce costs through negotiation. And, for many people, the cost of drugs creates real hardship. Actually, almost 1 in 4 People in the US report that they have difficulty paying for medicine.
The Centers for Medicare and Medicaid Services (CMS) has said this PBMs helped lower drug prices. According to Pharmaceutical Care Management Association (PCMA)the national association representing PBMs, PBMs will save health plans and individuals more than $1 trillion over 10 years.
At the same time, some critics suggest that PBMs have an incentive to push more expensive drugs. PBMs often receive paid rebates based on a percentage of a drug’s list price. This means they make more money when people use more expensive drugs. PBMs may return some of these discounts to the health plan. And hopefully some of that reaches the consumer. But PBMs are pretty much holding on 10% of discounts.
What’s Next for PBMs?
A trend among PBMs is increasing coverage for biosimilars, a type of drug used to treat conditions such as cancer, autoimmune disorders and diabetes.
Biosimilars are close copies of brand-name drugs biologically, which are made of material from living things such as plants, bacteria, animals or humans. Examples include gene therapy, insulin, and monoclonal antibodies.
Biosimilars work in the same way as biologics and are just as safe and effective, but can be much less expensive, as half the cost. Even so, they weren’t always covered by health insurance.
Recently, many PBMs have was announced that they will cover more biosimilars. This is likely to reduce costs for insurers. However, patient cost savings from biosimilar use are not a given, due to the incentives described above. Patients should talk to their doctors about treatment options, such as biosimilars, that may save them money without affecting their overall care
How to work with a PBM
As a patient, you may feel the effects of a PBM’s policies and decisions. But you may never do it directly interact with the PBM unless you use a mail order or specialty pharmacy they operate. If you’re having trouble getting a drug covered, you’ll start by talking to your health insurer or employer for help.
This resource was created with the support of Organon.
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