Issue Spotlight

Pharmacy Benefit Managers (PBMs) are third party administrators that primarily process and pay prescription drug claims. Over 200 million Americans receive drug benefits administered by PBMs, including many federal, state and local employees and retirees, but many consumers do not even know they are covered by these “hidden” organizations.

PBMs operate in relative secrecy, while consumers and the Federal government have little information on whether PBMs actually reduce drug costs, or pass along rebates and discounts. The health care reform bill requires the PBMs to confidentially disclose important financial information for health plans operating in new health insurance exchanges and Medicare Part D plans. These new state-based exchanges are set to begin in 2014.

Health care reform creates the first federal rules for the accountability and regulation of these currently unregulated entities.

Transparency Saves Money for Consumers

Transparency helps the insurance market work better. It allows plan sponsors and payers, including employers and governments, to confirm that a PBM is providing the service it was hired to do: to lower drug costs. Without transparency there is no way to verify a PBM is sharing manufacturer rebates, the amounts of those rebates or that the PBM is negotiating the lowest possible costs for specific drugs.

Current proven savings:

  • Texas estimates savings of $265 million by switching to a transparent PBM contract for state employee drug coverage.
  • The University of Michigan saved nearly $55 million by administering its own plan.
  • TRICARE anticipates savings of $1.67 billion by negotiating its own drug prices and rebates for its 9 million beneficiaries rather than going through a PBM.

Consumers need to keep an eye on what they receive for their health care spending. PBMs regularly pocket rebates and other discounts from drug makers that would otherwise lower health care costs, but transparency will allow for increased scrutiny of these PBM practices. The health care reform legislation creates an important foundation for additional federal regulation of PBM practices for all federal health programs, potentially benefiting all taxpayers from the savings on a national level.

Visit the NCPA website to read more about PBMs.

If you want to print a pdf copy of this document click here.

For more information click here to join our monthly newsletter.

Navigating your health care can be confusing. That's why organizations such as the Health Care and You Coalition representing consumers, patients, physicians, nurses, hospitals and pharmacists have come together to help answer America’s questions about the Affordable Care Act.