As healthcare providers dedicated to the well-being of older adults, understanding the forces that shape access to medications is essential. One of the most influential—and often misunderstood—players in the prescription drug landscape is the Pharmacy Benefit Manager (PBM). These organizations operate behind the scenes, yet have a profound impact on drug pricing, availability and patient out-of-pocket costs.
What Are PBMs?
Pharmacy Benefit Managers, also called PBMs, are companies that manage prescription drug benefits on behalf of health insurers, Medicare Part D plans, large employers and other payers. Originally created in the 1960s to help insurers integrate drug coverage into their plans, PBMs have evolved into complex entities with multiple business lines, including specialty and mail-order pharmacy services.
Today, PBMs negotiate with drug manufacturers and pharmacies to set prices, determine which medications are covered, and manage pharmacy networks. They are paid by insurers for these services but also generate revenue through other mechanisms—such as retaining a portion of manufacturer rebates and profiting from the “spread” between what insurers pay and what pharmacies receive.
How Do PBMs Influence Drug Access and Costs?
PBMs sit at the center of the prescription drug supply chain, connecting manufacturers, payers, pharmacies and patients. Their core functions include:
- Negotiating rebates and discounts from drug manufacturers using their purchasing power.
- Creating formularies, or lists of covered drugs, which influence what medications patients can access and how much they pay.
- Contracting with pharmacies to set reimbursement rates and manage claims processing.
In theory, these activities should help control drug spending and improve affordability. However, the reality is more complicated.
What Is the Impact on Older Adults?
Older adults, especially those who are on fixed incomes or managing multiple chronic conditions, are particularly vulnerable to the effects of PBM practices. Below are some key concerns:
1. Formulary Design and Access Restrictions: PBMs design formularies that determine which drugs are covered and under what conditions. This can include use management tools like prior authorization or step therapy, which may delay access to necessary medications. For older adults with complex health needs, these barriers can lead to treatment disruptions or adverse health outcomes.
2. Out-of-Pocket Costs: PBMs sometimes favor high-cost drugs that yield larger rebates, because rebates are typically calculated as a percentage of a drug’s list price. This can create a financial incentive to include expensive medications on formularies—even when lower-cost alternatives are available. Patients with high-deductible plans or coinsurance based on list prices may face higher out-of-pocket costs, which can discourage adherence and worsen health outcomes.
3. Independent Pharmacy Closures: PBM reimbursement practices have contributed to the closure of independent pharmacies, particularly in rural and underserved areas. These pharmacies often serve as critical access points for older adults, offering personalized care and medication counseling. Their disappearance may leave vulnerable populations without convenient or trusted sources for prescriptions.
What Is the Controversy with Drug Rebates?
One of the most debated aspects of PBM operations is the drug rebate system. Drug manufacturers pay rebates to PBMs in exchange for favorable placement on formularies—which may include lower cost sharing, limits on utilization management, or more favorable access compared to other drugs. While PBMs claim to pass most of these savings to insurers, the lack of transparency makes it difficult to verify. Some insurers and employers report receiving only a fraction of the negotiated rebates, raising questions about whether these savings are truly benefiting patients.
‘PBMs sometimes favor high-cost drugs that yield larger rebates, because rebates are typically calculated as a percentage of a drug’s list price.’
Between 2012 and 2016, manufacturer rebates to PBMs nearly doubled—from $39.7 billion to $89.5 billion. Although PBMs have increased the share of rebates passed to insurers (from 78% to 91%), many smaller payers say they don’t see these savings reflected in lower premiums or cost-sharing. Some argue that the rebate system creates perverse financial incentives to keep prescription drug prices high.
What Can Providers Do?
While PBMs operate outside the direct control of most healthcare providers, there are steps providers can take to advocate for patients:
- Educate patients about formulary restrictions and help them navigate prior authorization or appeals processes.
- Encourage medication reviews, especially when cost is a barrier, to explore therapeutic alternatives.
- Support independent pharmacies when possible, recognizing their role in community health.
Looking Ahead
The role of PBMs in drug spending is under increasing scrutiny, with policymakers considering reforms to improve transparency and accountability. Policymakers at the federal and state level have considered a number of reforms, many of which have bipartisan support, to address the challenges of PBMs. There is even speculation on Capitol Hill about whether a bipartisan deal could come together before the end of the year that includes some PBM reforms, such increased transparency of PBM rebates and limiting PBMs from overcharging Medicaid and Medicare for prescription drugs.
For providers working with older adults, staying informed about these developments is crucial. By understanding how PBMs operate and their impact on patient care, clinicians can better support their patients and contribute to a more equitable healthcare system.
Kristi Martin directs the Camber Collective, providing policy expertise and strategic counsel to advance meaningful health policy to improve people’s health and well-being, while delivering practical policy solutions. She was chief of staff and senior advisor to the deputy administrator in the Center for Medicare at the Centers for Medicare & Medicaid Services (CMS). While at CMS, she played a significant role advancing regulatory policy in Medicare and implementing the Inflation Reduction Act—the most significant changes to Medicare Part D since its inception. She facilitated and coordinated the implementation of the Medicare Drug Price Negotiation Program, which successfully negotiated the first set of drug prices under the Medicare Drug Price Negotiation Program that will save people with Medicare and the program billions of dollars on prescription drug costs.
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