The PBM Paradox: From Cost Containment to Price Spikes and What Comes Next

Pharmacy benefit manager (PBMs) transparency and reform remains among the hottest of the industry’s hot-button issues. While PBMs were initially created to contain costs and manage healthcare expenses, their opaque business models have contributed to ongoing spikes in drug pricing.

It’s worth taking a look under the hood at the key PBM revenue stream of rebates. PBMs are incentivized to engage in a “high price/high rebate” model with pharma and, since the big three PBMs (CVS Caremark, Express Scripts and OptumRx) process a majority of all prescription claims, they have significant influence over how drug manufacturers price their therapies.

PBMs could implement a pass-through model for rebates and discounts. This would require them to be more transparent with their clients—insurance companies, employers and more—and provide National Drug Code-level data that shines a light on negotiated discounts.

So how does the industry effect true reform that contributes to a reduction in Rx costs? PBMs could implement a pass-through model for rebates and discounts. This would require them to be more transparent with their clients—insurance companies, employers and more—and provide National Drug Code-level data that shines a light on negotiated discounts. Instead of keeping a significant portion of manufacturer rebates, PBMs should be contractually obligated to pass 100% of them back to health plans or employers, who can then lower premiums or patient out-of-pocket costs.

Pharma can play a pivotal role as well, especially if it chooses to embrace alternative PBM models and direct contracting. Brand teams might consider engaging with market disruptors, like the so-called “transparent PBMs,” that operate without hidden fees and retained rebates. These teams should also be exploring direct-to-employer and direct-to-patient solutions that bypass the PBM entirely.

As more patient volume shifts from the Big Three into new access pathways, brand teams will want to make sure they provide easy access to their portfolio. Those who can credibly position themselves as leaders in accelerating savings, access and transparency will be the ones who thrive in the current landscape.