The size of U.S. pharmaceutical benefits managers (PBMs)

The list price for pharmaceutical price is not what health insurers have to pay. Sure there are patient copayments and coinsurance, but the main reason why insurers don’t pay full list prices are due to pharmacy benefit managers (PBMs). PBMs contract with payers to negotiate rebates by which pharmaceutical manufacturers discount their prices for specific PBMs. The PBMs are often able to extract large rebates due to their size.

How big are PBMs in the U.S.? Big. A working paper by Conti et al. 2021 writes:

In 2018, three PBMs (Express Scripts, CVS Health/Caremark, and OptumRX) accounted for 80 percent of prescription drug volume and six PBMs account for 95 percent of the prescription drug market…The CVS-Health/Caremark PBM alone reports nearly 90 million members in its PBM business—and so negotiates on behalf of a customer population larger than the population of Germany…In the past several years, large PBMs have vertically consolidated with health insurers, including UnitedHealth Plans (health plan) with OptumRx (PBM), Aetna (health plan) with CVS Caremark (PBM), and Blue Cross Blue Shield plans (health plan) with PrimeTherapeutics (PBM).

Conti et al. (2021) note that large PBMs may be useful because they internalized most favored nation (MFN) regulations requiring pharmaceuticals to give large discounts to State Medicaid Agencies (Medicaid Prescription Drug Rebate Program (MDRP)) and hospitals serving disadvantaged communities (340B drug discounts). These MFN provisions can be impactful.

The U.S. Government Accountability Office estimated that more than 50 percent of total sales of some drugs were 340B eligible [GAO 2015]

The paper provides a simplified theoretical model where PBMs may be efficient under some assumptions but less so under others. Certainly worth a read.


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