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Pharmacy Benefit Managers: Drug Industry’s Hidden Middlemen

Originally Published in Healio

Among one of the most pressing issues in American politics is prescription drug costs, and for good reason. Even patients with insurance are being forced to pay more out of pocket for their prescriptions. As the American health care system gets more complex and convoluted, solving this problem is becoming more difficult. One reason for this is the drug industry’s hidden middlemen — pharmacy benefit managers.

Role of the Rebate System

Acting as intermediaries between insurers, manufacturers and pharmacies, pharmacy benefit managers (PBMs) play a uniquely central role in the prescription drug market, handling everything from negotiating prices and discounts with drug manufacturers and setting patient copayment amounts to determining which drugs are covered by which health plans. Yet, despite their undeniable significance, PBMs and their effect on prescription drug costs have managed to go largely unnoticed by most Americans, including physicians, patients and policymakers. This allows PBMs to quietly influence not only prices, but also the amount patients actually pay for their prescriptions and which drugs are available and accessible.

An important aspect of the drug market is the rebate system, whereby PBMs negotiate and receive retroactive payments from drug manufacturers in exchange for preferred placement on the PBM’s tiered formulary. This placement position determines the level of coverage for a drug and therefore whether it is easily accessible to patients. PBMs purport to pass back a portion of these rebates to the insurers, but due to the opaque nature of their contracts, most of the funds appear to go to their bottom line.

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Barbara Arnago