Pharmacy benefits managers (PBMs) sound like they provide benefits. The question is: Who benefits from them?
PBMs have been making news recently. Whether it’s pharmacy/PBM CVS Caremark buying insurance company Aetna, insurance company Cigna buying PBM Express Scripts, or insurance company UnitedHealthcare (which owns a PBM—OptumRx) promising to pass on rebates to patients.
These mergers and rebates are all about money, or more specifically, the flow of pharmaceutical company rebates.
There is an excellent graphic from the Drug Channels Institute that shows the flow of money and medications among:
- Drug Companies
- Drug Wholesalers
- Retail Pharmacies
- Insurance Companies
The Role of Pharmacy Benefit Managers
Let’s take a closer look at this graphic and the role of PBMs:
- PBMs are represented by contracts and money. They don’t handle medications themselves.
- Some PBMs are independent companies: e.g., Express Scripts (for now). Others are combined with retail pharmacies: e.g., CVS Caremark. Still others are combined with insurance companies: e.g., OptumRx.
- PBMs exist because of employer-based insurance/third-party payments. Missing from this graphic are employers, but they could be placed next to the patient because they pay most of the insurance premium. So, insurance premiums go to the insurance company, then to the PBM and then to the pharmacy. This means there are TWO middlemen to facilitate money going from the employer to the pharmacy.
The money goes from the pharmacy to the drug wholesaler and then to the drug company. In total, the money from the employer passes through four organizations (insurance company, PBM, pharmacy, drug wholesaler) before reaching the drug company. Each of these four organizations take a cut of the employer’s money before passing it on to the drug company.
Being a medication middleman is very lucrative. For example, Express Scripts is No. 22 on the Fortune 500. Its annual revenue is more than $100 billion, it has a profit of $3.4 billion and a total market value of around $40 billion.
In addition to being lucrative, this world of middlemen is far from being transparent. How much of the employer’s money does the insurance company take? How much does the PBM take?
This is where the rebates come in. You can think of the rebate from the drug company to the PBM and the insurance company as the amount of the employer’s money that each of these entities take. Often euphemisms like rebate are used when something else is really going on.
It’s like a rebate when buying a new cell phone… except, in the PBM world, when you mail in the proof of purchase to the manufacturer, the money does not go to the patient or the employer, but instead goes to the PBM and the insurance company.
There are employers, insurance brokers, benefits consultants and PBMs that are working to improve the transparency in this space and their efforts are to be applauded.
This blog post only really scratches the surface of drug distribution and payment in the U.S. A huge thank you to Drug Channels for creating such a great graphic.
Contact Compass to learn more about our partnerships with PBMs that are committed to lowering employer pharmacy spend and improving transparency.