December 26, 2012 
The short answer is that a PBM is the company hired by your employer (either directly or through your health insurance company) to manage your pharmacy benefits. When you use your pharmacy card at the retail pharmacy to get a prescription, the pharmacy interacts with your PBM electronically to find out if the drug is covered and the copay to you the consumer.
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Back when I first started blogging, I used a lot of my experiences at Express Scripts to shape some of my perspectives about the PBM or Pharmacy Benefit Manager industry. It took me a few months before I realized that some people reading the blog didn’t know what a PBM was. That led me to my all time most popular blog post – “What Is A PBM?”
Since that was over 5 years ago, I figured it was time for an update.
The market has shifted in the past 5 years especially with Express Scripts purchase of Medco to become the largest player in this space. Walgreens has also divested their PBM to CatalystRx which was then bought by SXC and the new entity renamed CatamaranRx. At the same time, you’ve seen United Healthcare insource their PBM business from Medco to combine it with their old Pacificare PBM to create OptumRx. You’ve also seen Humana’s PBM business and mail order business – RightSourceRx – grow significantly.
There are other big PBMs which I didn’t mention such as CVS Caremark which after years of rumors about them splitting back up seems to have proven their case as an integrated, retail-owned PBM. There is MedImpact which has 32M lives according to the latest PBMI market share report, and Prime Therapeutics which is a PBM owned by several of the BCBS plans. Additionally, Aetna, Cigna, and several other managed care companies also have their own PBMs.
While I would have argued that the PBM wasn’t typically known to consumers 5 years ago, I think that the very public dispute between Walgreens and Express Scripts has changed some of this.
But, what a PBM does is relatively simple:
- Process pharmacy claims (i.e., when you go to your retail pharmacy, the pharmacist enters your prescription and electronically submits it for adjudication. The claim is routed to the PBM where it is checked for eligibility and then to see if it pays and what copayment you owe.)
- Set up pharmacy benefits (i.e., based on the plan selected by your employer or payor, the PBM codes what drugs are covered and the copayment structure).
- Administer rebates…since large pharma companies (e.g., Pfizer) pay rebates for having their drugs on formulary (aka preferred drug list), someone has to manage the negotiations and billing of this.
- Set up clinical programs (i.e., most PBMs have a clinical committee which evaluates new drugs and looks at market data to help employers choose coverage options). This also includes programs to look for drug-drug interactions and pharmacy adherence.
- Establish a retail pharmacy network (i.e., work with retailers to get them to agree to discounts on drugs) and are a big part of SureScripts which is the hub to enable electronic prescribing between physicians, pharmacies, and PBMs.
- Communicate with patients and physicians (i.e., look at pharmacy claims data and help find ways to save money or identify clinical issues to inform the patient or physician about).
- Provide cross pharmacy data for drug-drug interactions…this is a critical function since many people use more than one pharmacy for claims.
- And, last but not least, most PBMs provide a mail order and often specialty pharmacy where they ship prescriptions to patients.
The PBM’s clients are employers who are self-insured, government entities (i.e., state employees, Department of Defense), unions, TPAs (third party administrators), and managed care companies (i.e., BCBS of).
PBMs are sometimes referred to as middlemen, but I will point to a few other posts on this:
- My post on a world without PBMs
- My interview with Mark Merritt who runs PCMA (the PBM lobbyist group)
- A presentation I gave last year at PBMI (an industry association) about the future of the industry
In general, if you’re looking for more information on PBMs, I would point you to several sources:
- Drug Benefit News
- PCMA
- PBMI
- Their Drug Trend Reports
The only other blogger who really offers any coverage of this space is Adam Fein which his blog – Drug Channels.
Enabling Healthy Decisions 
Saying you know what calculus is one thing but knowing what goes on inside a calculus text is another. Yes, many more folks now know what a PBM is but I contend very few know what goes on inside the contractual text of a PBM; a complicated text when simple would work, made complicated for the sole purpose of increasing profits far beyond an implied FFS original concept.
What a PBM does is extremely simple and few; DURs are electronic and handled by provider pharmacy not the PBM, Drug-Drug handled at POS by the pharmacy not the PBM, Drug-Disease handled at POS by the pharmacy not the PBM, Drug Allergy handled at the POS by the pharmacy not the PBM, Drug Gender handled at the POS by the pharmacy not the PBM, Drug Age handled at the POS by the pharmacy not the PBM, Drug Dosage handled at the POS by the pharmacy not the PBM, Drug purchasing and storage at the POS by the pharmacy and not the PBM, and Drug Adherence to date has not been handled by anyone effectively but face to face consultation has proven far more successful than any form of electronic reminders.
PBM’s sole effective service is the same as the credit card companies but PBMs are now trying to disguise themselves as clinical providers.
PBM communication technology was once much needed but now can be easily obtained from a multitude of vendor providing, PMS, Switch services, EHR & EMR services and as you have often noted even social media may play a big part near future.
A PBM is now merely a contracting company, writing 100 plus page contracts for what as you described is a “simple” service, 100 plus pages to disguise profit centers and confuse the consumer into thinking the process is complicated. The complicated part of a PBM business is the contract and the antiquated pricing systems used by PBMs in the contract, both the length of contract and antiquated pricing scheme is self-serving in all cases, no exceptions.