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ROLE OF PHARMACY BENEFIT MANAGERS IN THE PRICING OF THE UNITED STATES

Updated: Oct 3, 2019

Pharmacy Benefit Managers are third-party companies. Their primary role is to develop and maintain the formulary, negotiation of the discount on the drug prices, processing and paying drug prescription claims.

ExpressSripts, CVS Health, and UnitedHealth Group are the major PBMs in the United States.


HOW DOES PBMs WORK?

Pharmacy Benefit Managers (PBM) play an essential role in the United States healthcare system. Health insurance companies hire the third-third-party companies to do the price negotiation with the pharmaceutical companies to reduce the price of the prescription drugs, process and paying off drug prescription claims and distribution of drugs. Commercial health plans, self-insured employer plans, Medicare Part D plans, the Federal Employees Health Benefits Program and state government employee plans hire the PBMs.



HOW PBMs HELP IN DRUG PRICE REDUCTION?

PBMs negotiate the prices with three major bodies: pharmaceutical companies, retail pharmacies, and health plans.

Average Wholesale Price (AWP) is the baseline for the price negotiations for PBMs. Consultation with the pharmaceutical companies for branded products results in a favourable position in the formulary, thereby enhancing the market share of the branded product.

Health plans pay the PBMs for their service. However, in some cases, PBMs offer discounts. Retail pharmacies provide reimbursement and significant rebate on AWP if PBMs can increase the sales.


PAYMENTS TO PBMs

The type of payments which manufacturers provide to PBMs are

  • Formulary payments: Payments are made for the inclusion of the drugs in the formularies

  • Market share payments: These payments are made if a particular brand achieves more sales than the expected sales

  • Administrative and service charges: Payments made for processing the prescription, administration

The first-in-class drugs do not provide formulary payments and market share payments. However, pharmaceutical companies have to change the rebate once a new drug enters the market.

Pharmaceutical companies discontinue providing rebates once their product loses the patent. However, the pharmaceutical company can provide discounts if the sales are maintained over the threshold. If the threshold is not met, PBMs are expected to pay the penalty.


CRITICISM

  • Lack of transparency in rebate calculation

  • Favor the pharmaceutical companies than the healthcare requirements

  • Pharmaceutical companies pay for the therapeutic interchange or compliance

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