How To Evaluate Your Pharmacy Benefit Manager (PBM)

If you’ve ever balked at the price of a prescription drug, you can largely thank the influence of legacy pharmacy benefit managers (PBMs). These third-party companies are often responsible for negotiating drug prices and determining what ends up on a prescription drug list. 

That’s why it’s so important to know how to evaluate your PBM to see if they’re right for your healthcare plan. In particular, if a PBM isn’t transparent, they may favor adding more expensive drugs to your list in order to boost their own profits. In this post, we’ll explore what you should watch out for when selecting a PBM.

How Do PBMs Help Employers?

Let’s start with how pharmacy benefit managers can help employers and their members. Because PBMs often have leverage with their purchasing power, they’re able to negotiate better rates on drugs for employer health plans. This, in turn, can result in lower overall costs for members. 

PBMs also play a role in creating and maintaining a plan’s formulary, which can help members get access to crucial medicine. Additionally, PBMs also help with access through services like home delivery and mail pharmacies, as well as setting up retail pharmacy networks. 

There’s no question that the US healthcare system is incredibly complex, and PBMs help navigate this system in a way that employers often simply can’t. 

Why Transparency is Important in PBMs

Not everything about PBMs is positive, though. One of the major criticisms of PBMs is that they aren’t transparent enough. This is especially true of the largest, legacy PBMs, who have effectively created vertical monopolies by consolidating companies across the entire healthcare industry. 

When these large pharmacy benefit managers aren’t transparent, they can obscure the true costs of drugs and their reasons for choosing certain drugs over others. So, even though there are cheaper options for a prescription drug, PBMs can choose a more expensive one with more rebates. Then, they can utilize a practice called spread pricing, where they charge the insurer a higher amount than they reimburse the pharmacies, keeping the difference for themselves. On top of that, they can also layer in fees and additional clauses in confusingly worded contracts. 

All of these behind-the-scenes moves end up greatly boosting the PBM’s profits — at the expense of the consumer. Because insurers get charged a high price (after a seemingly generous “discount”), that cost often gets passed down to members as higher out-of-pocket costs. 

What To Consider When Evaluating Your PBM

So if transparency is an issue among larger PBMs, how do you determine which one’s right for you? Here are some key factors to consider when evaluating a PBM. 

• Clarify the language used in the contract. Is there anything in the contract that’s vague or confusing? Raise your questions with the PBM — if they don’t provide clear answers, that may be a sign they’re trying to squeeze more profits out of you. 
• Assess the mix between the formulary and products. There are a wide range of prescription drugs out there. After a brand-name drug has been on the market for a while, companies often make generic versions at a much lower cost. Check if these are available on the formulary or if the PBM has prioritized higher-cost drugs instead. 
• Understand the different options for pricing. Does the PBM use discount-based (aka traditional) or cost-based pricing? With discount-based pricing, PBMs will offer a certain percentage off of the cost of the drugs, but may not share what the real cost actually is. With cost-based pricing, PBMs will typically charge a flat administrative fee and prioritize finding the lowest-cost drugs possible. 
• Determine what guarantees are made. If the PBM offers discount-based pricing, can they guarantee a certain discount? Do they charge a flat administrative fee? Can they guarantee a certain amount of rebates? See if you can negotiate for guarantees or for savings to get passed through to the employers and members. 
• Assess whether the PBM uses a drug price index. A drug price index compiles the cost of medications, which can help plans reduce their overall costs. Make sure the PBM you’re evaluating uses an index like the National Average Drug Acquisition Cost (NADAC). 
• Review the fine print around specialty drug management. While many medications can be easily acquired at any pharmacy, specialty drugs are different since they’re used for more complex health conditions. Because they often require special handling, these drugs can also lead to high costs. With more people potentially relying on specialty drugs, it’s important for you to understand how PBMs manage prior authorization approvals and whether they have any measures in place to prevent price inflation. 
• See if there are refill thresholds. Oftentimes, PBMs will have auto-refill programs that trigger when prescriptions reach a certain threshold. This can help with convenience for some members but may also lead to drug waste and overspending. 
• Check what other programs are offered. What kind of clinical programs does the PBM offer? Do they also offer proactive care management? These programs may be important to members, so you may want to consider these options as well. 
• Make sure the PBM is aligned with your goals. Ultimately, you’ll want to make sure any PBM you evaluate matches your own goals. Are you looking to cut costs? Are you looking for specific programs or benefits? The PBM you select can have a large impact on the prescription drugs available and how much they cost. 

Need more tips? Check out our PBM Evaluation Guide, a comprehensive, step-by-step outline for helping you choose a pharmacy benefits manager that's right for you (we won't even make you give us your email to get it).

What’s Next?

In addition to our PBM Evaluation Guide, we recommend contacting a benefits broker to help you navigate your health plan options. Or, if you already have a PBM, you can use the results of your research to renegotiate your contract. 

It’s important to consider all your options when choosing a pharmacy benefit manager. Above all, you’ll want to avoid a PBM that’s only concerned with making more profit. That’s why a transparent PBM like SmithRx stands out — we're focused on finding the lowest-cost drug. That means all rebates get passed through to employers and members, and it’s clear what value you’re getting. Learn more about how SmithRx is transforming pharmacy benefits.