Issue Brief: Pharmacy Benefit Managers

April 04, 2019

Issue Brief: Pharmacy Benefit Managers

Understanding the Issues: Pharmacy Benefit Managers

Healthcare coverage for employees represents a large and ever-increasing cost to business owners in Oklahoma. The causes for the increasing costs of healthcare are multiple and complex, but the growth of drug prices coupled with increasing demands for prescription drugs are important driving forces behind this trend. Pharmacy Benefit Managers (PBMs) are firms that negotiate with drug manufacturers, insurance providers, and pharmacies to lower the price of prescription drugs for individuals. Understanding more about the sometimes hidden role these firms play in the health care industry can create more understanding about the way they save money for consumers and businesses.

The Issue

Providing health benefit coverage to employees has become increasingly burdensome for businesses across the country and in this state. In Oklahoma, employer-sponsored health insurance plans increased in cost by 53% from 2008 to 2017 for single-person coverage plans. From 2016-17, these plans increased in cost by 7.8%—far outpacing the national average price increase of 4.4%. For employers that offer health benefits to their employees’ families, the costs have increased even more dramatically. Prescription drugs plays an increasingly large role in those cost increases. The price of prescription drugs has been increasing in recent years—as high as 12% per year. This increasing burden on the cost of doing business makes it more difficult to start a new business venture, expand a business into or within Oklahoma, or create new jobs and hire new people.

How do PBMs fit in?

Pharmacy Benefit Managers work in tandem with employers and health insurance companies to lower the burden caused by prescriptions drug costs through a variety of methods. First, firms leverage their strong negotiating position to secure rebates and pricing arrangements that individual consumers would not be able to attain on their own. The firms then pass these savings on to their consumers. Second, they can manage the kinds of drugs that are offered to their policyholders, encouraging them to purchase less expensive equivalent drugs, such as substituting generic drugs rather than name brands. Finally, they can encourage appropriate utilization among their policyholders, such as prohibiting prescriptions from being refilled too early or providing pharmacy care management programs to high-need policyholders.

PBMs save patients and payers an average of 40-50% of what they would pay on prescription drugs if they did not utilize PBM services. These savings keep health care costs from rising at even higher levels and prevent massive increases to policyholders’ out-of-pocket costs.

PBMs are able to save businesses and individuals money because they have the flexibility to create benefit networks, establish drug purchasing policies that encourage the use of cheaper, equivalent drugs, and the ability to establish cost-saving, direct-to-consumer mail pharmacies. Any attempt to limit PBMs’ ability to use every tool at their disposal to lower the cost of prescription drugs will lead to increased healthcare costs for businesses and everyday Oklahomans.


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Issue Brief: Pharmacy Benefit Managers | Issues