Pharmacy Benefit Managers (PBMs) Explained - Learn How the Money Flows

This video provides an in-depth explanation of the complex money and drug flow within the Pharmacy Benefit Manager (PBM) ecosystem. Dr. Eric Bricker simplifies this often-confusing landscape by outlining the seven key players involved: the Plan Sponsor, Health Plan, PBM, Pharmaceutical Manufacturer, Drug Wholesaler, Pharmacy, and Patient. He begins by illustrating the fundamental flow of money, originating from the plan sponsor and moving through the health plan, PBM, pharmacy, and drug wholesaler, ultimately reaching the pharmaceutical manufacturer. Concurrently, the video details the reverse flow of prescription medications, starting from the manufacturer, passing through the wholesaler and pharmacy, and finally reaching the patient. The speaker emphasizes the importance of understanding this basic framework, particularly for professionals in employee benefits, to effectively communicate it to non-experts.

The presentation then delves into the more intricate and often contentious aspects of the PBM model, highlighting additional financial flows and inherent conflicts of interest. A critical point is the revelation that PBMs serve two distinct customers: the health plan and the drug manufacturer. Drug manufacturers provide various payments to PBMs, not just in the form of rebates (where 55-80% might be passed to the plan, with PBMs retaining 20-45%), but also through formulary payments, market penetration payments, and bonus payments. These arrangements create a dynamic where PBMs are incentivized by manufacturers to place certain drugs on their formularies, impacting drug access and cost. The video also discusses the role of copay assistance programs, particularly for expensive specialty pharmacy medications, which represent a significant 73% of prescription spend and can cost patients thousands monthly.

Dr. Bricker further explores the market structure, pointing out the oligopolistic nature of both the PBM and drug wholesaler sectors, with only a few major players dominating each market (e.g., three major PBMs controlling 85% of the market; three major wholesalers). This limited competition can restrict options for plan sponsors and pharmacies. He stresses the need for "transparent PBMs" to disclose all forms of payments received from drug manufacturers, not just rebates, to ensure true transparency. The video concludes by touching upon the highly controversial topic of specialty pharmacy carve-out PBMs, presenting arguments both for and against their utility, and underscoring the significant fiduciary responsibility of plan sponsors in making informed decisions about their PBM relationships within this complex ecosystem.

Key Takeaways:

• Seven Key Players in the Prescription Ecosystem: The system comprises the Plan Sponsor, Health Plan, PBM, Pharmaceutical Manufacturer, Drug Wholesaler, Pharmacy, and Patient. Understanding each entity's role is fundamental to grasping the overall dynamics.
• Fundamental Money and Drug Flows: Money generally flows from the Plan Sponsor to the Pharmaceutical Manufacturer, while drugs flow in the opposite direction, from the Manufacturer to the Patient. This basic understanding is crucial before delving into complexities.
• PBMs' Dual Customer Model and Conflict of Interest: PBMs receive payments from both health plans (for managing prescription benefits) and drug manufacturers (for formulary placement and other incentives), creating an inherent conflict of interest that can influence drug choices and costs.
• Beyond Rebates: Manufacturer Payments to PBMs: Drug manufacturers make various payments to PBMs, including rebates (where PBMs typically retain 20-45%), formulary payments, market penetration payments, and bonus payments. True PBM transparency requires disclosure of all these payment types.
• Dominance of Specialty Pharmacy Spend: Specialty pharmacy medications account for a substantial 73% of the total prescription spend, often costing tens of thousands of dollars monthly and requiring significant patient out-of-pocket contributions.
• Role of Manufacturer Copay Assistance Programs: Drug manufacturers often provide copay assistance programs, especially for expensive specialty medications, to help patients manage high out-of-pocket costs, thereby ensuring patient access and adherence.
• Oligopolistic Market Structures: The PBM and drug wholesaler markets are highly concentrated, with only a few major players (e.g., three PBMs control 85% of the market, three wholesalers dominate). This limited competition can restrict options and leverage for other stakeholders.
• Importance of Comprehensive PBM Transparency: Plan sponsors seeking transparency from their PBMs should inquire about all forms of payments received from drug manufacturers, not just rebates, to understand the full financial picture and potential biases.
• Controversy of Specialty Pharmacy Carve-Out PBMs: The decision to use a specialty pharmacy carve-out PBM is highly debated, with arguments for and against its effectiveness in managing costs and patient care for high-cost medications.
• Fiduciary Responsibility of Plan Sponsors: Plan sponsors bear a significant fiduciary responsibility to understand the PBM ecosystem and make informed decisions that best serve their members, considering the complex financial flows and potential conflicts.
• Impact of Patent Protection: Pharmaceutical manufacturers, especially for specialty drugs, often benefit from patent protection, which can limit competition and alternative treatment options, thereby influencing pricing and market dynamics.
• The "Golden Rule" of the Plan Sponsor: The entity with the financial resources (the plan sponsor) ultimately holds the power to set the rules and influence the terms within the prescription benefit landscape.

Key Concepts:

• PBM (Pharmacy Benefit Manager): An intermediary between health plans, pharmaceutical manufacturers, and pharmacies that manages prescription drug benefits.
• Formulary: A list of prescription drugs covered by a health plan, often tiered by cost, influenced by PBM negotiations with manufacturers.
• Rebates: Payments from pharmaceutical manufacturers to PBMs (and sometimes passed on to health plans) in exchange for preferred formulary placement or market share.
• Specialty Pharmacy Medications: High-cost, complex prescription drugs often used to treat chronic, rare, or complex conditions, typically requiring special handling, administration, or monitoring.
• Copay Assistance Programs: Programs, often funded by drug manufacturers, designed to help patients afford their out-of-pocket costs (copays, coinsurance) for prescription medications.
• Oligopoly: A market structure in which a small number of firms have the large majority of market share, leading to limited competition.
• Transparent PBM: A PBM model where all financial arrangements, including payments from drug manufacturers, are fully disclosed to the client (health plan or plan sponsor).
• Specialty Pharmacy Carve-out PBM: A strategy where a health plan contracts with a separate PBM specifically for specialty medications, distinct from their general PBM, to potentially gain better control over costs and services.

Tools/Resources Mentioned:

• Journal of Clinical Oncology: The source for the PBM money flow graphic discussed in the video, specifically a publication related to practice management.
• OptumRx Paper: A document cited by the speaker that argues against the idea of a specialty pharmacy carve-out PBM.
• Pfizer Presentation to the Dallas Fort Worth Business Group on Health: A presentation cited by the speaker that argues in favor of a specialty pharmacy carve-out PBM for self-funded employers.