How do PBMs negotiate with pharmacies?

Pharmacy benefit managers hold the duty of reimbursing pharmacies for their role in delivering medications to patients. Despite having already invested funds in stocking and dispensing the medication, the pharmacy remains powerless in regards to controlling its sale. The PBM determines the patient's copayment and the reimbursement pharmacies will receive for each drug covered by the drug plan. The PBMs establish in advance how much each drug covered by the plan should cost, and this is the amount that is reimbursed to pharmacies other than their own. Often, the reimbursement amounts fall significantly short of the cost of the medicine, causing pharmacies to incur losses when filling prescriptions. The process of determining the cost of each covered prescription remains shrouded in mystery, as PBMs are not governed by any regulations and have no obligation to reveal their methodologies, which they consider as "proprietary information". As a result, pharmacists are left with no choice but to contest the losses they experience while fulfilling the prescription. Despite rules in New York State establishing exact appeal procedures, the PBM frequently denies or ignores these challenges.

Complicated is the connection between PBMs and pharmaceutical makers. There are a variety of financial obstacles that make it difficult to negotiate and comprehend relationships between drug producers and PBMs.

As an intermediary between pharmaceutical firms and patients, PBMs are responsible for establishing a drug's affordability and implementing programs to assist patients in gaining access to prescriptions and utilizing the most effective therapies. These programs consist of:

Rebate Schemes

PBMs negotiate with pharmaceutical firms to determine the company's rebates for specific medications; rebates are paid to the PBM. Depending on the contract between the PBM and employer or plan sponsor, the PBM will pass on a portion or none of the rebate.

Insurance Coverage

A formulary is a list of brand-name and generic medications covered by a specific plan. PBMs determine the list with the assistance of physicians and other clinical specialists to include the most effective and cost-efficient medications. Given the number of pharmaceuticals that pass through a PBM, coverage on the formulary increases the likelihood that a physician will prescribe a drug. Ideally, a pharma manufacturer wants to ensure that their medications are covered to reach people who require them.

Step-by-Step Programs

Step Therapy programs are a form of prior authorization applicable to conventional and specialized medications. Before going on to a more expensive treatment, the program is aimed to ensure that patients have at least tried a less expensive drug that has been shown helpful for a specific illness.

Programmes d'autorisation préalable

Prior Authorization is a cost-saving feature that helps guarantee that prescription medications are used appropriately. Prior Authorizations are intended to prevent the incorrect prescribing or usage of certain medications.

PBMs are also responsible for executing other crucial programs to enhance health outcomes, such as lowering waste and promoting adherence, managing expensive and difficult specialty drugs, and clinical drug management.

How exactly do PBMs interact with Employers?

Typically, when an employer inks a contract with a PBM to create and maintain a prescription benefits plan, the duration of the agreement is three years. During the first exploration phase, both parties work together, and in some cases with brokers and industry experts, to construct their ideal pharmacy benefit plan by selecting deductibles, copayments, coinsurances, and clinical programs.

The business relies on the PBM to effectively administer their pharmaceutical benefits and educate their employees about their coverage after the developed plan. Typically, PBMs provide contact centers for member support and answer in-network pharmacies and copayments for specific prescriptions. Most PBMs also provide websites or mobile applications that facilitate access to information regarding eligibility, refills, pricing, and coverage rules.

PBMs occupy a central position within the chain of prescription drug distribution. As a result, they:

  • PBMs construct and oversee lists of covered pharmaceuticals, known as formularies, for health insurers, which dictate the drugs available to patients and the amount they must pay out-of-pocket.
  • utilizing their purchasing power to negotiate rebates and discounts with pharmaceutical
  • manufacturers
  • PBMs interact directly with individual pharmacies to reimburse beneficiaries for medications dispensed.

The federal Centers for Medicare and Medicaid Services found that PBMs' ability to secure greater rebates from manufacturers has played a role in reducing prescription prices and slowing the growth of drug spending in the past three years. However, there is also a potential for PBMs to incentivize the promotion of pricier pharmaceuticals over more cost-effective options. Because rebates are frequently determined as a percentage of the manufacturer's list price. Pharmacy benefit managers (PBMs) receive a more significant rebate for expensive pharmaceuticals than those that may give more excellent value at a lower cost. Consequently, those with high-deductible plans or copayments based on a drug's list price may experience higher out-of-pocket expenses.


A PBM's next duty is to negotiate a purchase price with a prescription medicine manufacturer. Manufacturers of pharmaceuticals are responsible for establishing the list price for their products. The list price may be the value manufacturers claim their products possess, but it is rarely the price a pharmacy benefit manager pays for a drug.

Manufacturers of pharmaceuticals are aware that PBMs are responsible for generating medication formularies. And because the manufacturer wants its pharmaceuticals, especially high-priced drugs, to be on a preferred drug formulary, it will often grant a rebate to a PBM, requiring the PBM to negotiate a lower payment than the list price.

The PBM then collects reimbursements from its payer partners and pharmacy medicine dispensing and administrative fees.

Nonetheless, some stakeholders say that this procedure for negotiating rebates and prices can be incorrect.

First, this procedure is largely obscure. In a separate March 2019 study, the Commonwealth Fund stated that it is challenging to determine rebate amounts. Rebate amounts are kept confidential in manufacturer and PBM contracts, making it impossible for payers, consumers, and other stakeholders to determine who may benefit from a rebate.

In addition, the procedure may push PBMs to include more expensive pharmaceuticals on formulary lists, resulting in increased costs for the payer and possibly the patient. For more information visit our website.