Pharmacy Patient FAQs

What is a PBM? What do PBMs do? How do they affect patients?
We answer our patients' most frequently asked questions.
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What are Pharmacy Benefit Managers?
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The 3 largest PBMs in the U.S. healthcare market are CVS Caremark, Express Scripts, and OptumRx. Together they control over 80% of the nation's prescription drug plans.

Pharmacy benefit managers (also known as PBMs) are middlemen that sit between drug manufacturers and pharmacies. Originally created as paper pushers to process prescription drug claims, PBMs do not manufacture or distribute medications, and they are not healthcare professionals. Their purpose is to negotiate discounts with the drug manufacturers on behalf of health insurance plans. The largest PBMs are owned by the nation's largest health insurance corporations. 

This type of vertical integration in healthcare is a conflict of interest. In their role as drug price negotiators, PBMs also determine which medications are on the "approved" or "covered" lists for the insurance company, decide how much they will charge for those medications, and determine how much they will reimburse pharmacies for each prescription they fill. This gives them the ability to game the system by redirecting any "savings" they negotiated back into their own pockets at every level  -- including at the pharmacy counter.

Why is that important?

 

PBMs constantly claim they save health plans money, or claim that if Congress passes meaningful reform that it will cause insurance premiums to rise. Nothing could be further from the truth.

As subsidiaries of giant publicly-held healthcare corporations that rank higher than pharmaceutical companies in the Fortune 500 list, PBMs' main focuses are corporate profits & ensuring high returns for their shareholders  -- not patients. 

Pharmacy benefit managers have a place in the healthcare system - in their original purpose as administrators. Unfortunately, corporate greed borne of vertical integration has created unregulated, unethical monsters that prey on every facet of the system, including patients and taxpayers. By exploiting their position within giant corporations that also include insurance, pharmacies, and provider networks, any "savings" PBMs claim to generate are funneled back into their own companies' pockets as revenue  -- which means PBM premium increase threats are simply an effort by their parent corporation to compensate for the loss of a revenue stream due to patient-centered legislation.

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What's a Prescription Drug 'Rebate'? Aren't Rebates Supposed to Lower Costs?

 

The term "rebate" usually means the buyer of a product receives some money back post-purchase. This is not the case for prescription drugs. In the prescription drug market, a rebate is money paid by the drug maker to the pharmacy benefit manager (PBM) for placement on a health insurance plan's formulary, which is a list of medications approved to be covered by a health insurance plan. Essentially, the patient buys the medication, but the PBM keeps the rebate.

Pharmacy benefit managers (PBMs) negotiate manufacturer rebates -- which they keep in part or whole. The more expensive the medication, the higher the rebate.. PBMs will often structure their contracts to allow them to collect and keep rebates as part of an “administrative fee” or “rebate sharing” arrangement with the health insurance plan instead of passing the rebate to its rightful owner - the purchaser of the prescription.

 

Since the largest PBMs are owned by the largest health insurance companies, this "rebate sharing" arrangement is a funnel directly back into the corporation's own pockets. Patients never see a dime.

Are All PBMs Bad?

No. Not all PBMs operate in an anticompetitive, unethical manner.

 

The largest PBMs that control the majority of the market are known as traditional PBMs. They operate in a black box of unregulated secrecy that allows them to overcharge governments and employers, bully patients, and run their competitors (pharmacies they do not own) out of business.

 

Transparent or "pass-through" PBMs are smaller companies that provide the same services as traditional PBMs but without unnecessary fees, pricing games, and shady business practices. These honest PBMs are actually there to lower prices for patients and the health plans they represent - unlike their traditional PBM counterparts.

More Frequently Asked Questions

Are PBMs Healthcare Providers?

PBMs are an administrative arm of - or in some cases, a 3rd party services provider for - insurance companies. They negotiate rebates on prescription medications with drug makers, determine formulary placement for the health insurance plans they represent, set reimbursement rates for pharmacies and physicians, and enforce patient requirements of their own making -- for example prior authorizations.

 

PBMs do not have medical degrees and are not providers of healthcare, despite the prescription drug decisions they make that directly affect patients.

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What is a 'Gag Clause'? What Purpose Does it Serve?

"Gag clauses" in contracts between community pharmacies and pharmacy benefit managers forbid pharmacists from telling customers if they could save money on their medications by paying for them out of pocket instead of through their insurance plan.

 

PBMs put these clauses in their contracts to keep patients from knowing about the cheaper "cash" prices. Pharmacists who break the gag clause can be fined, so they usually will not offer this information to patients unless asked. The only way around the gag clause is for the patient to ask the pharmacist if they can get a better price on their prescription if they pay out of pocket.

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Why is My Insurance Company Requiring Me to Use Mail Order for My Prescription?

Almost all PBMs own -- or are affiliated with -- mail-order specialty pharmacies. PBMs attempt to force or "steer" patients to those pharmacies in an effort to keep all the money 'in-the-family' (so to speak).

 

Imagine you have a membership at a big box store that offers delivery. You want to purchase your favorite cereal from the local grocer that's 1 block from your house and offers a better price, but the big box store will penalize your membership & raise prices on what you buy if you don't use their store and delivery service.

 

Not exactly ethical, right? That's the same as "steering" or forced mail-order.

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What is a Formulary?

A formulary is the list of prescription drugs that a health insurance company has agreed to cover on behalf of their plan members. PBMs determine these "approved drug lists" for each healthcare plan they represent and update or change them on a regular basis.

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What is "Spread Pricing"? How Does it Affect Me?

PBMs charge health insurance plans for every prescription that one of their members has filled. They also reimburse the pharmacy that filled each prescription. Spread pricing is when a PBM pockets the difference between what they charge the health plan and what they pay the pharmacy. 

 

The problem is that since PBMs are not currently required to disclose the actual cost of a prescription and how much they mark up their services (even to the government), that "spread" can easily equal hundreds or thousands of dollars Per Plan. To add insult to injury, PBMs often reimburse local pharmacies at well below what it costs the pharmacy to purchase a medication then pocket that difference as well.

 

Spread pricing adds additional costs to what employers and governments pay on prescription drug plans, which directly affects patients and taxpayers.

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What Makes a Community Pharmacy Different From a National Chain Pharmacy?

National chain pharmacies (think CVS, Walgreens, Rite Aid) are owned and operated by billion-dollar conglomerates that in many cases also own or have ties to health insurance companies and their PBMs. Since their parent companies are publicly-held corporations their first priority is to their shareholders - not patients.

Community pharmacies are locally owned and operated by small business owners. Their first priority is to their patients. Most community pharmacies offer local prescription delivery, vaccinations, patient counseling - everything that national chains claim to offer - but with a community pharmacy, the money a patient spends on prescriptions stays in the community. Community pharmacies also usually have lower cash prices on prescriptions than their giant chain counterparts, and because they are local residents themselves, they many times have personal relationships with the area doctors and hospitals so communication between all parties on behalf of patients is a common occurrence.. Patients filling their prescription at a community pharmacy can rest assured that they are a valued person who is being cared for - not a number without a name.

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"For too long, the largest PBMs have been able to use their dominant market position to crush competition by creating a monopoly-like environment that works against patients, consumers and taxpayers."

PUTT Board of Directors

statement to the Federal Trade Commission

As A Patient, What Can I Do About This Problem?

Several things.

  1. Visit your local independent community pharmacy and talk to your local pharmacist to understand how your drug plan influences the price you pay for medications.

  2. Ask your local community pharmacist about any price difference between what you pay for your medications through your insurance plan, and what you would pay without insurance (the cash price).

  3. If you manage an employee benefit plan, ask your broker or PBM representative to provide a detailed explanation of your fee structure or contact PUTT for information on switching to a transparent “pass-through” PBM.

  4. File official complaints with your state Department of Insurance and the Federal Trade Commission if you feel your health plan's PBM is violating your rights as a patient.

  5. Contact your state and federal legislators to let them know you support legislation that reins in PBM abusive practices, promotes transparency in the prescription drug market, and puts patients and local healthcare providers first.

Support Us in the Fight Against PBM Abuse of American Patients