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Blog: The Advantages and Challenges of PBMs

Pharmacy benefit managers (PBMs) first arose in the 1970’s and gained more prominence after the 2003 Medicare Modernization Act, through which Medicare Part D was created. Originally, PBMs acted as a private sector intermediary between the insurer and the pharmacy. While PBMs still fulfill this role, their significance in specialty pharmacy has skyrocketed and these powerhouse players continue to have a growing impact on drug costs, care networks, treatment accessibility, and patient outcomes.

Advocates believe that PBMs help level the playing field with benefits like powerful cost negotiations, while critics argue that these entities have unchecked power that can ultimately prove harmful. To help regulate a sector that has largely remained legally unrecognized, four bills have recently been introduced to the U.S. Congress to call for drug pricing transparency.

Lawmakers and healthcare experts hope that these bills – HR 1038HR 1316S.3308, and one called C-THRU – will help to ensure that PBMs and other players in drug pricing are acting ethically and in the best interest of patients.

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Key Advantage: Pricing Negotiation Power

Perhaps one of the strongest advantages of PBMs is their influence on the pricing of prescription drugs. These entities are an integral part of the supply chain, and it’s estimated that three major brands – CVS Caremark, United Healthcare’s OptumRx, and Express Scripts – control at least 80 to 85 percent of the market.

Because of their dominance in the market, these companies have significant clout in negotiating lower costs with drug manufacturers. In addition to lower costs for critical drugs, these negotiations may also result in an increase in the use of generics, which lower overall costs for plans as well as member out-of-pocket costs.

Key Challenge: Limited Networks

Among the biggest challenges in the PBM landscape are the exclusionary networks that are often created by PBM partnerships. In these partnerships, preferred pharmacies accept discounts in exchange for the prospect of more business. While this may seem agreeable, participating pharmacies may be forced to pay direct and indirect remuneration fees (DIR fees), which can harm their financial bottom line and threaten the viability of independent brands.

Pharmacies that don’t make the cut into these preferred networks often suffer in opportunities and associated volume performance. But, pharmacies aren’t the only ones who experience a negative impact – limited networks can harm patients when their prescribed drugs aren’t available in conveniently-located pharmacies, which can lead to nonadherence and delays or failures to obtain treatment.

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PBM Formularies Are a Double-Edged Sword

Formularies can be argued as predominantly positive or negative depending on which side of the debate you reside. On one hand, it’s possible to argue that through collaboration with plan sponsors, PBMs can develop thoughtful, effective formularies that benefit all stakeholders in the industry. Strategic formularies certainly have the power to help push patients toward the right therapy at the right time while impacting medication adherence and overall treatment efficacy, all while lowering costs.

However, critics assert that PBMs leverage formularies to exert a certain power that can be potentially abused. For example, a PBM may exclude a certain drug from its formulary after unsatisfactory pricing negotiations with the drug’s manufacturer. As a result, the patients whose pharmacy benefit is managed by the PBM may be restricted from accessing potentially critical treatments for their condition.

Drug Pricing Transparency and the Future of PBMs

Many agree that the four new regulations set forth by Congress will act as critical guidelines for how PBMs impact the pharmaceutical industry. Proponents of the bills hope that they will ensure fairness for all stakeholders – leveling the financial playing field to ensure that PBMs not only negotiate healthier drug prices but keep an eye on accessibility for the providers and patients they serve.

PBMs represent a significant portion of the complex specialty pharmacy ecosystem. Does your pharmacy work with a PBM? Looking to optimize your specialty pharmacy’s performance? Learn more about how TherigySTM’s specialty patient therapy technology and subject matter expertise can help your specialty pharmacy or health system operate more efficiently within this highly competitive ecosystem today.