Legacy PBMs Are on Borrowed Time: An Insider's Look

Most Americans may not have known what a Pharmacy Benefit Manager (PBM) was 10 years ago, but today PBMs themselves are notorious. Employers, members, and providers are all sounding the alarm on traditional practices. With every new lawsuit, proposed piece of legislation, and exposé it becomes even more clear: legacy PBMs are on borrowed time. 

Where does the pharmacy benefits industry go from here? It’s the dawning of the age of modern PBMs, like SmithRx, who are reimagining the role of PBMs from the ground up. SmithRx’s radically transparent approach to pharmacy benefits has attracted the notice of pharmacy industry leaders, like our Senior Vice President of Product Strategy, Alan Pannier, PharmD, MBA.

Alan recently joined the Health Care Rounds Podcast to discuss why legacy PBMs are on their way out, what qualifies a modern PBM, and why SmithRx stands out from the crowd. Keep reading to get a full rundown of Alan’s conversation with Health Care Rounds host, John Marchica, or listen to the episode in its entirety below.

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Legacy PBMs are Failing the Pharmacy Industry

Almost every aspect of the pharmacy experience is broken. Astronomical drug prices are putting employers, patients and community pharmacies in tight spots. The common root cause? Legacy PBMs and their outdated, opaque practices.

Skyrocketing Drug Costs 

Government reports have found that health plan spending on prescription drugs has increased by $4.9 billion, or 56% since 2017. This extreme price escalation has garnered attention at the national level, with both news agencies and legislators pushing for increased transparency from PBMs. A major driver for these extreme price hikes are legacy PBMs and their tangled web of complicated pricing and opaque practices. Through their monopolistic practices, legacy PBMs manipulate the market, obscuring the true cost of medications and ultimately driving up prices for members and employers alike. This lack of clear pricing and prioritization of their own interests exclusively are key factors in the unsustainable rise of drug costs across the United States.

The challenge with having a discount-based evaluation process or accountability framework, is it now incentivizes the pharmacy benefit manager to do everything they can to meet those guarantees. And unfortunately, in doing so, what that leads to is the pharmacy benefit manager preferencing higher cost products over lower cost products—or being happy when drug prices increase. - Alan Pannier, SVP of Product Strategy at SmithRx

Community Pharmacies Under Attack

The legacy PBM model has been particularly devastating for community pharmacies. They offer large discounts to their clients based on a price called Average Wholesale Price (AWP). This benchmark is often inflated, allowing PBMs to claim significant savings. To achieve these discounts, PBMs have continuously lowered the reimbursement rates they pay to pharmacies. National chain pharmacies, which are also owned by the legacy PBMs, can leverage their size and relationships to negotiate favorable reimbursement rates. 

By contrast, independent pharmacies are excluded from these deals and left to struggle. This has created a situation where the AWP discounts are now so large that they bear no resemblance to the actual cost of acquiring the drugs.

The current reimbursement system perpetuated by legacy PBMs often provide these smaller businesses with rates that are far below the actual cost of the drugs. This practice effectively squeezes them out of the market. This ecosystem is not only harmful to community pharmacies but also limits patient choice and access to care. It’s estimated that 4.7% of all people in the U.S. (approximately 15.8 million Americans) live in a “pharmacy desert”, oftentimes due to a closure of a local independent pharmacy.

The decline of community pharmacy is a direct consequence of a system that favors large corporations and prioritizes profit over the health and well-being of local communities. 

The Rise of Modern PBMs

The world of pharmacy benefits is not all doom and gloom. There is a better way forward — and SmithRx is leading it. We are the modern PBM, built from the ground up to challenge the legacy model and create a transparent, cost-aligned system that works for employers, members, and pharmacies alike.

Unlike legacy PBMs that prioritize their own interests through opaque practices, modern PBMs operate with fiduciary alignment to their clients, ensuring complete transparency in data and information. While older models simply identify potential savings, newer PBMs proactively engage members to secure and activate those savings. Furthermore, instead of showing favoritism, modern PBMs provide a consistent and equitable experience for every partner, simplifying and streamlining processes to ensure the best possible outcomes for all.

Legacy and modern PBMs could not be more different in method or outcome. If legacy PBMs are the stain on the American pharmacy system, then modern PBMs are its saving grace.

Reimagining Pharmacy Benefits: The SmithRx Difference

At SmithRx, we’re proud to lead the charge for pharmacy benefit manager reform. We have taken the PBM premise down to the studs and rebuilt it to improve outcomes for both clients and members. 

There’s no easy way to compare the practices and structure of legacy PBMs to modern ones—but there are even key ways we’re fundamentally different from other pharmacy benefits managers on the market today.

Executionally-Focused Savings

We believe that a modern PBM doesn’t just identify savings, they go out and get them for clients. We’re not beholden to any one manufacturer, supplier, or pharmacy (unlike vertically integrated legacy PBMs), we can search across countless brands, generics, and biosimilars to find the best value. 

A Cost-Based, Not Discount-Based, Model

You may have heard of retailers marking up the cost of merchandise before a big “sale” to make it look like you’re getting a fantastic deal—and this is what other PBMs do too. They promise huge rebates and mark-offs, but in reality they’re paying inflated prices for drugs and skimming profit off the top to boot. In the end, you may see significant “savings”, yet you pay more in total for your plan’s medications.

We take pride in aligning everything we do at SmithRx with our clients goals. Instead of smoke and mirrors, we lead with a consistent, simple model at SmithRx. Every client pays a flat per member, per month fee, and our team will get you the lowest net cost across every single drug, every single time. This cost-based approach consistently saves 25% or more for our clients compared to legacy PBMs.

Step one of an evaluation process is finding a non-conflicted pharmacy benefit manager, which there are definitely some out there, like SmithRx. Then the second step is really getting at what matters: what are you spending on pharmacy benefits today?

Don’t know where to start when evaluating a new PBM? Get our PBM Evaluation Guide to understand the evolution of PBMs, how you can evaluate different PBM partner efficiently, and ultimately make informed decisions for your business.

100% Pass-Through and Transparency

At the heart of everything that SmithRx does is complete transparency. There’s no gimmicks: we pass all discounts and rebates directly to clients, guaranteeing that every dollar saved goes straight back to employers and, ultimately, members. This 100% pass-through approach eliminates hidden fees and middlemen, providing a clear and honest partnership.

With SmithRx, clients have unrestricted access to their own claims data, empowering them with a complete view of their pharmacy spending. This level of transparency puts clients in the driver’s seat of their pharmacy benefits and gives them the visibility they need to make truly informed decisions. 

Interested in getting more insights from a pharmacy insider on the state of PBMs? Listen to Alan’s episode on the Health Care Rounds podcast.