Pharmacy benefit manager

In the United States, a pharmacy benefit manager (PBM) is a third-party administrator (TPA) of prescription drug programs for commercial health plans, self-insured employer plans, Medicare Part D plans, the Federal Employees Health Benefits Program, and state government employee plans.

According to the American Pharmacists Association (APhA), "PBMs are primarily responsible for developing and maintaining the formulary, contracting with pharmacies, negotiating discounts and rebates with drug manufacturers, and processing and paying prescription drug claims. For the most part, they work with self-insured companies and government programs striving to maintain or reduce the pharmacy expenditures of the plan while concurrently trying to improve health care outcomes."

As of 2016, PBMs manage pharmacy benefits for 266 million Americans. They operate inside of integrated healthcare systems (e.g., Kaiser or VA), as part of retail pharmacies (e.g., CVS Pharmacy or Rite-Aid), and as part of insurance companies (e.g., UnitedHealth Group). There are fewer than 30 major PBM companies in this category in the US, and three major PBMs comprise 78% of the market and cover 180 million enrollees.

PBMs aggregate the buying clout of enrollees through their client health plans, enabling plan sponsors and individuals to obtain lower prices for their prescription drugs through price discounts from retail pharmacies, rebates from pharmaceutical manufacturers, and the efficiencies of mail-service pharmacies. As of 2015, CVS Caremark said that it reduced its plan members' prescription drug spend to 5%, down from 11.8% in 2014. A 2014 ERISA hearing, however, noted that vertically integrated PBMs may pose "conflicts of interest", and that PBMs' health plan sponsors "face considerable obstacles in...determin[ing] compliance with PBM contracts including direct and indirect PBM compensation contract terms".

The first PBM, Pharmaceutical Card System Inc. (PCS, later AdvancePCS) originated in 1968 with the invention of the plastic benefit card. By the "1970s, [they] serve[d] as fiscal intermediaries by adjudicating prescription drug claims by paper and then, in the 1980s, electronically". By the late 1980s PBMs had become a major force "as health care and prescription costs were escalating".Diversified Pharmaceutical Services (DPS) was one of the earliest examples of a PBM that entered the market from within a leading national health maintenance organization (HMO) United HealthCare (now United HealthGroup). Diversified pioneered many cost containment strategies that are now core PBM services and became a recognized leader in clinical programs. After its acquisition by SmithKline Beecham in 1994, Diversified played a pivotal role in that company's Healthcare Service division. By 1999 UnitedHealth Group accounted for 44% of DPS's total membership.Express Scripts acquired Diversified April 1, 1999 and consolidated its position as a leading PBM for managed care organizations.

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