<img height="1" width="1" style="display:none;" alt="" src="https://dc.ads.linkedin.com/collect/?pid=118459&amp;fmt=gif">
Show all

Evaluating a Pharmacy Benefits Manager

doctor drawing health symbol in the air

4 minute read

A pharmacy benefits manager (PBM) acts as a middleman in the pharmacy benefits marketplace, connecting employers, drug wholesalers, plan members, pharmacies, and drug companies. PBMs help employers interface with drug manufacturers and process prescription claims, leading to improved health outcomes and lower healthcare costs. According to the Pharmaceutical Care Management Association, PBMs can save payers and patients 40-50% on prescription drugs and related expenses. Employers should carefully evaluate their options when selecting PBMs.


How Do PBMs Help Employers?

PBMs work with employers to curate affordable pharmacy benefit plans and help plan members access needed medications. By working directly with manufacturers and wholesalers, PBMs can negotiate quantity discounts, reducing healthcare spending for both employers and employees. PBMs also recommend cost-saving measures and different plan designs. They administer prescription benefits, process claims, manage rebates, run clinical programs, and educate workers. PBMs offer call centers, websites, and mobile apps for customer support and information about employee benefits.


Considerations for PBM Selection

Selecting the right PBM can help reduce employers’ health care costs and improve employees’ understanding and utilization of the benefits. But finding the right one can be challenging and choosing the wrong one could negate the potential benefits. Employers should consider the following when selecting PBMs:

  • Clarify the contract language. Understanding PBM contracts is crucial for employers. Terms like "generic" can have different meanings. Employers should seek clarification during the contract process, especially regarding rebate caveats, exclusions, administrative fees, and per member per month costs.
  • Review the formulary and product mix. The FDA approves medications based on safety, not efficacy. Not all FDA-approved drugs have clinical value or are useful to all. Manufacturers have created safe but not necessarily valuable medications. Employers can review contracts to ensure PBMs supply valuable medications. Organizations can ask PBMs to use standard formularies or create a list of high-cost, low-value drugs for review.
  • Evaluate pricing options. There are two common pricing arrangements for PBMs: transparent and traditional. Traditional pricing earns revenue through discount or rebate spread without charging administrative fees, while transparent pricing includes administrative fees and additional ancillary or program fees. Employers choosing transparent pricing receive the full value of rebates on claims and are charged the same amount that the PBM pays the pharmacy. It is important for employers to evaluate which pricing arrangement works best for them before signing a contract with a PBM.
  • Evaluate refill thresholds. Over-dispensing of prescription drugs can occur with auto-refill programs that automatically fill prescriptions when they reach a 75% threshold. Employers can address this issue by raising the refill threshold during contract negotiations to eliminate drug waste and unnecessary spending.
  • Assess specialty drug management. Specialty drugs, which are high-cost prescription drugs used to treat chronic and complex conditions like cancer and multiple sclerosis, account for a significant portion of healthcare spending. To achieve a cost-effective healthcare solution, it is crucial for employers to find a PBM that offers practical tools to manage the rising utilization and cost of these drugs. Employers should ask about the PBM's prior authorization approval rates, how they dispense specialty drugs, and any measures they have in place to prevent inflated prices before signing a contract.
  • Find a PBM that uses a drug price index. Employers can significantly cut down on their costs by partnering with PBMs that utilize a drug price index such as the National Average Drug Acquisition Cost. This approach guarantees that employers can generate revenue from administering benefits plans rather than spending excessively on prescription drugs.
  • Review the discount and rate guarantees. Successful rebate negotiation can significantly offset employers' healthcare spending. However, discount and rebate guarantees are typically not included in PBM contracts. Employers can maximize their savings by requesting these guarantees and carefully reviewing contract details to ensure savings are passed down to employee groups.



Effective PBMs optimize drug spending, protect employee well-being, and ensure benefits plan success. Employers must carefully select PBMs that align with their needs and staff. This process may seem daunting, but evaluating options can lead to significant savings and increased benefits utilization. Download the bulletin for more details.


National Insurance Services is not a law firm and no opinion, suggestion, or recommendation of the firm or its employees shall constitute legal advice. Readers are advised to consult with their own attorney for a determination of their legal rights, responsibilities and liabilities, including the interpretation of any statute or regulation, or its application to the readers’ business activities.

notebook on desk that says Medicare Part d
Medicare Part D Disclosures Due in February
February 15, 2024
hand holding magnifying glass over the word deductible
Understanding Embedded vs. Nonembedded Deductibles
February 15, 2024
Pierre Guilfoile

Pierre Guilfoile

Pierre Guilfoile believes that “every situation, positive or negative, provides an opportunity to learn and to grow.” Clients will appreciate his overall expertise, communication skills, and his willingness to dig deep to find the right solution. He is a licensed insurance agent, member of the Minnesota Association of Health Underwriters (MAHU), member of the Self-Insurance Institute of America, Inc. (SIIA), and has a background in health and dental insurance. Pierre's primary responsibility will be monitoring the financial health of client's health insurance plans, evaluating medical renewals, overseeing claim evaluation creation and delivery, and working closely with our Employee Benefit Consultants.