Getting Smart About Insurance: What Is a PBM?

Getting Smart About Insurance: What Is a PBM?

What is a PBM? Apart from being another in a long series of acronyms used by the insurance industry, PBM stands for Pharmacy Benefit Manager. A PBM is a company that administers the drug benefit program for your insurance plan. 

According to Anthem, they are “an organization that provides programs and services designed to help maximize drug effectiveness and contain drug expenditures by appropriately influencing the behaviors of prescribing physicians, pharmacists and members.”

In other words, PBMs are a type of middleman that processes and pays prescription drug claims. They are also responsible for creating and updating your health plan’s drug formulary. As these companies have negotiated deals that enable them to buy medications in large quantities right from the drug companies, they offer discounts to the consumer in mail-order medications. 

PBM Benefits

  • Serve as intermediaries between employers and wholesalers
  • Administrative services in processing and analyzing prescription claims
  • Contracting with a network of pharmacies
  • Negotiating rebate arrangements
  • Developing and managing formularies and prior authorization programs
  • Operating mail order pharmacies and mail order claims
  • Maintaining programs to ensure patient compliance
  • Performing drug utilization reviews
  • Implementing therapy or disease management programs
  • Offering specialty pharmacy and distribution services

How a PBM Works

A PBM works in several ways and stands between the patient and the pharmacy, the pharmacy and drug companies, and the health plan and drug companies. The health plan applies patient premiums to the PBM by way of an admin fee. The PBM uses that money to provide pharmacy clinical services, pharmacy claims processing, pharmacy customer service, and negotiate network discounts while sharing a portion of manufacturer rebates back to the health plan. 

With pharmaceutical manufacturers, the PBM negotiates rebates in exchange for a place on the formulary after a full pharmo-economic review. The formulary may be relatively open, meaning it’s an unrestrictive list of medications covered by the insurer, or it may be closed, meaning that it is a specific list of the covered medications. The PBM dispenses fees to the pharmacy while negotiating price discounts with them. 

Finally, the PBM accepts a copay from the patient in exchange for mail-order medications. 

One of the biggest PBMs in the country is CVS/caremark (part of CVS Health).

According to the CVS/caremark website:

"Whether plan members access their prescriptions by mail or in one of our national network’s more than 68,000 retail pharmacies, we provide the service and support needed to make sure the process goes smoothly.

"We work with employers, health insurance companies, the government, and other health benefit program sponsors to design and administer prescription coverage plans. This includes formulary management, discounted drug purchase arrangements, and clinical services and health care interventions."

Pharmacy Network Key Terms

There are several key words used by PBMs that we should explain. Don’t be intimidated by acronyms -- we have a little guide handy for you! 

  • NDC – National Drug Code: A number assigned and maintained by the FDA to identify drug products marketed in the United States.
  • AWP – Average Wholesale Price: A national average of list prices charged by wholesalers to pharmacies.
  • MAC – Maximum Allowable Cost: The maximum reimbursement price set for a particular drug.
  • U&C – Usual & Customary Price: The standard fee established for a specific drug by retail pharmacies.
  • Dispensing Fees: The charge for the professional services provided by the pharmacist when dispensing a prescription.
  • P&T: Pharmacy and Therapeutics: The committee that decides what drugs to include on a formulary. 

The Future of PBMs

PBMs in the future will see more consumer involvement in decision making, with a higher level of visibility when it comes to health care services, options and decisions. As PBMs focus on the influences of pharmacy on the medical program, PBMs will try to see a holistic view of the patient that integrates medical, pharmacy, disease management and behavioral health programs. This will involve a concentration on preventive care, quality outcomes and workplace productivity. As PBMs grow, preferred retail networks will become more prevalent and more important. Finally, the future of PBMs will definitely involve legislative controls on PBMs as they grow in influence and importance. 

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