What A Pharmacy Benefit Manager Sits Between

Between the company that makes a drug and the counter where it is handed over sits an intermediary that most patients never interact with directly. Its position explains a lot of confusing pricing.

The role it was created to fill

Health plans needed someone to process pharmacy claims, maintain lists of covered drugs and negotiate with manufacturers on their behalf. That administrative function became a distinct industry.

Scale is the source of its leverage. A manager representing many plans controls access to a large pool of patients, which is what a manufacturer wants.

That leverage is exercised through the formulary, the list determining which drugs a plan covers and on what terms.

Rebates flow backward from list price

A manufacturer sets a list price, then offers a rebate off it in exchange for favorable formulary placement. The rebate flows to the manager, which passes some share to the plan.

Because the rebate is calculated as a percentage of list, a higher list price can produce a larger rebate while the net price stays similar.

This creates pressure toward high list prices with large discounts behind them, which is why a printed price can bear little relation to what anyone pays.

Patients can be exposed to the list price

Coinsurance and deductible amounts are frequently calculated against list price rather than net price, so the patient's share reflects the pre-rebate number.

A patient early in a deductible year can therefore pay more for a drug than the plan ultimately pays for it after rebates arrive.

That gap is the origin of the recurring finding that paying cash can occasionally cost less than using insurance for a particular generic.

Pharmacy reimbursement is set on the other side

The same intermediary sets what it pays a pharmacy for dispensing. The difference between what it collects from the plan and what it pays the pharmacy is a revenue source.

Independent pharmacies with less bargaining power report reimbursement below acquisition cost on some drugs, which is a structural pressure on small pharmacy counts.

Contract terms have historically limited what a pharmacist could volunteer about cheaper cash prices, a restriction that has since been curtailed.

What a patient can do with this

Asking a pharmacist for the cash price alongside the insured price is now routine and costs nothing. The answer is sometimes lower.

Checking a plan's formulary tier before a prescription is written lets a prescriber consider a therapeutically similar drug on a cheaper tier.

Which drug is appropriate remains a clinical decision, and a substitution should be discussed with the prescriber rather than made at the counter.