PBM’s and the Revenue Game

Posted on: March 1, 2024

Pharmacy Benefit Managers (PBMs) make money through various revenue streams and business models. Here are the primary ways PBMs generate revenue:

Pharmacy Benefit Managers: Revenue Game

1. Spread Pricing:

Reimbursement Model: PBMs negotiate pricing contracts with pharmacies and payers, including health insurance plans and employers.

Markup: PBMs reimburse pharmacies at one rate and charge the payer a higher rate, pocketing the difference as profit.

Spread: The difference between what the PBM pays the pharmacy and what it charges the payer is known as the “spread.”

2. Administrative Fees:

Service Charges: PBMs may charge administrative fees to health plans, employers, and other clients for managing their Pharmacy Benefit Programs.

Per-Member, Per-Month (PMPM) Fees: Some PBMs charge a fixed fee per member, per month, regardless of the level of pharmacy utilization.

3. Rebates and Discounts:

Negotiated Rebates: PBMs negotiate rebates and discounts with drug manufacturers in exchange for including their medications on formularies or preferred drug lists.

Retained Rebates: PBMs may retain a portion of the rebates they negotiate with manufacturers as revenue rather than passing the entire rebate amount to the payer.

4. Specialty Pharmacy Services:

Specialty Medications: PBMs may operate specialty pharmacies or provide specialty pharmacy services for high-cost, complex medications used to treat chronic and rare diseases.

Dispensing Fees: PBMs charge dispensing fees for specialty medications distributed through their specialty pharmacy networks.

5. Clinical Programs and Consulting Services:

Medication Therapy Management (MTM): PBMs may offer clinical programs and consulting services to optimize medication therapy, improve patient outcomes, and reduce healthcare costs.

Consulting Fees: PBMs may charge consulting fees for providing clinical support, formulary management, and utilization review services.

6. Mail Order and Home Delivery:

Mail Order Services: PBMs often operate mail-order pharmacies or partner with mail-order Pharmacy Providers to Offer convenient home delivery services for prescription medications.

Dispensing Fees: PBMs may charge dispensing fees or markups for medications dispensed through mail-order pharmacies.

7. Specialty Network Access:

Network Access Fees: PBMs may charge pharmacies fees for participation in their specialty pharmacy networks or preferred provider networks.
In summary, Pharmacy Benefit Managers (PBMs) generate revenue through a combination of spread pricing, administrative fees, rebates and discounts, specialty pharmacy services, clinical programs, consulting services, mail order and home delivery services, and specialty network access fees.

These revenue streams allow PBMs to cover their operational costs, generate profits, and provide value-added services to their clients and stakeholders within the Healthcare System. The concern in the benefits world is the “transparency” with which these fees are disclosed and the potential conflict that lack of disclosure hides.