Pharmacy benefit management
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In the United States, a Pharmacy Benefit Manager (PBM) is most often a third party administrator (TPA) of prescription drug programs but sometimes can be a service inside of an integrated healthcare system (e.g.: Kaiser or VA). They are primarily responsible for processing and paying prescription drug claims. They also are responsible for developing and maintaining the formulary, contracting with pharmacies, and negotiating discounts and rebates with drug manufacturers. Today, more than 210 million Americans nationwide receive drug benefits administered by PBMs. Fortune 500 employers and public purchasers (Medicare Part D, the Federal Employees Health Benefits Program) provide prescription drug benefits to the vast majority of American workers and retirees. There are fewer than 100 major companies in this category in the US.
Scope of PBMs
PBMs aggregate the buying clout of millions of enrollees through their client health plans, enabling plan sponsors and individuals to obtain lower prices for their prescription drugs through price discounts from retail pharmacies, rebates from pharmaceutical manufacturers, and the efficiencies of mail-service pharmacies. PBMs also use clinical tools aimed at reducing inappropriate prescribing by physicians, reducing medication errors, and improving consumer compliance and health outcomes.
Competition among PBMs
PBMs operate in an extremely demanding marketplace where competition has been described as “vigorous” by the Federal Trade Commission (FTC). Currently, in the United States, a majority of the huge managed prescription drug benefit expenditures are conducted by about 60 PBMs. While many PBMs are independently owned and operated, some are subsidiaries of managed care plans, major chain drug stores, or other retail outlets. PBMs compete to win business by offering their clients a range of sophisticated administrative and clinically based services, enabling them to manage drug spending by enhancing price competition and increasing the cost-effectiveness of medications.
In 2012,the five largest PBMs were: 1. Express Scripts (acquired Medco Health Solutions); 2. CVS Caremark; 3. Prime Therapeutics, a PBM owned by and operated for a collection of state Blue Cross Blue Shield plans; 4. OptumRx, the PBM business unit of UnitedHealth Group; 5. Catamaran Corporation (SXC + Catalyst).  
PBM strategies and tools
All PBMs offer a core set of services to manage the cost and utilization of prescription drugs and improve the value of plan sponsors' drug benefits. Some offer additional tools, such as disease management, that can target specific clinical problems for intervention. It is up to the client of the PBM, however, to determine the extent to which these tools will be employed.
Such tools include:
- Pharmacy networks — PBMs build networks of retail pharmacies to provide consumers convenient access to prescriptions at discounted rates. PBMs monitor prescription safety across all of the network pharmacies, alerting pharmacists to potential drug interactions even if a consumer uses multiple pharmacies.
- Mail service pharmacies — PBMs provide highly efficient mail-service pharmacies that supply home-delivered prescriptions with great accuracy and safety and at a substantial savings. In a 2005 report, the FTC determined that PBM-owned mail-order pharmacies (1) offer lower prices on prescription drugs than retail pharmacies and non-PBM owned mail pharmacies; (2) are very effective at capitalizing on opportunities to dispense generic medications; and (3) have incentives closely aligned with their customers: the third-party payers who fund prescription drug care. The Government Accountability Office (GAO) has also found that mail-order pharmacies in the Federal Employees Health Benefits Program (FEHBP) offer substantial savings, especially when compared to retail pharmacies. According to January 2003 GAO report examining cost savings with mail-order pharmacies under FEHBP, the average mail-order pharmacy price for prescription drugs was 27 percent lower for brand name drugs and 53 percent lower for generic drugs than the price paid to retail pharmacies by cash-paying customers. According to GAO, “enrollees in the plans reviewed had wide access to retail pharmacies, coverage of most drugs, and benefited from cost savings generated by the PBMs. Enrollees typically paid lower out-of-pocket costs for prescriptions filled through mail-order pharmacies and benefited from other savings that reduced plans’ costs and therefore helped to lessen rising premiums.
- The shipment of drugs through the mail and parcel post is sometimes a concern for temperature-sensitive pharmaceuticals. Uncontrolled shipping conditions can include high and low temperatures outside of the listed storage conditions for some drugs. For example, the US FDA found the temperature in a mail box in the sun could reach 136°F (58°C) while the ambient air temperature was 101°F (38°C). Shipment by express mail and couriers reduces transit time and often involves delivery to the door, rather than a mail box. The use of insulated shipping containers also helps control drug temperatures, reducing risks to drug safety and efficacy.
- Formularies — PBMs use panels of independent physicians, pharmacists, and other clinical experts to develop lists of drugs approved for reimbursement in order to encourage clinically appropriate and cost-effective prescribing; PBM clients always have the final say over what drugs are included on the formulary that they offer to their employees or members.
- Plan design — PBMs advise their clients on ways to structure drug benefits to encourage the use of lower cost drug alternatives — such as generics — when appropriate.This is done by setting plans up with different copay tiers, in this case the client will apply a lower copay for generic drugs than it would for brand drugs. The PBMs’ role is advisory only; the client retains all responsibility for establishing the plan design.
- Electronic prescribing (E-prescribing) — PBMs have pioneered the use of cutting-edge e-prescribing technology, which provides physicians with clinical and cost information on prescription options that allows them to better counsel consumers on which medications—including various lower cost options—will be the safest and most affordable choices. PBMs led the effort to increase the use of e-prescribing in Medicare. Financial incentives for physicians to adopt health information technology (HIT) included in the recent economic stimulus bill will increase the number of prescribers using e-prescribing to more than 75 percent over the next five years—nearly double the rate of use anticipated after passage of last year’s e-prescribing legislation. Research has found that e-prescribing will help prevent 3.5 million harmful medication errors and save the federal government $22 billion in drug and medical costs over the next 10 years, offsetting the projected $19 billion in federal outlays to modernize the nation’s HIT infrastructure under the American Recovery and Reinvestment Act (ARRA).
- Manufacturer discounts — PBMs pool purchasing power to negotiate substantial discounts from pharmaceutical manufacturers in order to lower benefit costs for clients and consumers.
- Clinical management — PBMs use a variety of tools such as drug utilization review and disease management to encourage the best clinical outcomes for patients.
- Pharmacy discount cards — PBMs are able to offer the uninsured their prenegotiated drug prices through the use of a pharmacy discount card. These discount cards can save users without insurance from between 10% and 75% on prescription medication, however many independent pharmacies offer prescriptions at or below the recommended price by a discount program. 
PBMs have been strong proponents in the creation of a U.S. Food and Drug Administration (FDA) pathway to approve similar versions of expensive drugs that treat conditions like Alzheimer's, rheumatoid arthritis and multiple sclerosis. So-called biosimilar legislation that does not grant brand name drug manufacturers monopoly pricing power is strongly supported by PBMs, AARP, AFL-CIO, the Ford Motor Company, and dozens of other consumer, labor, and employer organizations concerned about runaway health care costs in both the private and public sector. A recent Federal Trade Commission (FTC) found that patents for biologic products already provide enough incentives for innovation and that additional periods of exclusivity would "not spur the creation of a new biologic drug or indication" and "imperils" the benefits of the approval process.
- US Federal Trade Commission & US Department of Justice Antitrust Division, “Improving Health Care: A Dose of Competition,” July 2004
- Reference: Health Strategies Group, "Profiles of Leading PBMs." September 2012.
- SXC to buy Catalyst in $4.4 billion drug benefit deal - Chicago Tribune. Articles.chicagotribune.com (2012-04-18). Retrieved on 2013-09-05.
- Federal Trade Commission, “Pharmacy Benefit Managers: Ownership of Mail-Order Pharmacies,” August 2005, available at http://ftc.gov/reports/index.htm#2005
- Government Accountability Office, “Federal Employee’s Health Benefits: Effects of Using Pharmacy Benefit Managers on Health Plans, Enrollees and Pharmacies,” GAO-03-196, January 2003, available at <http://www.gao.gov/new.items/d03196.pdf>.
- Black, J. C.; Layoff, T. "Summer of 1995 – Mailbox Temperature Excurions of St Louis". US FDA Division of Drug Analysis. Retrieved 12 July 2011.
- Perrone, M., “Electronic Prescribing Push Clicks with Congress,” The Associated Press, June 3, 2008; Mathews, A.W. and Radnofsky, L., “E-Prescribing Gets Support in Congress,” The Wall Street Journal, June 5, 2008.
- Visante, “American Recovery and Reinvestment Act Will Save Billions and Reduce Medication Errors by Accelerating E-Prescribing,” prepared for the Pharmaceutical Care Management Association, March 2009, http://www.pcmanet.org/wp-content/uploads/2009/03/final-arra-impact-on-eprescribing.pdf.
- Medication Discount Card. Medication Discount Card. Retrieved on 2013-09-05.
- Schouten, F., “Lobbyists battle over drug sales,” USA Today, July 29, 2009.
- “Our view on generic medications: Drugmakers seek excessive monopolies on ‘biologics’”, USA Today, August 12, 2009.
- Federal Trade Commission, “Follow-on Biologic Drug Competition,” June 2009. 2010
- A Garrett & R Garis, Leveling the Playing Field in the Pharmacy Benefit Management Industry, 42 Valparaiso University Law Review 33-80 (2007)
Correct citation: 42 Val. U.L. Rev. 33