How Pharmacy Benefit Managers Affect Prescription Drug Prices


You are not alone in thinking that Americans pay far too much for prescription medications. It is a common sentiment among those who take prescriptions on a daily basis. What we are not so quick to agree on is the solution. That’s partly because many of us don’t understand how the system works. For example, consider pharmacy benefit managers (PBMs). Do you know how they affect drug prices?

PBMs are third-party organizations that act as intermediaries between pharmaceutical companies, insurance companies, Medicare, and other health benefit plans. They are largely responsible for managing prescription drug plans offered to employee health insurance benefits. PBM’s negotiate prices, formulate discount programs, and so forth.

Believe it or not, PBMs play a big role in determining retail drug prices. They are not the only culprit behind high prices, but they have significant influence on the system. They need high drug prices to keep their revenues rolling in. Cut prices and they lose money. That’s obviously not what they want.

Buying Direct for Less

It might surprise you to learn that you might be able to buy your prescriptions for less if you are willing to pay out of pocket. For example, Canada Pharmacy is an example of an online pharmacy operation that sells many of the most popular drugs sold to U.S. consumers. Their prices are often cheaper than buying here – with a co-pay.

Buying Canadian drugs online is just one option. Another is to go through a site like Good Rx. The well-known coupon site works with pharmacies all across the country to offer discounts. It is not unusual to find cheaper prices through them, with or without insurance.

So why do Canadian pharmacies and online coupons help? Because they allow you to buy your prescriptions direct from the retailer without involving a PBM. If you are not using your health insurance plan, you’re not getting the PBM negotiated price. It’s really no more complicated than that.

Windfall PBM Profits

Townhall contributor Foday Turay recently wrote a piece in which he cited statistics suggesting the PBM market will reach some $744 billion in just five short years. Global revenue for the industry was $356 billion in 2017. That is more than double in less than a decade. It’s also a lot of revenue.

How do they pull it off? According to Turay, PBMs negotiate discounted prices with pharmaceutical companies by way of rebates. In other words, big Pharma pays them rebates for bringing in business. PBMs do not pass the savings along to health plans when setting rates. Who pays the bill? Consumers.

Making matters worse, PBMs want higher drug prices because they pull in bigger rebates. The higher the cost of the drug, the higher the rebate when a PBM is able to negotiate a lower price. All of that extra money goes directly to them.

Every Hand Wants a Piece

If you’ve ever heard the phrase ‘too many hands in the pie’, you should understand what’s going on here. There are too many entities involved in determining retail prescription drug prices. Every hand wants a piece. Some hands grab larger pieces than others. Ultimately, the more greedy hands you have looking for a payout, the higher the prices eventually go.

The PBM business model only works when prescription drug prices remain high. Pharmaceutical companies aren’t bothered by it because they are going to get what they want to get one way or the other. The losers in all of this are you and me. That’s the way the system is built, and it doesn’t look like things will change anytime soon.