Lower drug costs: The PBM role

A photo illustration of prescription drugs. (Photo: txking, via Shutterstock)

The public debate around the cost of prescription drugs has unfairly turned on the one player in the system reducing drug costs – pharmacy benefit managers or PBMs.

The California Legislature is considering new, misguided legislation affecting the PBM industry. A simple understanding of the industry shows that more regulation is a bad idea that will increase drug costs.

PBMs negotiate with prescription drug manufacturers to get the lowest overall prescription drug costs for their clients.

A PBM is a health care company that contracts with insurers, employers, government programs and others to administer the prescription drug part of a health care benefit. If you have a prescription drug card, chances are that you are working with a PBM to get your prescriptions filled.

On behalf of their clients, PBMs perform a variety of services to ensure high-quality, cost-efficient delivery of prescription drugs to consumers. In California, PBMs are projected to save public programs, employers and others that pay for prescription drugs $73.5 billion over a 10-year period.

Insurers, employers, unions and government programs are not required to hire a PBM. Instead the vast majority choose to do so because PBMs have a track record of lowering costs while providing a high level of consumer satisfaction. For example, the Medicare prescription drug program, which uses PBM services, is overwhelmingly popular with a 90 percent satisfaction rate among enrollees. Health care purchasers have a number of options to choose from in the competitive PBM industry, including both large and small PBMs.

How do PBMs help reduce costs? PBMs negotiate with prescription drug manufacturers to get the lowest overall prescription drug costs for their clients. They also drive hard bargains with pharmacies. The success of a PBM is measured by its ability to drive down the overall cost of drugs while providing easy access and high quality. Health care purchasers that pay for the drug benefit rely on PBMs to keep the benefit affordable for their members.

Are the PBMs regulated? Yes, PBMs are subject to prompt payment to pharmacies and auditing regulations, copayment caps, prior authorization processes, and restrictions on how drug formularies are managed to mention a few.  And many PBMs operate high-tech pharmacies, which are regulated by the California pharmacy board.

Laws affecting insurers, both at a state and federal level likewise require compliance by the PBM or it risks losing that business and/or being penalized. PBMs generally guarantee in client contracts that they must comply with laws and regulations and can’t do anything that would cause their clients to fall out of compliance with their regulatory commitments.

Keeping the cost of the drug benefit affordable translates to lower premiums and out-of-pocket costs. Adding new mandates and government oversight to the already regulated PBM industry will do nothing to reduce drug costs. Instead, it threatens to raise health care costs for employers, public programs and consumers.

Ed’s Note: John D. Jones is an attorney and former senior vice president of professional Practice and Pharmacy Policy at OptumRx, a UnitedHealth Group Company.


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