Who to Blame? | Medication Cost Series Part 3

Pharmacy Benefit Managers- The Proverbial Middleman

By now, friend, we have covered the havoc that “Big Pharma” and the Health Insurance Industry cause for patients. Now, I have the displeasure of introducing you to the third and possibly most nefarious cog in this machine: Pharmacy Benefit Managers aka PBMs.

I’m willing to bet you have never heard of PBM’s before. But that is just a testament to how good they are at pulling all the strings whilst hiding in plain sight. They know who you are though.

What Are PBMs?

PBMs are 3rd party administrators employed by insurers, large corporations, unions, and government bodies (read: Medicaid) to be the link between insurance companies, drug manufacturers, and patients. Using their immense size as an advantage they:

  • negotiate mega contracts for drugs (with, theoretically, the patients’ best interest in mind)
  • negotiate drug rebates (cost re-imbursements) for their employers, the health insurance companies
  • operate mail order drugs pharmacies
  • manage the distribution of drugs amongst pharmacies
  • manage drug formularies (most important point to our discussion today)

This is all done with the mission statement of decreasing costs for everyone involved, with special focus on savings for the patient.

Good intentions. Road to hell. Something about middlemen.

Where did PBMs come from?

Before the magic of computer databases were invented, all prescription drug claims were settled via paper, as all other things. As you can imagine, that was inefficient, costly, and an administrative nightmare. So in 1968, the Pharmaceutical Card System (PCS) was born. This was the first prescription drug benefit plan administrator. The very first PBM.

PCS even invented a handy little laminated card that could be used at pharmacy counters to purchase prescriptions. Revolutionary for its time, this cut out a lot of paperwork on the patient’s side. And on the insurers side, they were now working with a PBM that could assist in processing prescription drug claims, take over reimbursing pharmacies, and create/maintain the drug formulary.

Up until 1992, PBM’s were stand alone organizations that assisted insurers and patients alike providing mail-order services and prescription drug distribution. They were independent entities that could negotiate fairly for both insurers and patients. No risk of “being in someone’s pocket”. And things were good for a time until they weren’t.

And this is when things start getting crazy

In 1993, Merck&Co, the largest pharmaceutical company at the time, forever changed the health insurance industry by purchasing its PBM Medco Containment Services for 6 Billion. That’s right with a B.

Analysts at the time felt it was a great move that would cause a spiral in prices. It made logical sense. The cost of Merk&Co drugs would drop in price due to being a preferred drug, and this would force drug price decreases for other companies. However, that isn’t what quite happened.

It only takes one

Other pharmaceutical manufacturers started to do the same

In fact, it was this that lead to the FTC getting involved. In 1994, just 1 year later, Eli Lilly (big pharma company) underhandedly stole purchased AdvancePCS for 4.4 billion from the McKesson Corporation, and that was the last straw that triggered an investigation. The FTC showed up for the alleged antitrust violation, but stayed for the conflict of interest. The FTC then took a deeper look into the PBM industry overall.

“Our investigation into the PBM industry has revealed that Merck’s acquisition of Medco has reduced competition in the market for pharmaceutical products,”

William J. Baer, Director of the FTC’s Bureau of Competition. 

Th FTC found that the practice of pharmaceutical companies buying PBMs lead to corruption. (gasp). Merk&Co drugs had, in fact, been favored as prescribed drugs by MedCo to the point that patients had been denied access to drugs by competing manufacturers, AND Merk&Co was privy to sensitive pricing of other manufacturer drugs which could facilitate collusion between the companies.

Since the FTC was starting to crawl up everyone’s rear ends, pharma manufacturers decided to sell off PBMs and forgo the whole ordeal.

Now for the Pharmacies turn

Seeing the brilliant idea it was to purchase/combine PBMs, giant retail pharmacies such as Rite Aid and CVS started to buy up PBMs like hot cakes. Also, at the same time, PBMs started to look around and make deals with other PBMs to merge into behemoths. Two great examples:

  • Advance Paradigm bought PCS (turning it into AdvancePCS)-> Caremark purchased AdvancePCS in 2003 ->CVS then purchasing Caremark in 2007 and Omnicare in 2015 becoming CVS Caremark.
  • Express Scripts merged with Medco in 2012 for 29 Billion; a combination of the largest and second-largest PBMs at the time. Then Express Scripts, a huge PBM, purchased it’s own specialty pharmacy, Accredo.
chart of PBMs that have been purchased or merged with others
And this doesn’t even show you who owns what. That’s how scrambled this all is.

If it sounds like a confusing free for all, it kind of is. Just this last March, on 3/16/21, the FTC announced they are starting a working group, along with committees in Europe, Canada and the U.K., focused on rethinking their approach to pharmaceutical mergers. Praise Be. They are finally starting to realize these huge mergers are potentially the catalyst pushing insanely high drug prices higher and allowing for anticompetitive mergers (read: price fixing, reverse payments, and other possible regulatory abuses) that put the public at a disadvantage.

These are the players

Just as we’ve done before, let’s break down who the biggest movers and shakers are.

  1. CareMark
  2. ExpressScripts
  3. OptumRx

If those look familiar, you are right. Chances are that if you look at your insurance card, it’s one of these guys on the back. Just these 3 PBMs made up 76% of the market share in 2018, and they are still going strong as the top 3 today. The first one, CareMark is employed under CVS (and CVS owns Aetna), Optum RX is employed under United Health, and Express Scripts is under Cigna.

For the sake of simplicity, we will look just at these three PBMs and discuss their impact on the health industry at large. To recap, these should be the middlemen that make sure the insurer and patient are being provided with affordable medications at the best cost, with the best quality. From these large mergers, theoretically prices should be at a all time low, but they aren’t. What has gone wrong?

The entire system has become a convoluted mess, and this is the best way?

Somehow this is is the most efficient way to charge you for your medication

Time to play Follow the Money

PMBs are extremely efficient at making money. Some of the “legitimate” ways: discounts on large purchases of medications, administrative fees for services, and


I touched on it in part 1 of this series that one reason Big Pharma keeps increasing their drug list prices is due to PBMs. Why? If you remember, I noted that PBMs are the ones that create and modify formularies for hospitals and patients, which are broken up into tiers. In part 2 of this series I explained that “tier 1 is the cheapest option for the patient and so forth until you get to the highest tier, usually the 4th or 5th.”

Drug manufactures want their drugs to be on the lowest tiers possible because that means their drugs will be prescribed more (since they are more affordable to the patient) and therefore the pharma companies make more money. This basically makes it necessary for pharma companies to pay big rebates to PBMs so their drugs get placed lower down on the formulary. The PBMs, of course, take this money, but being the big “negotiators” they are, always ask for bigger rebates so they can “pass the savings on to the health insurance companies and to the patients”.


That means that in order to make a profit, the drug companies have to increase their drug prices to accommodate the large rebates. Another huge issue here is the the rebates and contracts that PBMs can grab from drug manufacturers is considered propriety information (read: its a huge secret) that not even governmental committees are allowed to know. How can there be oversight? Where is the accountability?

Health insurers are supposed to use the rebates to lower premiums for patients, but there is no way to know how much of that money is actually passing hands or not.

PBMs also have more nefarious means of making money.

PBMs also like to pick on smaller pharmacies too. They have been known to practice something called “The spread” where they reimburse some pharmacies one rate for dispensing a drug, but charge a higher rate to the insurance company for the same medication and then pocketing the cash.

PBMs have also been noted to pay less reimbursement back to smaller pharmacies and then threaten to kick them out of network if they make a fuss about it. OptumRx, in this case, also created their own drug prices to organically decrease reimbursement to smaller pharmacies.

How this affects patients like us

The PBMs make the formulary, or drug menus, as I like to call them, and determine how much they will cost you at the pharmacy. They are done in a tier system with tier 1 being the cheapest option, and pricier the higher you go. This dictates what is even available to you to take.

Example Formulary:

Tier 1 is preferred generic
Tier 2 is non-preferred generic
Tier 3 is preferred brand
Tier 4 is non-preferred brand
Tier 5 are specialty drugs

Also, keep in mind, that formularies can change at any point in the year (with some exceptions in some states) and you might not be notified of it. This means that suddenly you may find that your drug has gone up in tier and now your $5 copay has gone up to $45, or it isn’t covered by insurance at all.

Going back to the drug companies, the more rebates PBMs get, the lower tier the drug is, but, if the PBMs get a better deal from another company, it will exclude a drug entirely or move it up in tier. If removed, your insurer may even recommend a different medication to you without consulting your physician about it first. Drugs being removed from formulary lists is happening more and more as time passes (see below)

And what if you liked that drug? It isn’t impossible to ask your insurance for an exception, but there is the hassle factor of Prior Authorizations and Peer to Peer reviews.

Prior authorizations are the epitome of the hassle factor in medicine, just ask this doctor. They entail someone from the patient’s care team calling the insurance company stating the test or medication is medically necessary, is the best option up to date, isn’t being duplicated (like, you got a CT scan last week), and is the cheapest option.

If any of those criteria fail, the request can be denied. At that point, if the medical team wants to keep pushing, a Peer to Peer review has to happen within 24 to 72 hours of the denial. A Peer to Peer is when the patient’s doctor speaks with the insurance company’s physician to explain why the drug, hospital admission, or test is necessary. Your doctor is essentially convincing the insurance companies doctor to ok coverage.

But wait, there’s more!

This may come as a surprise, but there is more buffoonery that trickles down to us. How you ask? Well, in the form of:

  • Clawbacks: this is a practice where patients are asked to pay higher copays for medications at the pharmacy counter, than what it costs the pharmacy to fill or the PBM to reimburse for. Example: the PBM pays the pharmacy $100 for dispensing/cost of the drug, but when I go to the counter, my copay is $200. That extra $100 is split to the pharmacy and the PBM. It is a profit off of me filling my prescription.
  • There is a practice called “rebate pumping” which means the PBMs will favor higher cost drugs on the formulary to increase demand and then allow the PBMS to ask for higher rebates for larger quantities of drug.
medication cost
Seen here: footage of my pharmacist telling me my total
  • Up until 2018, there were gag rules placed on pharmacists by insurers to keep them from telling patients when paying for a drug outside of insurance, with cash, would be cheaper than using insurance. A practice that cost patients hundreds on medications they otherwise didn’t need to pay.
  • The last and my least favorite thing to come out of PBM World is this chicanery: United Health Care came out with something they call “Coupon Adjustment: Benefit Plan Protection” The website states that this is “designed to apply a member’s true cost to their deductible and out-of-pocket-max when manufactuer coupons are used at Briova”

To put this in real world terms, prior to this program, if you had a manufacturer coupon or co-pay card that covered part of the medication cost they your insurance did not, it would be included as part of your out-of-pocket-max, even if you didn’t really pay out of pocket.

Due to this little loop-hole, I was, and people like me, were able to meet deductibles and OOP maxes pretty quickly, and it made life (and medical costs) much easier to handle. I would hit my OOP by like May. So this PBM is taking that benefit away and making it sound like it’s a good deal to the patient “to help you save on costs“. What?

This describes how much I hate it
House says it best

I mean, yes, I understand it’s “fair” to the insurance companies, but is it really fair. Patients are so disadvantaged in this whole ecosystem that we should be rioting. If you’ve read through all 3 parts of my medication series and still find this fair, you really haven’t been paying attention.

Play the game to your advantage

I’ve shown you the rules, now here are some tips on how to play it to your advantage.

  • Go onto your insurance companies website, or call them (the number is usually on the back of your insurance card) and find a copy of your most current formulary. Take note of where your current drugs are on that list. Using that list, figure out if there are equivalent drugs or generics that would cost you less per refill.
  • Talk to your doctor/pharmacist/insurance company and see what drugs you can acquire via mail order. Mail order drugs tend to ship out 3 months worth of a refill at a time and at a discounted rate
  • Beware the hassle factor. If your current medication is removed from your formulary, and you are inconvenienced, request that your clinician to do a Prior Authorization to stay on the medication that gave you the best results. (Pro tip: if you do this, ask your doctor for samples to hold you over until the prior authorization goes through!)
  • Patients can appeal drug denials on their own! It sounds daunting but it is doable. Check out this guide on patientadvocate.org on how to do your own appeal for a denial
  • Check in with GoodRx- this company might actually be a topic of a future article, but evenso, I recommend looking them up. They are the Kayak.com of drug prices in pharmacies in your area. Learn how to price check your drugs. Other drug coupon/price shopping websites are RXSaver, SingleCare, and Blink Health
  • Find out if your medication costs less to purchase without insurance. I mentioned clawbacks earlier. Sometimes it is cheaper to buy the drug straight from the pharmacy
  • Some Mom n’ Pop pharmacies will work with you to get you a medication at a lower cost. Their pharmacists are more likely to work with you and try to help you the best way they can.

After looking into the belly of the beast, it truly surprises me that things have gotten this bad. There is no reason people should be rationing medications, deciding between food and medicine, or crossing borderlines to different countries to purchase medications that should be affordable here, in the US, one of, if not the richest country in the world…but here we are…searching around the bargain bin just to make it to another day.

This series has opened my eyes, and I truly hope this helps someone out there to make smarter, more informed decisions about their health, and their medications.

Wishing you warm light, gentle hugs, and affordable medications,


P.S. If you like this article and would like to support my research, please feel free to comment, subscribe, or if you are feeling SUPER generous, buy me a Coffee!

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