Insurance

Pharmacy Benefit Managers: What They Are and Why They Matter


This article is part of a series sponsored by AgentSync.

Yes, PBM is another solution among many insurance abbreviation, but where would we be without them? Of course we would use more words to say the same thing! As prescription drug costs continue to increase (and the topic continues to grow), it’s more important than ever to understand the basics of one of the most important players in the prescription drug world: the pharmacy benefit manager (PBM).

What is PBM?

In the complex world of health care, PBMs function as third-party intermediaries that sit in the middle of the prescription drug distribution pipeline. This means that as prescription drugs flow from manufacturers to pharmacies and finally to pharmacies, for the patients who need them, PBMs can (theoretically) help that process continue.

There is no doubt that PBMs are critical to the way the U.S. healthcare market currently operates, but they are not without controversy—especially as they have become increasingly powerful and important over the past few decades. Ranging from small independent entities to owner-owned organizations, PBMs are embedded in the largest healthcare companies and have a significant impact on everything from the prescriptions health insurance companies cover for their members to the fees that insurance companies and their members pay.

A brief history of PBM

Just in the late 1980s, Americans pay out of pocket for the vast majority (about 70%) of prescription drugs, no insurance. By 1994, this proportion had dropped to 50%. Thirty years later, The U.S. Census shows 91.7% of Americans have health insurance At least part of the year, and most health plans, including All ACA-compliant health plans) covers at least some prescription drugs.

PBMs began to form as a way to control costs as a major shift occurred in the way patients paid for their prescriptions, with most drug costs being borne by health plans and health plan sponsors. Appeared in the 1960s Acts as an intermediary in processing payments and reimbursements between health plans and pharmacies. They soon grew to do much more, including building engagement networks and processing claims.

PBM really took off after Congress enacted the 1974 Act Employee Retirement Income Security Act (ERISA), which administers employer-sponsored health and retirement plans. This new federal law includes the ability for large employers to begin using cost-containment strategies to lower prescription drug prices for their members. Outsourcing the development and execution of these cost-saving strategies is how PBMs really got to where they are today.

Some of the earliest cost control measures proposed by PBMs included retail pharmacy cards and mail-order pharmacies. They also quickly realized that, as representatives of health plans and all of their members, they could use their considerable buying power to negotiate lower prices and threaten drug companies and pharmacies that would not do business with drug companies that would not agree to negotiate prices.

From the 1990s to the present, the largest PBMs have continued to further integrate and integrate vertically and horizontally into the U.S. health care system. By 2024, the three largest PBMs (also owned by the largest health insurance companies) Controls approximately 89% of the prescription drug management market. the remaining(about 65 arrive 70) PBMs compete for remaining market share. This level of integrated power has been controversial over the years, but more on that later.

The role of PBMs in the U.S. healthcare system

Love it or hate it, PBMs play a vital role in today’s healthcare system. What began as a mechanism for large-scale purchasing power and drug price negotiations has grown into a complex set of responsibilities, including:

  • Establish a formulary: A preferred list of drugs that a health plan will cover or cover more favorably than other plans.
  • Manage mail-order pharmacies that, due to their size and automation capabilities, provide prescriptions at lower prices than local retail pharmacies.
  • Manage a specialty pharmacy, including determining which patients qualify for higher-level, more expensive medications under their health plan.
  • Create and manage utilization management programs to help health plan sponsors and patients save money by working with members on medication education and compliance.
  • Set prescription prices for the manufacturer or wholesaler side and the pharmacy/retail/consumer side.

This is not an exhaustive list of everything a PBM can do. Needless to say, they are deeply woven into the way Americans obtain and pay for prescription drugs.

Who will regulate PBMs?

PBMs are regulated by many entities at the state and federal levels. At the top of the regulatory pyramid are the Centers for Medicare and Medicaid Services (CMS) and the Federal Trade Commission (FTC). In addition, each state has the ability to enact its own regulations regarding PBMs. All 50 states have done so by 2023and State PBM legislation increases between 2017 and 2021.

To assist states in this task, the National Association of Insurance Commissioners (NAIC) formed the PBM Regulatory Issues (B) Group and created PBM Model Legislation over the past few years.

Centers for Medicare and Medicaid Services (CMS)

content management system Is the federal agency responsible for administering the Medicare and Medicaid programs. As such, it regulates PBMs that contract with Medicare Part D plans and Medicaid managed care plans. CMS’ regulations focus on ensuring that PBMs provide adequate access to prescription drugs to Medicare and Medicaid members and that they do not engage in unfair or deceptive practices.

Recently, CMS has been outspoken about some of the problems its Medicare and Medicaid recipients face in accessing and affording medications. Letter published on December 14, 2023, CMS is urging the PBMs it works with to address issues, such as low pharmacy reimbursement rates, that could lead to pharmacies going out of business. The letter also noted the growing number of complaints CMS has received regarding prior authorization requirements, utilization reviews and coverage for preventive contraceptives.

Federal Trade Commission (FTC)

Federal Trade Commission Is the federal agency responsible for enforcing antitrust and consumer protection laws. It regulates PBMs like all industries to ensure compliance with trade practices and laws regarding unfair competition or anti-competitive behavior.

During 2022 and 2023, the FTC made it clear that PBMs were on its radar, issuing press releases announcing the FTC’s “The Impact of Vertically Integrated Pharmacy Benefit Managers on Drug Access and Affordability,” it is”withdraw its previous PBM claims,“and expansion and deepen its investigation.

To date, the FTC has not released any findings, although it has issued “injunctions” to more than eight PBMs requiring them to “Provide relevant information and records [their] Business Practices. “

Why PBM is making headlines

Prescription drug costs in the news are nothing new, but in November 2023, the pharmaceutical industry make headlines Create in a different way”Drug GidenIn the media and on social media, the three-day pharmacists’ strike brought attention to the problems faced by struggling pharmacists and retail pharmacies, especially small or independent pharmacies. Current pharmacology challenges include long working hours, low wages and massive staff shortages. One pharmacy said this was because their margins were being squeezed ever tighter by lower reimbursement rates from PBMs.

Pharmageddon is just the latest example of PBMs in the news. PBMs have been frequently criticized in recent years for their role in rising prescription drug costs. Critics say PBMs’ payment structures create incentives for them to negotiate higher drug prices, higher rebates. As reflected in CMS and FTC press releases and letters, consumer complaints also include accusations that PBMs limit what patients can get through their formularies. necessary medications.

All in all, PBMs (whether they deserve it or not) have a reputation for not acting in the best interests of health plan sponsors, beneficiaries, or pharmacies. It remains to be seen though what action, if any, government organizations will take. States will take steps to address the problem, and the headlines won’t be going away anytime soon.

What’s next for PBM?

PBMs, especially the three largest ones that control nearly the entire market, are not going away. In some ways, that’s a good thing, because their sudden disappearance would inevitably bring chaos to the more than 270 million Americans who use health plans to get their prescription drugs. .

On the other hand, growing pressure from consumers has prompted federal agencies and lawmakers to begin working on a way to mitigate rising costs and reduced access to medically necessary drugs. PBMs are likely here to stay, but the form they will take and the potential for new regulations in the future are not set in stone.

As of this writing, there are at least eight banknotes Key elements included in these bills in different mix-and-match configurations include:

  • reporting requirements: Addressing a major criticism of PBM deals being opaque, new transparency reporting requirements mean PBMs must disclose information about negotiations with drug manufacturers, how they create formularies and other information about pricing and rebates.
  • Eliminate spread pricing: Today, it’s common for PBMs to negotiate higher reimbursements for themselves from Health plans pay more than they subsequently reimburse arrive This practice, known as spread pricing, allows PBMs to keep the difference between their revenue and expenses (the spread) and can result in health plans and their members paying higher drug prices.
  • Feedback Direct: PBMs use their vast buying power to negotiate rebates with pharmaceutical companies aimed at lowering net costs for health plan sponsors. Typically, PBMs pass only a portion of these rebates to plan sponsors and keep a portion of the profits as profit. The proposed legislation would provide that PBMs must pass on all rebates to health plan sponsors, which would benefit both employers (health plan sponsors) and employees (health plan members).
  • Reduce consumer costs: Although PBMs negotiate real cost savings for themselves and their clients (health plan sponsors), covered health plan members may not benefit because the price they pay is based on the drug’s list price before discounts and rebates. The proposed legislation hopes to change this by tying the cost to consumers to the net price of the drug.
  • Changes to PBM salary structure: As long as PBMs are paid based on prescription drug costs, there will be an incentive to maintain higher prices and retain some of the manufacturer rebates. The new law proposes a new fee-for-service model to eliminate the incentive for PBMs to make profits by passing higher costs onto health plan sponsors and patients.

While nothing has become law yet, PBMs are sure to be on the radar of lawmakers as consumers face rising drug costs in both government-sponsored and private health care plans. With any luck, the future of PBMs will be one that is both fair and profitable for these important players in the healthcare distribution pipeline and for the consumers who rely on life-saving medicines.

Need more supervision updates?

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