by Matthew Gibbs, Pharm.D., pharmacy transformation leader at Blue Shield of California
Have you ever wondered about the journey your medication takes before it’s ready for pickup at your local pharmacy, or before it arrives at your door? It’s easy to assume the transfer is somewhat simple — that it leaves the manufacturer, travels through a distribution network, and arrives at its final destination. But the reality of the journey is much more complicated, and it’s a big reason why drug prices are increasingly unaffordable for so many patients and families.
Multiple players and processes are involved between the time a drug is produced to the moment it lands in your hands. Your doctor will prescribe a drug, your health plan will authorize its coverage, and your pharmacy will dispense the medication. These are critical and expected pieces of the puzzle. But an invisible entity you rarely interact with has much more control over the price and process than most people realize: the pharmacy benefit manager, or PBM.
These behind-the-scenes businesses play a significant role in dictating which medications you can access, how much you end up paying for them, and even which pharmacies you can use to pick up your prescriptions. Some PBMs even pressure you to use the pharmacies that they own, especially for home delivery of medications. All of that adds up to an outsized impact on your finances, your health and ultimately, how your prescription drug coverage impacts you.
In the span of a few short decades, PBMs' market power has signficantly increased and become a major obstacle to fairness and value in the pharmacy care journey. This challenge is one reason why Blue Shield of California set out to transform pharmacy care through an innovative new model designed to make medications more affordable for our members.
But what are PBMs, exactly? Let’s walk through their role in the healthcare system, how that role has evolved over the years, and the impact they have on millions of American healthcare consumers every day.
Pharmacy benefit managers, explained
PBMs were initially created to reduce drug costs by negotiating prices with pharmaceutical manufacturers. In the late 1980s and early 1990s, these companies worked by pooling purchasing power and leveraging it to the benefit of healthcare consumers. It didn’t take long, however, until these early PBMs were acquired by massive healthcare conglomerates.
Today, just three major PBMs control 80% of the market, managing prescription benefits for over 200 million Americans. While their official purpose technically remains to lower drug costs for employers, health plans and consumers, their practices frequently result in the exact opposite.
Here’s how they operate: PBMs are hired by health plans and employers to manage prescription benefits on behalf of covered consumers. They negotiate discounts with drug manufacturers, create the list of covered drugs (a formulary), and manage claims processing. It sounds like a valuable service, but their role as corporate middlemen puts them in a position of power that is often abused.
For instance, the medications that wind up on drug formularies aren’t always the ones you need or work best for your condition. PBMs have the power to prioritize medications that deliver the most profit to themselves. On top of that, they’ll often pocket a percentage of the discounts they negotiate rather than pass those savings on to the consumer. Some PBMs are known to offer their services under different brand names — known as “white labeling” — as a means of masking conflicts of interest and landing new contracts with health plans and employers under the guise of independence. Others will offload certain key operations such as rebate negotiations to overseas subsidiaries, which can be at odds with PBMs' claimed goals of affordability for their payer and employer clients, and limits full regulatory and tax oversight in the United States. Outside of negotiating with manufacturers, PBMs often own mail order and specialty pharmacy dispensing assets, which in turn allow the PBMs to increase their profits.
In recent years, PBMs have drawn a fair share of scrutiny for inflating drug prices by negotiating deals behind closed doors, tacking on hidden fees, restricting competition in the market from alternatives and altogether obscuring the true costs of medications. It’s unfair and anticompetitive practices like this — some of which you’ve likely experienced without knowing — that cause confusion at the pharmacy counter and so often send consumers scrambling for answers. It’s also a contributing factor to why drug prices in the U.S. are on average 2.78 times higher than in 33 other wealthy countries.
A new model for pharmacy care
This isn’t how pharmacy care should work. That’s why Blue Shield of California made the decision last year to unbundle the services handled by a traditional PBM and instead, build a new, transparent model of pharmacy care that puts the interests of our members first.
Blue Shield’s first-of-its kind model diverges from the traditional approach to pharmacy care. By working directly with stakeholders, Blue Shield is able to rein in the drug rebates and hidden fees that are status quo with PBMs, making the cost of your medications not only clear, but reliable. It’s a system designed to reduce costs and restore trust between our members and their local pharmacist.
Here’s an example of how it looks in practice: Recently, Blue Shield partnered with drug manufacturer Fresenius Kabi and Evio Pharmacy Solutions to make a Humira biosimilar available to our members at a transparent net price of $525 per monthly (two pen) dose. This is far less than what PBMs charge their customers for the drug, and a fraction of the monthly cost typically associated with Humira, which can exceed $2,000 when offered through traditional PBMs. It’s just one example of how our pharmacy model is transforming access and affordability.
Receiving your medication at a transparent and affordable price should not be a unusual feature in the U.S. drug supply chain. Sadly, it is. At Blue Shield of California, we are reimagining pharmacy care and removing the barriers established by traditional PBMs. We invite others to join us as we embark on this journey so we can all offer sustainably affordable medications to patients for generations to come.
Matthew Gibbs, Pharm D, is a pharmacy transformation leader at Blue Shield of California, leading the company’s Pharmacy Care Reimagined strategic efforts and commercialization. With experience as the president of Capital Rx and EnvisionRx, he works on dismantling the vertically integrated PBM model. He has also provided expert testimony for the U.S. Senate Committee on Finance regarding PBM transparency and served as a leader at Anthem (now Elevance Health), Medco (now Express Scripts) and Walgreens. Follow Gibbs’ insights on LinkedIn here.