Pharmacy benefit management

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In the United States, a pharmacy benefit manager (PBM) is a third-party administrator (TPA) of prescription drug programs for commercial health plans, self-insured employer plans, Medicare Part D plans, the Federal Employees Health Benefits Program (FEHBP), and state government employee plans.[1][2][3] As of 2018 they have become industrial behemoths in the US health sector.[4]

According to the American Pharmacists Association, "PBMs are primarily responsible for developing and maintaining the formulary, contracting with pharmacies, negotiating discounts and rebates with drug manufacturers, and processing and paying prescription drug claims. For the most part, they work with self-insured companies and government programs striving to maintain or reduce the pharmacy expenditures of the plan while concurrently trying to improve health care outcomes."[5][6]

As of 2016, PBMs managed pharmacy benefits for 266 million Americans.[2] PBMs operate inside of integrated healthcare systems (e.g., Kaiser or VA), as part of retail pharmacies (e.g., CVS Pharmacy or Rite-Aid), and as part of insurance companies (e.g., UnitedHealth Group).[1][6] In 2016 there were fewer than 30 major PBM companies in this category in the US,[1] and three major PBMs (Express Scripts, CVS Health, and OptumRx of UnitedHealth Group) comprise 78% of the market and cover 180 million enrollees.[1][7]

Scope and business model[edit]

A pharmacy benefit management company is a third-party administrator of prescription drug programs for commercial health plan, self-insured employer plans, Medicare Part D plans, the Federal Employees Health Benefits Program, and state government employee plans (i.e. plan sponsors).[1][2] By their own description through their trade association Pharmaceutical Care Management Association, PBMs aggregate the buying clout 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 mail-service pharmacies which home-deliver prescriptions without consulting face-to-face with a pharmacist.[8] For example, in 2015, CVS Caremark said that it reduced its plan members' prescription drug spending to 5%, down from 11.8% in 2014.[9]

PBMs advise their clients on ways to "structure drug benefits" and offer complex selections at a variety of price rates from which clients chose. A 2013 investigation of PBM marketing from Fortune Magazine showed: Drug pricing is difficult to untangle and customers have no way of knowing how much they are saving.[10] Savings are generally considered trade secrets.[11]


PBMs have been strong proponents in the creation of a U.S. Food and Drug Administration (FDA) pathway to approve biosimilar versions of expensive specialty drug which treat conditions like Alzheimer's, rheumatoid arthritis and multiple sclerosis.[12] PBM´s support so-called biosimilar legislation which does not grant brand name drug manufacturers monopoly pricing power.[13] In 2015 the 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.[14]


As of 2004, the Federal Trade Commission found PBMs operated in a marketplace with "vigorous competition".[15] And as of 2013, in the United States, a majority of the large managed prescription drug benefit expenditures were conducted by about 60 PBMs.[16] Few PBMs are independently owned and operated. PBM´s operate inside of integrated healthcare systems (e.g., Kaiser or VA), as part of retail pharmacies, major chain drug stores (e.g., CVS Pharmacy or Rite-Aid), and as subsidiaries of managed care plans or insurance companies (e.g., UnitedHealth Group).[1][6] However in 2016 fewer than 30 major PBM companies were in this category in the US,[1] and only three major PBMs (Express Scripts, CVS Health, and OptumRx of UnitedHealth Group) comprised 78% of the market, covering 180 million enrollees.[1][7]


in 1968, the first PBM was founded when Pharmaceutical Card System Inc. (PCS, later AdvancePCS) invented the plastic benefit card.[1] By the "1970s, [they] serve[d] as fiscal intermediaries by adjudicating prescription drug claims by paper and then, in the 1980s, electronically".[17]:34

By the late 1980s, PBMs had become a major force "as health care and prescription costs were escalating".[18] Diversified Pharmaceutical Services (DPS) was one of the earliest examples of a PBM which came from within a national health maintenance organization (HMO) United HealthCare (now United HealthGroup).[19]:304[20] After SmithKline Beecham acquired DBS in 1994, Diversified played a pivotal role in its Healthcare Service division and by 1999 UnitedHealth Group accounted for 44% of DPS's total membership.[20] Express Scripts acquired Diversified in April 1999 and consolidated itself as a leading PBM for managed care organizations.[20]

In August 2002, the Wall Street Journal wrote that while PBMs had "steered doctors to cheaper drugs, especially low-cost generic copies of branded drugs from big pharmaceutical companies" from 1992 through 2002, they had "quietly moved" into marketing expensive brand name drugs.[21]

In 2007, when CVS acquired Caremark,[1] the function of PBMs changed "from simply processing prescription transactions to managing the pharmacy benefit for health plans",[17]:34 negotiating "drug discounts with pharmaceutical manufacturers",[17]:34 and providing "drug utilization reviews and disease management".[17]:34 PBMs also created a formulary to encourage or even require "health plan participants to use preferred formulary products to treat their conditions".[17]:34 In 2012, Express Scripts and CVS Caremark transitioned from using tiered formularies, to those that excluded drugs from their formulary.[1][22]

Major PBMs[edit]

In 2015, the three largest public PBMs were Express Scripts, CVS Health (formerly CVS Caremark) and United Health/OptumRx/Catamaran.[23][24][25]

Express Scripts[edit]

In 2012 Express Scripts acquired rival Medco Health Solutions for $29.1 billion and became "a powerhouse in managing prescription drug benefits".[26] As of 2015, Express Scripts Holding Company was the largest pharmacy benefit management (PBM) organization in the United States.[27] with 2013 revenues of $104.62 billion.[28]

In October 2015 Express Scripts began reviewing pharmacy programs run by AbbVie Inc and Teva Pharmaceuticals Industries Ltd regarding the potential use of tactics that "can allow drugmakers to work around reimbursement restrictions" from Express Scripts and other insurers. These reviews resulted from investigations into "questionable practices" at Valeant Pharmaceuticals International Inc's partner pharmacy, Philidor Rx Services.[27]

CVS Health[edit]

In 1994, CVS launched PharmaCare, a pharmacy benefit management (PBM) company providing a wide range of services to employers, managed care organizations, insurance companies, unions and government agencies.[29] By 2002 CVS' specialty pharmacy ProCare, the "largest integrated retail/mail provider of specialty pharmacy services" in the United States,[30]:10 was consolidated with their pharmacy benefit management company, PharmaCare.[30][31]:4 Caremark Rx was founded as a unit of Baxter International and in 1992 spun off from Baxter as a publicly traded company. In March 2007, CVS Corporation acquired Caremark to create CVS Caremark, later re-branded as CVS Health.[32]

In 2011 Caremark Rx was the nation's second-largest PBM. Caremark Rx was subject to a class action lawsuit in Tennessee, which alleged that Caremark kept discounts from drug manufacturers instead of sharing them with member benefit plans, secretly negotiated rebates for drugs and kept the money, and provided plan members with more expensive drugs when less expensive alternatives were available. CVS Caremark paid $20 million to three states over fraud allegations.[33]

UnitedHealth Group[edit]

OptumRx, one of the Optum businesses of UnitedHealth Group Inc, has been a leading PBM.[34] In March 2015 UnitedHealth Group acquired Catamaran Corporation for about $12.8 billion to extend this PBM business.[35][36]

Controversies and Litigation[edit]

In 1998, PBMs were under investigation by Assistant U.S. Attorney James Sheehan of the federal Justice Department and their effectiveness in reducing prescription costs and saving clients money, were questioned.[18]

In 2004, litigation added to the uncertainty about PBM practices.[33][37] In 2015, there were seven lawsuits against PBMs involving fraud, deception, or antitrust claims.[1][7]

State legislatures have been using "transparency", "fiduciary", and "disclosure" provisions to improve the business practices of PBMs.[37] In 2011, the Mississippi Board of Pharmacy formed a new division of the Pharmacy Benefit Managers (PBMs), with a mandate to license and regulate PBMs.[38]

A 2013 Centers for Medicare & Medicaid Services study found negotiated prices at mail order pharmacy to be up to 83% higher than the negotiated prices at community pharmacies.[39]

A 2014 ERISA (Employee Retirement Income Security Act of 1974) hearing noted that vertically integrated PBMs may pose conflicts of interest, and that PBMs' health plan sponsors "face considerable obstacles in...determin[ing] compliance with PBM contracts including direct and indirect PBM compensation contract terms".[40]

In 2017, the Los Angeles times wrote that PBMs cause an inflation in drug costs, especially within the area of diabetes drugs.[41]

United States Secretary of Health and Human Services Alex Azar stated regarding PBMs, "Everybody wins when list prices rise, except for the patient. It’s rather a startling and perverse system that has- that has evolved over time."[42]

See also[edit]


  1. ^ a b c d e f g h i j k l Feldman, Brian S. "Big pharmacies are dismantling the industry that keeps US drug costs even sort-of under control". Quartz. Retrieved 2016-03-29.
  2. ^ a b c Pharmaceutical Care Management Association (PCMA) (March 14, 2016), That's What PBMs Do, retrieved 2016-03-29
  3. ^ Gryta, Thomas. "What is a 'Pharmacy Benefit Manager?'". Wall Street Journal. ISSN 0099-9660. Retrieved 2016-03-29.
  4. ^ Schulman KA, Richman BD. The Evolving Pharmaceutical Benefits Market. JAMA. 2018;319(22):2269–2270. doi:10.1001/jama.2018.4269
  5. ^ "Pharmacy Benefit Management" (PDF). American Pharmacists Association. July 9, 2009. Retrieved November 4, 2015.
  6. ^ a b c Danzon, Patricia (June 29, 2014). "2014 ERISA Advisory Council: PBM Compensation and Fee Disclosure" (PDF). Retrieved 2016-03-29.
  7. ^ a b c Balto, David A. (November 17, 2015). "The State of Competition in the Pharmacy Benefits Manager and Pharmacy Marketplaces" (PDF). House Judiciary Subcommittee on Regulatory Reform, Commercial, and Antitrust Law. Retrieved 2016-03-29.
  8. ^ "Pharmaceutical Care Management Association". Retrieved 2016-03-29.
  9. ^ Health, CVS. "CVS Health Reports Dramatic Drop in Prescription Drug Trend to 5 Percent, Despite Rising Drug Prices". Retrieved 2016-03-29.
  10. ^ Eban, Katherine (October 28, 2013). "Painful Prescription" (PDF). Fortune Magazine. Archived from the original (PDF) on May 7, 2018. Retrieved 28 January 2018.
  11. ^ Sarpatwari A, Avorn J, Kesselheim AS. An Incomplete Prescription.President Trump’s Plan to Address High Drug Prices. JAMA. 2018;319(23):2373–2374. doi:10.1001/jama.2018.7424
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  13. ^ "Our view on generic medications: Drugmakers seek excessive monopolies on 'biologics'", USA Today, August 12, 2009, retrieved October 31, 2015
  14. ^ "Follow-on Biologic Drug Competition", Federal Trade Commission, June 2009, retrieved October 31, 2015
  15. ^ US Federal Trade Commission & US Department of Justice Antitrust Division, "Improving Health Care: A Dose of Competition," July 2004
  16. ^ Shepherd, Joanna (July 2013). "Is More Information Always Better? Mandatory Disclosure Regulations in the Prescription Drug Market". Cornell Law Review Online. 99. SSRN 2234212.
  17. ^ a b c d e Allison Dabbs Garrett; Robert Garis (2007). "Leveling the Playing Field in the Pharmacy Benefit Management Industry". Valparaiso University Law Review. 42 (1): 33–80. Retrieved October 31, 2015.
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  23. ^ "OptumRx". OptumRx. Retrieved 2018-06-20.
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  26. ^ Sierra, Michelle (July 22, 2011). "Express Scripts takes $14 billion bridge loan". Reuters. Retrieved October 31, 2015.
  27. ^ a b Beasley, Deena (October 30, 2015). "Exclusive: Beyond Valeant, U.S. payers scrutinize other drugmaker ties to pharmacies". Los Angeles: Reuters. Retrieved November 1, 2015.
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  39. ^ "Article" (PDF).
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