Pharmacy Benefit Manager: Performance Benefit and Ineffective Management

Drug therapy, compared to hospital treatment and the surgical procedure is more coherent of medical treatment. According to the recent analysis of Kaiser Family Foundation, the per capita expenditure on healthcare is expected to rise from $9,695 in 2014 to $15, 618 in 2024 with an annual average growth of 5%. When the U.S. policy makers and business executives discuss healthcare– the rising cost and irregular income for American citizen creates a blame game.

In 2014, prescription drug costs were around 9.8% of total annual heath care expenditure, with total prescription drug spending accounting for $297.7 billion, the 12.2% increase over 2013.  Now to hold the cost of a drug down, many private employers, insurers and federal government are using Pharmacy Benefit Manager (PBM). PBMs are third party administration for a prescription drug with over 266 million Americans i.e. approx.82% of the total U.S. population are covered under the commercial healthcare plans.

Pharmacy Benefit Manager evolved and first become popular in the early 1970s. The initial stage of PBM used the complex business model to manage prescription drugs, however today they are more popular for the services of healthcare insurance companies and drug program service for employers. PBM has negotiated the costing from drug manufacturers and discount from retail pharmacies. The main part of PBM is providing the patients with affordable pharmacy channels and effective delivery channel. PBM had encouraged the efficient processing of claims and improve patient compliance with high-cost specialty medications.

In 2015, the report of National Community Pharmacists Association identified three legislative and regulatory concerns

  1. Lack of accuracy and transparency in PBM revenue streams.
  2. The conflict between retail pharmacy and specialty pharmacies.
  3. Unclear generic drug pricing.
  4. Maximum allowable cost payment calculation.

Pharmaceutical manufacturers are not pleased with the emergence of PBMs since much of the savings they generate is from the drug maker. The political scrutiny on pricing has increased over the past years. According to the pharmaceutical manufactures main problem lies with coverage and not pricing.  They have three basic arguments from their side.

  1. Coverage providers implement the cost sharing strategies to restrict the rise of premiums. The manufacturers argue that rising price of drugs is mainly due to coverage providers.
  2. PBM – “Middle Men” the pricing problems seem to have greatly been because of them. The generic drug supply and specialty drug supply is regulated through middlemen.
  3. Drug companies criticize the health plans for not using various manufacturing rebates on the generic drug. This will cover the cost-sharing expenses for each drug as it is dispensed at the pharmacy counter.

PBMs main focus has been to reduce the cost of drugs for both clients and consumers. This is the reason also that the PBMs always promote generic drugs over other brands of drugs. The large hiring of PBM from Fortune-500 companies, labor unions, and government plans like Medicare Part D reduce overall pharmacy cost. The above incentives are far greater than the rebates paid by the Pharmaceutical manufacturers.

To protect the price rise the best option is promote more competition. The FDA could facilitate this by faster approvals for the bio-similar brands and generics drug.  As Policymakers juggle between reduction in cost and tight laws of approvals- the fundamental problem it solves is the price rise of generic drugs.