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PBM 101

What's a PBM? How do they affect me? Here's what you need to know.

What is a PBM?


PBMs are third-party administrators contracted by health plans, large employers, unions, and government entities to manage prescription drug benefits programs. Originally intended to process claims on behalf of clients, PBMs profit at every stage of the supply chain from drug maker to patient.  They are often called “invisible middlemen” or "medical middlemen" because they are hidden between the patient’s insurance company, whom the PBM works for, and the pharmacy, whom the PBM reimburses for dispensing the prescription. Currently, the three largest PBMs - CVS Caremark, Express Scripts, and OptumRx (a division of United Healthcare) hold nearly 80% of the prescription benefits market in the U.S. 

Most Americans know PBMs as their prescription drug benefits plan provider as part of their health insurance coverage. While the prescription benefits plans have different names, most can be tied back to one of the “Big Three” PBMs.

What's Bad About PBMs?

It starts with the nature of the PBM business model, which masquerades as a “cost saver” but is actually a cost multiplier. PBMs profit at nearly every stage of the supply chain from the drug manufacturer to the patient purchasing the prescription at the pharmacy: PBMs negotiate and keep manufacturer rebates in exchange for covering some drugs over others; they determine how much to bill the insurance plan per prescription and what they will reimburse the pharmacy for dispensing that prescription.


PBMs manage Medicaid and Medicare prescription plans and bill the government the same way they bill their private insurance clients. PBMs own their own pharmacies - both retail stores and mail-order - and make money when patients are forced to use mail order or only purchase from a PBM-owned pharmacy, such as CVS. PBMs also reimburse their own pharmacies more than they reimburse non-PBM-owned pharmacies, especially small community and independent pharmacies.


All together, PBMs generate more than $315 billion annually in revenue for themselves and their shareholders by adding their cost of doing business to the end cost of the prescription paid by insurance plan premiums and patient copays at the pharmacy counter.

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What's the Relationship Between PBMs & Pharmacies?

PBMs are responsible for reimbursing the pharmacy for dispensing the patient’s medication. The pharmacy, who has already incurred a cost for dispensing the medication, has no control over any aspect of the medication’s sale. It is the PBM who determines the patient’s copay and the PBM who determines in advance how much it will reimburse pharmacies for each medication covered under the drug plan.


Under a secret PBM-developed system called the “Maximum Allowable Cost” (MAC) list, it is the PBMs who pre-determine how much each drug covered under the plan should cost, and this is the amount it reimburses all pharmacies but the ones they own. Often the reimbursement rates are well below the cost of the drug, putting pharmacies in the position of having to fill a prescription at a loss. No one is sure how the maximum allowable cost for each covered drug is determined because PBMs are not regulated and are not required to disclose their formulas for determining cost. PBMs consider this information a “trade secret”, leaving pharmacies with no choice but to appeal losses they incur in order to fill the prescription. Often those appeals are denied, or simply ignored by the PBM.

Support Us in the Fight Against PBM Abuse of Pharmacies & Patients

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