The Hidden World of Pharmacy Costs: How Pharmacy Benefit Managers (PBMs) Drive Up Prices and Why It Matters to You

Practical tips for understanding PBMs, reducing medication costs, and making your care more affordable.

Photo by Towfiqu barbhuiya on Unsplash

Have you noticed how pharmacy costs keep climbing? It’s especially frustrating when you have a chronic condition like lipedema that requires ongoing treatment. One major factor behind rising drug prices is something you might not even know about: Pharmacy Benefit Managers (PBMs).

If you think you don’t know PBMs, you’ll recognize the six major Pharmacy Benefit Managers (PBMs) in the United States:

• CVS Caremark – Owned by CVS Health

• Express Scripts – Owned by Cigna

• OptumRx – Owned by UnitedHealth Group

• Humana Pharmacy Solutions – Owned by Humana

• Cigna Pharmacy Management – Owned by Cigna

• MedImpact Healthcare Systems – Independently owned

These PBMs are the largest players in the U.S. prescription drug market and manage pharmacy benefits for millions of people. They are the middlemen who manage our prescription benefits, negotiate with drug manufacturers, and control which medications are covered.

While their goal is to create medication access, their methods can make it more difficult for patients to navigate the system and control costs.

Breaking Down the Role of PBMs

What once was a pharmacy claims processor from the 1960s, PBMs today are pharmacy networks (much like PPOs) that create access to medications. Here’s what they do:

• Review pharmaceutical quality, efficacy, and safety of new medications.

• Determine which drugs are covered and what tier they fall under.

• Negotiate rebates and coverage terms with drug manufacturers.

• Work with health plans, pharmacies, and self-insured companies to set drug prices.

Unfortunately, PBMs also add a layer of complexity and cost that can leave patients confused about their options.

Prescription drug prices in the U.S. are 2.5 times higher compared to the cost of identical drugs in other high-income nations. ~Source

So how do we navigate these challenges and still manage to get the care we need? It starts with understanding PBMs and learning how to coordinate your care more effectively.

PBMs, Formularies, and Rx Prices—Oh My!

Ever feel like you need a Ph.D. just to understand why your prescription costs so much? You’re not alone. Navigating the world of Pharmacy Benefit Managers (PBMs) can feel like wandering through a maze with no map. But here’s the good news: with a few tips, you can find your way and even save some money along the way.

Think of PBMs as the middlemen of the prescription world. They work behind the scenes, managing which medications are covered and how much they cost. Sounds helpful, right? Not always. PBMs aren’t exactly known for being transparent. They’ve got their own playbook, and it can leave patients like us wondering why prices are skyrocketing.

But don’t worry—you’ve got tools (and me!) to help you make sense of it all.

What PBMs Do (and Why You Should Care)

PBMs started out in the 1960s as simple claims processors, but today they’ve grown into pharmacy powerhouses. They manage formularies—those confusing lists of covered drugs broken into cost tiers—and negotiate rebates with drug manufacturers. Sounds like they’re saving us money, right? Not so fast.

Here’s what PBMs control:

• Which medications are covered and at what tier (i.e., how much you’ll pay).

• Rebates and discounts from manufacturers—but they don’t always pass those savings on to you.

• The price your pharmacy is reimbursed, which can sometimes be less than what you pay.

In short: PBMs decide how much you pay and what medications are easiest to access. It’s a lot of power for one middleman.

Navigating PBMs: How to Make It Work for You

One of the biggest obstacles with PBMs is how they keep pricing and drug access under wraps. Their complex pricing structures make it hard to know why your medications cost so much.

1. Formularies: The Secret Price Game

PBMs create formularies, or lists of covered medications, organized by cost tiers. While this can feel like a game you’re not playing, there are ways to make it easier to understand. (What is a prescripton cost tier?)

You know how your insurance plan might cover some meds for $10, but others cost a small fortune? That’s because of formulary tiers.

Here’s a quick breakdown:

• Tier 1: Generic meds—cheap and cheerful.

• Tier 2: Preferred brand-name drugs—still reasonable.

• Tier 3 and beyond: Non-preferred or specialty meds—get ready to open your wallet.

What You Can Do:

• Check if your med has a generic or biosimilar alternative. These can be just as effective but way more affordable.

• Talk to your doctor. They may be able to switch you to a lower-tier medication.

2. Hidden Rebates and Pricing Structure

PBMs negotiate rebates with drug manufacturers, which can affect a drug's placement on the formulary. While these rebates are usually hidden, you can still ask your pharmacy or health plan about the pricing structure. Understanding the tiering system can help you plan and budget for your medications.

Additionally, asking about manufacturer coupons or discount programs for your medications could help reduce costs. Many drug makers offer savings cards to lower out-of-pocket expenses.

3. Pricing Manipulation: Who’s Really Making Money?

PBMs sometimes pocket the difference between what a pharmacy charges for a drug and what the PBM reimburses it. With no clear insight into these transactions, it’s nearly impossible for consumers or plan sponsors to understand how much of the cost difference is being kept by the PBM, leaving you unsure of the real price you’re paying.

These opaque practices limit visibility and choice, and ultimately keep costs higher for both plan sponsors and employees.

PBMs negotiate discounts (rebates) with drug manufacturers, but those savings don’t always trickle down to you. Instead, the rebate system can actually encourage PBMs to favor pricier drugs—because the higher the cost, the bigger the rebate.

It’s like being charged full price for a designer handbag, only to find out later that the store got a massive discount but didn’t pass it on to you.

Here’s how to lower your out-of-pocket medication costs (but be careful—if you typically hit your out-of-pocket max (OOP max), it may be better to skip these tips and go through your insurance—do your research for what’s best for you):

• Ask your pharmacist for the cash price. Sometimes, it’s cheaper than going through insurance. (This method will not count your prescription costs to your OOP max.)

• Use discount programs like GoodRx or SingleCare. They can save you a surprising amount. (This method will not count your prescription costs to your OOP max.)

• Look into manufacturer savings cards. These can reduce out-of-pocket costs, especially for brand-name meds. (These do typically count towards your OOP max, but double-check.)

Why Does This Matter to You?

PBMs impact not just employers and health plans, but also patients who need affordable medications. Lack of transparency keeps prices high and limits choices for consumers. As policymakers and advocacy groups push for reform, understanding how PBMs operate is key to demanding better transparency and lower drug costs.

Action Steps to Take Right Now

Working with PBMs doesn’t have to feel overwhelming. Here are a few tips for better coordinating your care:

• Talk to your doctor: Share your concerns about cost. Ask if there’s a generic or different treatment that’s just as effective.

• Pharmacists are your secret weapon: They can tell you about assistance programs, help you find lower-cost options, and sometimes suggest alternatives your doctor didn’t mention.

• Call your insurance plan: It’s worth checking if a prior authorization or appeal could lower your costs.

• Utilize pharmacy assistance programs: Many pharmaceutical companies offer patient assistance programs that provide discounts or free medications. Ask your pharmacy if there are any available programs for your specific medications.

• Shop around for the best price: whether you use a pharmacy’s cash price, which might be cheaper than your copay, or shop for more affordable medications, find what works best for your pocket book.

• Advocate for yourself: If a medication isn’t covered, ask why. Sometimes, you can appeal or request an exception.

• Stay informed: Legislation to improve PBM transparency is gaining traction. Keep an eye out for updates.

You don’t have to navigate this on your own. Your doctor and pharmacist can be your most powerful allies in making sure you’re getting the best care at the lowest cost.

Understanding PBMs' role in your medication process can help you make smarter decisions about your care. It’s all about taking small steps to stay informed, explore your options, and advocate for the most affordable treatments. When you partner with your providers, stay proactive about your insurance benefits, and explore available resources, navigating the complexities of PBMs becomes a little easier.

By making informed choices, we can all play a part in pushing for a fairer, more transparent healthcare system. Let’s keep the conversation going!

Take care,

Michelle