JUNE 01, 2006

The Wall Street Journal (WSJ) examined how pharmacy benefit managers (PBMs) have managed to grow into "a hugely lucrative place in the food chain" of prescription drug sales, because they "have figured out how to use mail order to turn generics into a bonanza." The 3 largest PBMs—Medco Health Solutions, Caremark Rx, and Express Scripts—reported almost $2 billion in combined profits last year. Generics made up more than half of Medco's mail-order earnings.

According to the WSJ, the PBMs buy generic drugs in bulk for pennies a pill and then charge employers significantly more. For example, in a court case in Ohio, Medco paid $90 for enough pills to fill 114 prescriptions for a generic version of Valium (diazepam) but charged the Ohio State Teachers Retirement System $1028 for the medicine. Many employers, however, still consider the trade-off "a bargain, because [prices of generics are] generally still much lower than those of brand name drugs," the WSJ reports.

The PBMs maintain that the amount they charge employers is necessary to cover overhead costs and smaller profit margin losses for branded drugs. Some states have recently considered legislation that would require PBMs to disclose the sources of their earnings.