Prescription drug costs have become an increasingly important part of the employee benefits conversation. At the center of that conversation is an industry many employers have worked with for years but may not fully see behind the scenes: Pharmacy Benefit Managers, or PBMs.
PBMs aren’t new. They play a central role in managing prescription drug benefits for employer-sponsored health plans. What’s changing is the level of attention being paid to how they operate, how they’re compensated, and how money moves through the prescription drug supply chain.
For employers looking to better understand their healthcare spending, PBMs are becoming an important part of the conversation.
What Does a PBM Actually Do?
A Pharmacy Benefit Manager helps administer the prescription drug portion of a health plan.
Depending on the arrangement, PBMs may develop formularies, negotiate rebates and discounts with pharmaceutical manufacturers, establish pharmacy networks, and process prescription drug claims.
That puts PBMs at the center of several relationships within the prescription drug ecosystem, connecting health plans, drug manufacturers, pharmacies, and plan members.
For employers, the important takeaway is that PBMs can influence which medications are covered, where members obtain them, what the plan pays, and how various discounts and rebates are handled.
When you’re trying to understand your total healthcare spend, those details matter.
Why Are Employers Paying More Attention to PBMs?
One reason is simple: employers want greater visibility into prescription drug spending.
Pharmacy benefits can involve multiple contracts, pricing arrangements, rebates, fees, formularies, and other moving pieces. That complexity can make it difficult for employers to see exactly where their pharmacy dollars are going and determine whether their current arrangement is delivering value.
At the same time, expensive specialty medications and other emerging therapies are putting additional pressure on pharmacy budgets.
As pharmacy spending becomes a larger strategic consideration, employers are asking more questions about what’s happening behind the scenes.
Questions like:
How is our PBM compensated?
Where are our pharmacy dollars going?
Are rebates and discounts benefiting our plan?
What’s actually driving our prescription drug spending?
The goal isn’t simply to reduce pharmacy spending. It’s to better understand it.
Why Does PBM Transparency Matter?
More information doesn’t automatically mean lower costs.
But greater visibility can give employers a stronger foundation for evaluating their pharmacy benefit strategy.
Where are pharmacy dollars going?
Understanding what the plan pays for medications is only part of the picture. Employers may also want greater visibility into rebates, fees, discounts, and other financial arrangements associated with their pharmacy benefit.
Is the contract delivering value?
A large discount or rebate guarantee can sound attractive, but no single number tells the entire story.
Employers should look at the economics of their pharmacy arrangement as a whole and consider both cost and the experience being delivered to employees.
What’s driving pharmacy spending?
Looking beyond total pharmacy spend can reveal important trends.
Which medications or therapeutic categories are contributing most to costs? Are specialty medications having a significant impact? How is utilization changing?
Understanding the “why” behind the numbers can lead to more productive conversations about strategy.
What should we be thinking about before renewal?
The more employers understand about their pharmacy benefit throughout the year, the better prepared they can be when renewal conversations begin.
Instead of reacting to a number at renewal, employers can enter those conversations with a clearer picture of what’s driving their plan.
Questions Employers Should Be Asking
Employers don’t need to become pharmacy experts. But plan sponsors should understand the fundamentals of their own pharmacy arrangement.
Some questions worth discussing with your benefits advisor include:
- Who manages our pharmacy benefit?
- How is our PBM compensated?
- How are manufacturer rebates and discounts handled?
- What medications or therapeutic categories are driving our pharmacy spend?
- What data and reporting are available to us?
- How does our current arrangement balance cost with member experience?
- How does our PBM evaluate and manage biosimilars versus reference products?
- How frequently are we evaluating our PBM strategy?
- Are there opportunities to improve cost, transparency, or the employee experience?
The answers will vary considerably from one employer and PBM arrangement to another. That’s exactly why understanding the specifics of your own plan matters.
PBMs Aren’t New. The Attention Around Them Is.
PBMs have been part of the prescription drug system for decades. But as pharmacy costs continue to rise, employers have more reason to understand what’s happening behind their prescription drug benefit.
The takeaway isn’t that every employer needs to replace their PBM or completely redesign their pharmacy program.
It’s about understanding what you’re paying for, how your arrangement works, what’s driving your costs, and whether you have the information you need to make informed decisions.
Better information leads to better questions. And better questions can lead to a stronger benefits strategy.
