The Role of Pharmacy Benefit Managers in American Health Care: Pharmacy Concerns and Perspectives: Part 1

NOVEMBER 14, 2017
Brittany Hoffman-Eubanks
Rising health care expenditures within the United States has been a major focus of policy makers, business owners, and individuals for years.

According to the Centers for Disease Control and Prevention (CDC), the per capita national health expenditures in 2015 US dollars was $9,990, total national health expenditures were $3.2 trillion, and the percent of Gross Domestic Product (GDP) was 17.8% 1 Furthermore, prescription drug treatment accounted for 10% of the overall costs associated with national health expenditures in the US (2015 US $).1

A 2013 report by Moses III et al, identified the top 4 drivers of health care costs in the US since 2000 as: 1) administrative costs (5.6% per year); 2) price of health care services (4.2% per year); 3) price of drugs and medical devices (4% per year), and 4) price of professional services (3.6% per year)2 Interestingly, this report did not find demand for health care services or aging of the population to significantly contribute to this increase in health care costs. Thus, the price of health care itself seems to be driving the increase in costs. 2

To address these increases in costs related to prescription drugs, private employer groups, individual States, and the federal government, have utilized the services of pharmacy benefit managers (PBMs). Historically, PBMs were “middlemen” entities designed to process prescription medication claims (for a small fee per claim) for insurance companies and plan sponsors (ex. private employers). 3

Today, PBMs have leveraged their position as the “middlemen” and now impact almost every aspect of the prescription drug marketplace.3 For example, the top 3 PBMs within the country manage the drug benefits for approximately 95% of the US population or 253 million American lives.4 Beyond their traditional claims processing, PBMs are now involved in drug utilization review, drug plan formulary development, determining which pharmacies are included in the prescription drug plan’s network, deciding how much network pharmacies will be reimbursed for their services, and operating mail order and specialty pharmacies themselves.4

A 2015 report from Applied Policy states: “over the past decade, the role of PBMs in the delivery of health care has increased, due to a confluence of factors: coverage expansions under both the Medicare Part D prescription drug benefit and the Affordable Care Act, combined with an increase in prescription drug spending that has motivated commercial health plans and self-insured employers to outsource the management of their spending on outpatient prescription drugs.”5 As a result of this increased involvement, PBMs today have multiple, extremely profitable, revenue streams with the top 3 PBMs each exceeding 15 billion in revenue yearly.

PBMs are compensated in 3 main ways: 1) rebates; 2) administrative fees; and 3) pharmacy spread.

A rebate is a discount on a mediation a drug manufacturer provides to the PBM in return for the PBM covering the manufacturer’s drug product. Since PBMs make the formularies that the plan sponsor will cover they can negotiate better prices for certain drugs (often name brand) when there are other less expensive equivalent medications that could be utilized. This process is concerning since, typically only a portion of those rebates are shared back with the plan sponsor while the PBM pockets the rest creating a major conflict of interest.6 It is estimated that approximately one-third of the net price paid for prescription drugs is traceable to these rebates and, as a result, consumers may already be paying one-third more from rebates alone.6 In addition, patients are often forced to switch their drug therapy based upon these rebates that dictate the plan’s formulary regardless of their efficacy. If patients or their providers want the patient to stay on the original drug therapy, then they are forced to obtain a prior authorization before the PBM will authorize coverage for the drug product. This practice is alarming since a patient’s drug therapy may be interrupted as a result and can lead to patient harm.  For example, the novel factor-Xa direct oral anticoagulants (apixaban, rivaroxaban, and edoxaban) are not necessarily interchangeable and evidenced based guidelines, pharmacologic properties, renal/hepatic impairment, adherence, and patient preference should be taken into account when deciding which agent is appropriate. Furthermore, these agents have very short durations of action and even missing one dose as a result of a prior authorization request can put a patient at risk of a negative outcome.

Data from 151 Fellows of the American College of Cardiology (FACC) surveyed by the American College of Cardiology (ACC) revealed that 71% thought formulary restrictions lead to disparities in care related to income, elderly age, and underserved populations.7

Administration fees are another source of revenue for PBMs where they often charge plan sponsors and manufacturers additional fees and payments that the PBM pockets. Due to the lack of transparency and the highly complicated nature of drug pricing, it is incredibly difficult for plan sponsors to identify all charges outlined in their contracts with the PBMs.6

The third, and arguably, most controversial source of revenue of the PBMs comes from the “pharmacy spread.”The pharmacy spread is a PBM practice where the network pharmacy is reimbursed one price and the plan sponsor is charged a higher price for the same drug product and the PBM pockets the difference (otherwise known as a “clawback”).6  PBMs are able to do this because they negotiate separate contracts with the network pharmacy and the plan sponsor with neither typically being privy to the other’s contract. Furthermore, the contracts created with the network pharmacies frequently forbid the pharmacy from informing the patient of this price difference who might otherwise choose to pay out-of-pocket if the cost was lower than their plan.8 Thus, this practice leads to increased costs for the plan sponsor and the patient while the PBM increases their profit. In fact, PBMs are estimated to profit by hundreds of millions of dollars annually from clawbacks and this has led to at least 16 lawsuits over the past year to address this conflict of interest.8

As a result of these revenue sources, PBMs are making billions of dollars a year with little to no federal regulation or oversight.3 The lack of transparency and regulation is alarming given they manage numerous prescription plans that are funded by American tax dollars with the intended goal of reducing costs. Meanwhile, health care costs continue to rise within the US and drug costs are an important component of total aggregate costs. In part 2 of this article series, the specific impact of PBMs on American pharmacies will be discussed in detail.

  1. Centers for Disease and Control Prevention. National Center for Health Statistics: Health Expenditures. [Internet] Accessed October 10, 2017  at:
  2. Moses H 3rd, Matheson DH, Dorsey ER, George BP, Sadoff D, Yoshimura S. The anatomy of health care in the United States. J Am Med Assoc. 2013;; 310(18)1947-1963.
  3. National Community Pharmacists Association. Pharmacy benefit managers (PBMs) 101. [Internet] Accessed October 10, 2017. Accessed at:
  4. National Community Pharmacists Association. PBMs. [Internet] Accessed October 10, 2017. Available from:
  5. Concerns regarding the pharmacy benefit management industry. [Internet] November 2016. Applied Policy. Accessed October 10, 2017. Available from:
  6. National Community Pharmacists Association. The PBM Story. [Internet] Accessed October 10, 2017. Available from:

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