What Do PBMs Do? The Hidden Intermediaries of Healthcare.

Healthcare in the U.S. is a complex industry that has many intermediaries that sit in between physicians, hospitals and insurance providers. One such intermediary are Pharmacy Benefit Managers (PBMs), which have a significant impact on the pharmaceutical industry.

In this article, we will explore what PBMs are, what they do, and how they impact the healthcare industry.

What are PBMs?

Pharmacy Benefit Managers (PBMs) are third-party administrators that help manage prescription drug programs for healthcare plans such as commercial health plans, Medicare Part D Plans and self-insured employers. Their main function is to act as intermediaries between pharmacies, pharmaceutical manufacturers and insurance providers, negotiating on behalf of their clients to achieve cost savings.

Founded in the 1960s, PBMs initially began as claims adjudication companies. Today, the majority of PBMs are owned by insurance companies or operate as subsidiaries of larger corporations, such as CVS Health’s Caremark.

What do PBMs do?

PBMs perform a variety of functions that help lower prescription drug costs for their clients. Some of these functions include:

Formulary Development

PBMs develop formularies, which are lists of medications that are covered by a healthcare plan. These formularies are designed to promote the use of lower-cost drugs while discouraging the use of higher-cost medications.

Pharmacy Network Management

PBMs contract with pharmacies to provide medication to members of the healthcare plan. They negotiate with pharmacies to secure lower prices for prescription drugs, which can result in savings for their clients.

Benefit Design

PBMs work with their clients to design coverage for prescription drugs that is cost-effective and meets the needs of the plan’s members.

Claims Processing

PBMs process claims for prescription drugs for clients, managing the payment process between pharmacies, insurance providers, and their clients.

Pharmacy Audit Services

PBMs perform audits of pharmacies to ensure that they are following contractual obligations related to pricing and benefit coverage. This helps to prevent fraud and abuse.

Mail Order Pharmacy

PBMs often offer mail order pharmacy services to members of healthcare plans. This allows members to receive prescriptions by mail, which can be more convenient and cost-effective than obtaining medication through a traditional pharmacy.

Data Analytics

PBMs use data analytics to identify trends in healthcare spending and medication usage. They then use this information to implement cost-saving measures for their clients.

How do PBMs impact the healthcare industry?

PBMs play a significant role in the pharmaceutical industry, and their actions can have significant impacts on the costs of prescription drugs.

Cost Savings

One of the primary goals of PBMs is to save their clients money on prescription drug costs. They do this by negotiating lower prices with both pharmaceutical manufacturers and pharmacies.

Formulary Development

By developing formularies, PBMs can promote the use of lower-cost medications while discouraging the use of higher-cost drugs. This can result in savings for both clients and members of healthcare plans.

Drug Utilization

PBMs can also influence drug utilization by incentivizing the use of certain medications. For example, they may offer lower out-of-pocket costs for members who choose generics over brand-name drugs.


There has been increasing criticism of PBMs for a lack of transparency in their pricing practices. Some argue that they obscure the true costs of prescription drugs, making it difficult for consumers and plan members to make informed decisions. As a result, there have been efforts to increase transparency and accountability for PBMs.


Pharmacy Benefit Managers (PBMs) are intermediaries in the healthcare industry that provide a variety of services related to prescription drug management. PBMs are designed to help healthcare plans save money on prescription drug costs, primarily by negotiating with pharmaceutical manufacturers and pharmacies to secure lower prices. Although they are controversial due to questions surrounding transparency, PBMs play an important role in the healthcare industry and are likely to continue to do so in the future.

Common Questions About PBMs

  • What is a PBM?
  • A Pharmacy Benefit Manager (PBM) is a third-party administrator that helps manage prescription drug programs for healthcare plans.

  • What do PBMs do?
  • PBMs perform a variety of services related to prescription drug management, including formulary development, pharmacy network management, claims processing, and more.

  • How do PBMs save their clients money?
  • PBMs work to negotiate lower prices with both pharmaceutical manufacturers and pharmacies, incentivize the use of lower-cost drugs, and limit the use of more expensive medications through formulary development.

  • Are PBMs controversial?
  • Yes, there has been criticism of PBMs for a lack of transparency in their pricing practices, among other issues.


  1. Pharmacy Times. (2019). The Role of a Pharmacy Benefit Manager in Health Care. Retrieved from https://www.pharmacytimes.com/view/the-role-of-a-pharmacy-benefit-manager-in-health-care
  2. The American Journal of Managed Care. (2019). The Good, the Bad, and the Ugly of Pharmacy Benefit Managers. Retrieved from https://www.ajmc.com/view/the-good-the-bad-and-the-ugly-of-pharmacy-benefit-managers
  3. Centers for Medicare & Medicaid Services. (n.d.). Understanding the Role of Pharmacy Benefit Managers. Retrieved from https://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-Insurance-Market-Reforms/Downloads/PBM-White-Paper-Final.pdf

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