The State of PBMs

Thursday, February 1, 2007
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Prescription-drug benefits continue to be one of the largest components of rising health-care costs and one of the most important targets for cost control.

According to research released recently by the Pharmacy Benefit Management Institute in Scottsdale, Ariz., employers and pharmacy benefit managers are continuing to use a wide range of cost-management techniques, including tiered drug formularies, per-prescription co-pays and generic drug incentives.

Though the number of employers using the techniques has stayed about the same in the past three years, the research indicates that the approaches are having a significant effect on cost control.

Drug costs in general increased only 7.5 percent in 2005, compared to double-digit increases in overall health-care costs. Pharmacy and mail-order reimbursement -- the average cost of delivering prescription drugs to workers and their families -- went from $1.95 to $1.88 due to an increase in employer discounts. 

Dana Felthouse, PBMI president, says employers are generally satisfied with the work of their PBMs. According to the organization's recent survey of 546 employers, PBMs scored an average of 7.8 in a 10-point scale of overall satisfaction. About 70 percent of employers rated the companies 8 or higher.

"The survey also indicated that the longer an employer works with a PBM, the higher its level of satisfaction," she says.

PBMs also scored well in financial transparency, a shift from 10 or more years ago when the management companies were sometimes accused of absorbing cost differentials negotiated directly with pharmaceutical manufacturers.

Meanwhile, employers and their PBMs may soon have new competition in their attempts to manage drug prices -- and regulations that could interfere with their direct negotiations. In January, the House of Representatives passed The Medicare Prescription Drug Price Negotiation Act of 2007, which repealed sections of Medicare Part D that prevented government medical plans from negotiating directly with pharmaceutical companies for drug discounts.

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If the bill passes the Senate and avoids a feared presidential veto, it will allow Medicare and Medicaid -- representing about 40 percent of the country's health-care purchasing power -- to establish special rates for their health plans.

Though Felthouse says it's still too soon to tell whether the bill would help or hinder employers and their PBMs, the Washington-based Pharmaceutical Care Management Association, which represents PBMs, says it could upset an already successful system of private negotiation between PBMs, insurers and drug companies.

Len Strazewski can be e-mailed at

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