In recent years, Pharmacy Benefit Managers (PBMs) have faced increased scrutiny from various stakeholders within the healthcare ecosystem. This includes pharmacies, consultants, providers, legislators, and regulators who have, at times, portrayed PBMs as contributors to rising healthcare costs and reduced accessibility. PBMs are often criticized as merely middlemen who drive up the cost of drugs while keeping their pricing opaque. They have been accused of lack of transparency through spread-pricing, thus not adhering to the doctrine of “Accountability, Alignment, and Value”.
Prescription drug access and affordability requires alignment and accountability among all stakeholders. The issues and considerations tied to the delivery of prescription drugs do not lie solely on the shoulders of the PBMs. As with all healthcare and non-healthcare market segments, there are underlying dynamics, complexities, and flaws. This is true, whether it is the cost for consumer product placement on a grocery store shelf or the variations that can occur daily in the cost of goods for prescriptions. We recognize PBMs’ value as key contributors in managing healthcare costs, as well as contributing to needed levels of patient service and improved health outcomes. They are a vital link between patients, healthcare providers, pharmacies, and the pharmaceutical supply chain.
The importance of PBMs has grown as the number and depth of condition treatments are more pharmacy-based. Currently, PBM-based pharmacy spend is approximately 25% of overall healthcare costs. An additional 10% of healthcare spend represents drugs that are administered through the medical site of service. A total pharmacy spend therefore approximates 35% of overall healthcare costs. This percentage is expected to increase to 50% over the next several years due to emerging specialty drugs that will further change how care is provided. Given this fact, there is a corresponding increase in their responsibilities and expected capabilities. PBM’s distinction arises from their capacity to harness technical and clinical expertise, develop advanced data analytics, foster strategic business relationships, and leverage their size and scale. Though not all PBMs are created equally, partnering with the right PBM can help plan sponsors successfully execute their healthcare strategies, effectively manage overall health care costs, and enhance outcomes for the members they serve.
PBMs made their debut in the 1970s when rising healthcare costs and PBM complexity became a concern for payers and plan sponsors. Between the 1970s and 1990s, PBMs focused on the basic functions of managing formularies, negotiating drug pricing, and processing claims. In the 1990s, clinical services expanded into evaluating appropriate use, including Drug Utilization Review (DUR) functions and therapeutic interchange of higher value drugs. In the early 2000s, there was an expansion of specialty pharmacy, prior authorizations, and other clinical services. In 2010, PBMs focused on enhanced data analytics and value-based contracts with manufacturers. Historically, PBMs focused on cost-containment within the pharmacy benefit, operating in silos from other health vendors, such as medical carriers. PBMs were often standalone companies until the advent of the vertical integration boom with health plans, which evolved between 2005-2013. Additionally, as margins on generic drugs compressed through deeper prices, alternative revenue streams were needed, and rebates began to fill that void. These PBM directional changes drove manufacturers to high list/high rebate pricing, and the well-known gross-to-net bubble inflated at unprecedented rates. The growth of specialty drugs, including gene-based and cell-based therapies, as well as biosimilars, are at the forefront of the next iteration of changes in the economic model. The full effects of this shift are not yet known. However, these classes of drugs are foundationally changing how all healthcare is delivered. This has already begun in oncology, hematology, cardiology, and dermatology. As a result, we expect significant economic shifts throughout the entire system.
Not all PBMs are alike, and, as such, they exhibit significant differences in revenue streams and business strategies. PBMs of today are undergoing notable transformations driven by various factors, including increased demand for transparency, stringent competition, and heightened consumer drug price awareness. This is driven by media, state and federal regulation, discount cards, and other competition. Services now expand beyond the PBM doors into neighboring organizations such as Group Purchasing Organizations (GPOs) who currently negotiate cost of goods (including rebates), specialty and mail order pharmacies which are often owned by a PBM or health plan, wholesalers, and pharmaceutical manufacturers.
Clinical management and value-based arrangements are becoming increasingly important as more innovative therapies, some of which lack significant evidence of efficacy and durability, are coming to market with exorbitant price tags. Technological advancements have paved the way for remote care and the use of digital therapeutics and remote monitoring devices. Leading PBMs have embraced the development of digital formularies, vetting out the best digital solutions and developing integrated pathways that facilitate data sharing and help members navigate between vendors. The evolving healthcare landscape places a stronger emphasis on patient-centric approaches, addressing healthcare disparities, and promoting health equity—values that PBMs should align with in order to support their members effectively. It is important to work with a consultant who has a deep knowledge of a client’s PBM’s business model, including all revenue streams and incentivized practices, and who possesses clinical capabilities to negotiate contractual terms that ensure alignment with the client’s goals and objectives.
The healthcare and pharmaceutical landscapes continue to evolve at a brisk pace. Therefore, it is imperative that, to be successful, PBMs adopt a forward-thinking approach that places the member experience at the forefront, while also focusing on delivering meaningful outcomes, and embracing holistic health models. The integration of data and its utilization in predictive and prescriptive analytics will play a pivotal role in directing clinical attention to those members who need it the most and who contribute significantly to escalating healthcare costs. PBMs that anticipate trends and develop solutions to proactively address appropriate management and planning will be crucial for viable success.
A pharmacy consultant partner must have the foresight to anticipate the future of healthcare and recognize the importance of a strong PBM partnership in ensuring their client’s continued success. Thus, collaborating with the right consultant and PBM partner will become even more critical as the healthcare landscape continues to evolve.
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