TruDataRX Insights

Are PBMs still middlemen?

Catalina Gorla

As the conversation about high and rising drug prices turns toward seeking a solution, a number of heads have been brought to the chopping block. It’s easy to point fingers at drug manufacturers, as they determine a drug’s list price.

Increasingly people are turning to pharmacy benefit managers (PBMs). But what do they do these days? Pharmacy benefit management is a $300 billion dollar industry, but no one seems to understand what exactly PBMs do. They are often described as the middlemen who negotiate discounts on drugs for their clients, who include self-insured employers and government. If you ask their trade organization, they argue that PBMs “reduce cost and improve quality.” Then you also hear that they make money from rebates with drug manufacturers and they won’t say how much of that they pass to employers and patients. It’s confusing, even for industry experts.

But if you follow the money, what PBMs do is quite simple – they sell drugs!


Source: IBISWorld Industry Report OD4620, Pharmacy Benefit Management in the US, July 2015

According to a recent IBIS industry report, PBMs bring in 81% of their revenues from the sale of drugs, often through restricting plan’s pharmacy networks to their owned pharmacies. Today you can get drugs in many different ways — through the mail, such as specialty and mail order medications, or through a retail store, like your neighborhood or big box pharmacy. But it turns out, you are mostly likely buying your drug from your PBM’s owned pharmacy. Within the pharmacy industry itself, PBMs own the largest pharmacies across every measure (total dollars and prescriptions) and every channel (mail, retail, or specialty). This means that they benefit directly from the drugs you buy, and consequently benefit more from some drugs over others. How can you feel confident your plan covers the best drugs for you, not the ones that make pharmacies the most money on?

Comparative effectiveness data answers the question about which drugs work best for a given condition. This data is widely available today from organizations like Cochrane, AHRQ, and ICER, as well within the published literature on PubMed. These data are considered the “gold standard” which means they are among the most reliable sources of information available — much better than reviews.

Self-insured employers need an independent advisor to help navigate the decisions about which medications are worth paying for. As it turns out, not all drugs approved by the FDA merit the high costs set by the manufacturers. Unbeknownst to medical professionals and laypeople alike, the standard for a drug to get FDA approval is surprisingly low, which means some drugs on the market show no meaningful benefit or are no better than drugs already available.

As a society, we rely on objective data when making decisions large and small, from using Yelp to pick a restaurants for dinner to referencing Consumer Reports when buying a new refrigerator. Why should we expect any less in regard to the much more consequential decision of which medication we take to improve our health?

Contact us to learn more how objective, comparative effectiveness data can help you find the best medications at the best price.