Pharmacy Benefit Manager (PBM)

PBMs act as third-party administrators for the pharmacy/Rx component of employer-sponsored health plans. In other words, PBMs carry out administrative tasks related to a firm’s Rx benefits.

The most common function of a PBM is to manage the formulary (catalog of the health plan’s pharmaceutical offerings, listed by price). PBMs also engage in three other common clinical services:

  • Physician profiling: comparing individual doctors’ Rx prescribing patterns and educating doctors who diverge from the norm through mail, telephone, or in-person meetings
  • Drug utilization review (DUR): a program that evaluates the appropriate use of drugs in order to identify any potential problems with usage, including nonadherence, chronic overuse, and drug-disease, drug-drug, drug-age, drug-sex, or drug-pregnancy conflicts. An important part of DUR is follow-up with patient and physician education initiatives.
  • Prior authorization: reviewing whether a certain prescription has a demonstrated medical necessity. This requires physicians to obtain a certification before prescribing a drug.

PBMs operate other health services as well, such as mail order pharmacy drugs and drug cards.

PBMs are utilized for both self-funded and fully-funded employer health plans. In fully-funded health plans, the carrier itself will play the role of PBM, or alternatively may contract a third-party to do so. Self-funded employers, in contrast, may either choose their own PBM or use the plan’s default PBM. In comparison to fully-funded employers, self-funded firms enjoy more freedom in designing their formulary in collaboration with their PBM.

Ultimately, these pharmacy benefit management plans are meant to combat the exceptionally high costs of prescription drugs, both by using cost-containment strategies and quality control measures. PBMs do all this while encouraging the safe and efficient use of prescription drugs as well.