Pharmacy story: What is a PBM (Pharmacy Benefit Managers)

Pharmacy story: What is a PBM (Pharmacy Benefit Managers)

I want to be upfront. While I grasp terms like PBMs, rebates, reimbursement, formulary listing, copay, and WAC individually, but today took time out to create a block diagram for a comprehensive context. Let's take a look at these concepts from a PBM perspective: 

PBMs act as intermediaries between pharmacies, drug manufacturers, & payers (insurance companies). They generate revenue primarily through rebates from manufacturers, administrative fees, and by operating their own mail-order pharmacies. 

For manufacturers, PBMs are crucial in getting drugs listed on the payer's preferred list (formulary). In exchange, PBMs receive rebates from drug manufacturers, which are then passed on to payers (with PBMs retaining a portion as revenue).

Here's an $ example to illustrate all the above concepts:

> Selling price of manufacturer: $98 & Wholesaler margin: $2

WAC: $100

> Pharmacy is reimbursed by the payer via PBM: $104 

> PBM negotiate 30% rebates from manufacturer, i.e. ($100*30%) = $30

Therefore, net cost of drug is $104 - $30 = $74

> 35% of net cost as copay or coinsurance for the patient = $74 * 30% = $26 

> Net cost to payer: $74 - $26 = $48

PBMs keep a % of rebate and also charge separate administration fees to manufacturer

Reference: https://lnkd.in/gEyv9XzB

(Black arrows indicate drug flow, green indicates $ flow and red indicates contract flow)

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