Americans are only barely aware of the role that pharmacy benefit managers play in health insurance. But what they do know is not good. To the extent that most people know anything about these shadowy players in health insurance, they know PBMs control which drugs they can get, how much hassle it is to get those drugs, and how much they’ll have to pay out of pocket. So we have to wonder if these mighty PBMs are at risk of becoming irrelevant.

They are certainly under a lot of pressure from many directions. So the short answer is that the old model for PBMs – a bit of a shell game – indeed is likely becoming irrelevant. But that does not mean PBMs will simply disappear.

Some may fade. Others will adapt.

No More Rebates?

One of the big operators of a PBM, Cigna, which owns Express Scripts, has already announced it is ending its reliance on drug rebates in some of its health plans. A report from Buchanan Ingersoll & Rooney explains what lies behind this announcement:

“For years, PBMs have relied on back-end manufacturer rebates to subsidize formulary access and generate revenue. TrumpRx undermines that model by shifting value to the front end, where patients see discounts directly. In fact, if more manufacturers base their discounts on government-negotiated cash prices through TrumpRx, PBMs will find it difficult to justify their rebates as cost-saving measures. This may weaken their position with insurers, who may then push for a larger share of the negotiated savings to be passed on to them. In other words, PBMs bargaining power could be significantly diminished.”

In short, the drug rebate trick is losing its charm for plumping up PBM profits.

Direct to Consumer Pricing

Murkey rebate practices and high prices for new drugs have put pressure on big pharmaceutical companies and they have responded with innovative sales channels direct to patients. The current administration in Washington sees this and is eagerly laying claim to this trend with the TrumpRx branding. Just what we expect from this moment in American politics.

The announcement of direct to consumer pricing deals for Ozempic, Wegovy, Mounjaro, and Zepbound are getting a lot of attention because high list prices and fat rebates served mainly to put them out of reach for most of the people who need these medicines.

But even so, this means big out of pocket costs that many consumers will have to pay. Cash and carry pricing puts pressure on pharma, but it’s not at all clear that it will open up access to these medicines.

What is clear is that big changes are in play with respect to drug pricing, sales, and distribution. Will consumers benefit? That remains to be seen.

Direct to Employers?

On top of all this, Lilly and Novo are striking deals to sell their drugs directly to employers. Consumers are not the only ones who are fed up with PBMs

So clearly, PBMs are in a bind. They will have to adapt or face becoming irrelevant.

Click here, here, here, and here for further perspective.

Pop Hayden and the Shell Game, photograph by Billy Baque, licensed under CC BY-SA 3.0