Pharmacy Benefit Managers

The car dealer that sells you a car is a middleman. He is the step between you, the buyer, and the manufacturer. And as middlemen are, they are eager to get their share of the profit of the sale. In the car world, that means they buy cars from the manufacturer at a discounted price, raise the price to the consumer, then offer “specials” to make people believe that they are getting a deal, or saving money on the vehicle of their choice. By the end of the sale, the dealer has, if not more, at least doubled their money.

The concept holds true for workers’ compensation programs as well. Pharmacy Benefit Managers (PBMs) are third-party companies that function as the middleman between insurance providers and pharmaceutical manufacturers. PBMs create a list of approved prescription drugs under a benefit plan, negotiate prices with manufacturers, process claims, create pharmacy networks and conduct drug utilization reviews.

Beginning in the 1960s, insurance companies offered prescription drugs as a health plan benefit. As the demand for drug benefits on health plans grew, PBMs evolved to support workers’ compensation mail-order drug programs. By 1990, the service expanded to the retail pharmacy.

It was then that PBMs were created to help insurers contain drug spending. PBMs originally decided which drugs would be offered in formularies and administered drug claims. The 1970s saw some changes in the industry and PBMs began to adjudicate prescription drug claims. In the 1990s, drug manufacturers began acquiring PBMs, leading to concerns about conflicts of interest which led to federal orders for divestment from the Federal Trade Commission and sparking a trend of mergers and acquisitions within the PBM field.