July 18, 2023 / By

Navigating Pharmacy Benefit Management: Examining the Practices Amidst Scrutiny

Navigating Pharmacy Benefit Management: Examining the Practices Amidst Scrutiny

By Jonathon Harrison, PharmD, ACE | President & COO

Recent scrutiny has brought attention to certain practices within the industry that demand examination and potential reform. Let’s explore the creation and evolution of Pharmacy Benefit Management while acknowledging the challenges and criticisms faced by the sector.

The Birth of Pharmacy Benefit Management

The concept of Pharmacy Benefit Management emerged in the 1960s as a means for health insurance providers to efficiently administer prescription drug benefits. PBMs were introduced as intermediaries between insurers, pharmacies, and patients, aiming to simplify medication coverage. Initially, PBMs focused on processing prescription claims, managing formularies, and negotiating drug prices with pharmaceutical manufacturers.

Functionality and Key Roles

Over time, PBMs expanded their services and played various roles to ensure the efficient delivery of prescription medications. However, recent scrutiny has highlighted concerns in the following areas:

1. Lack of Transparency: A significant criticism of PBMs is the lack of transparency in their pricing and rebate negotiations. The complex rebate system, where PBMs negotiate discounts and rebates with pharmaceutical manufacturers, has raised concerns about inflated drug prices for consumers. Improved transparency is necessary to address conflicts of interest and enhance patient affordability.

2. Formulary Design: Critics argue that certain PBMs have implemented restrictive formularies that limit access to specific medications. This may create barriers for patients who require drugs not included on the formulary, leading to delays in accessing necessary treatments.

3. Mail Order Pharmacy Mandates: Some PBMs have faced scrutiny for enforcing mandatory mail-order pharmacy policies, which restrict patients to obtaining medications exclusively through mail-order services. This practice limits patient choice and accessibility, particularly for those who prefer local community pharmacies or face challenges with mail delivery.

4. Spread Pricing: Another area of concern is spread pricing, where PBMs charge health plans more for medications than what they reimburse pharmacies, pocketing the difference as profit. The lack of transparency in pricing can lead to higher costs for health plans and patients, as well as potential financial strain on pharmacies.

Addressing Scrutiny and Potential Reforms

Recognizing the need for examination and potential reform, regulatory efforts are underway to address the concerns surrounding PBMs and promote greater transparency, accountability, and fair competition within the industry. Proposed reforms include:

1. Increased Transparency: Initiatives are being implemented to enhance transparency in rebate negotiations between PBMs and pharmaceutical manufacturers. This ensures that discounts and rebates are passed on to patients, reducing out-of-pocket expenses and improving affordability.

2. Formulary Access and Exceptions: Policies are being examined to strike a balance between cost-effectiveness and patient access. Efforts are being made to enable patients to access non-formulary medications when medically necessary, providing options for those with specific treatment requirements.

3. Prohibition of Anti-Competitive Practices: Regulatory authorities are scrutinizing practices that may hinder fair competition within the PBM industry. This includes addressing potential conflicts of interest and fostering open markets that encourage competitive pricing and benefit consumers.

4. Enhanced Oversight and Regulation: Strengthening regulatory oversight ensures compliance with fair business practices, pricing transparency, and ethical standards. This safeguards against exploitative practices and ensures that PBMs prioritize patient interests and affordability.

By collectively acknowledging the need for examination and implementing measures to promote transparency and fair competition, the industry can better serve the needs of patients, ensuring equitable access to vital medications. Collaborative efforts between community healthcare providers, policymakers, and patient advocacy groups can pave the way for a more transparent and patient-centric system where pharmacy benefit managers are seen as an unnecessary function of medication delivery.