Prescription Drugs

PBM industry goals: increased growth and affordable prescription drugs

November 16, 2020

PBM industry goals: increased growth and affordable prescription drugs

In a recent Gallup survey that asked what adults in the United States perceive as the most important problems facing the country, one of the top two answers was health care, with almost 20% of all responses.  

Annual U.S. spending on prescription drugs exceeds $450 billion, the most per capita compared with other high-in

come nations. As we mentioned in a previous blog, “The rising costs of specialty drugs,” Americans spend approximately $1,200 on prescription drugs every year, a number that has risen rapidly in past decades.  


The costs are especially high for specialty drugs, which average $4,500 per month. That’s a primary reason one in four people have a difficult time affording their medicine 


Enter pharmacy benefit managers (PBMs). PBMs administer prescription drug plans for more than 266 million Americans with health coverage and attempt to manage prescription drug costs by negotiating with pharmaceutical companies or helping them optimize their specialty drug formularies. Working on behalf of health insurers, Medicare Part D drug plans, large employers and other payers, the goal of PBMs is to increase prescription drug access while reducing cost growth.  

The PBM process 

According to the Pharmaceutical Care Management Association (PCMA), PBMs reduce drug costs by offering Amazon-style home delivery of medications and creating select networks of more affordable pharmacies, as well as these seven key ways:  

  • Negotiating rebates from drug manufacturers 
  • Negotiating discounts from drugstores 
  • Offering more affordable pharmacy channels 
  • Encouraging use of generics and affordable brands 
  • Reducing waste and drug interactions 
  • Improving adherence 
  • Managing high-cost specialty medications  

Industry expansion 

As the Colorado Health Institute notes, PBMs were established in the 1960s and specialized in handling low-dollar claims. They oversaw the prescription drug claims that came through pharmacies, set copayment levels for enrollees and decided which pharmacies would be in-network. The PBM industry expanded around 1990 by establishing a business model that forced manufacturers to engage in price competition in several drug categories.  


Further diversification of the PBM industry occurred after the enactment of the 2003 Medicare Modernization Act, which included the creation of Medicare Part D. As a recent article in BenefitsPRO explained, “enrollment in Medicare Part D plans has skyrocketed over the past 15 years, and Medicare depends heavily on PBMs … to absorb risk.”  


Factors that have helped to enlarge the PBM industry, include:  

  • Growing market consolidation 
  • Digital health solutions 
  • Expansion of specialty pharmaceuticals 
  • A shift to value-based contracts 
  • Increased engagement in high-touch care management  


There is also a reliance on employers, unions and other health care payers to offer customizable clinical and operational services that enhance the safety, quality and affordability of care for patients using specialty drugs. In addition, increased media and policymaker focus on the price of prescription drugs has drawn more attention to the role of PBMs.  

Substantial savings 

How do PBMs benefit health care consumers? These numbers highlight the savings available through the PBM industry: 

  • PBMs are projected to save employers, unions, government programs and consumers $654 billion on drug benefit costs over the next decade. 
  • From 2020-29, the current use of PBM tools will save health plan sponsors and consumers more than $1 trillion. 
  • PBMs save patients and plans $10 per generic drug prescription, $123 per brand-name prescription and $1,593 per specialty prescription 
  • Access to PBM and payer pharmacy, medical and specialty benefit data allows specialty pharmacies to develop highly customizable programs and services that result in up to a 50% difference in cost trends. 
  • PBMs save payers and patients 40-50% on their annual prescription drug and related medical costs, compared to what they would have spent without PBMs. 
  • PBMs save payers and patients an average of $941 per person every year. 
  • PBMs save the health care system an average of $6 for every $1 spent on PBM services.  

Perks of a peer review partnership 

By joining with payers, peer review partners support PBMs in their aim to benefit health care consumers. An accredited independent review organization can assist in identifying trends to drive process improvement by, for example, determining exceptions for specialty drugs for customers during the review process. Also, they collaborate to ensure treatments align with plan language, jurisdictional requirements and/or evidentiary guidelines for efficacy, safety and value.  


Advanced Medical Reviews’ pharmacy review expertise benefits our clients by directing them through the maze of challenges presented by specialty drugs. We help them incorporate evidence-based and regulatory guidelines into their formularies and make sure their members’ medication regimens are built on medical criteria, guidelines and research.  


Because our nationwide network of reviewers must match the needs of the patients with the benefit language of the health plan, we can run each case by specialty-matched physician reviewers with access to the most recent guidelines and research.  


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PBM industry goals: increased growth and affordable prescription drugs