Pharmacy Benefit Management 101: What Is It And Why Is It Important?

Updated on May 19, 2022

Healthcare cost is a problem worldwide. While countries have been increasing budget allocations for the health sector, low-income nations continue to struggle with universal coverage. This global phenomenon has led to disparate levels of access to healthcare among citizens.  

Besides strengthening health insurance, the United States has formed pharmacy benefit management or PBM companies to facilitate lower drug costs. These PBMs supervise the administration of medication plans for over 266 million individuals covered by both private and public-driven health insurance in the country. These health organizations aim to save patients more than one trillion on expenditures in over a decade. (1)     

It’s crucial for insurance holders to be aware of how the best PBM works. Particular focus would be on the importance of PBMs in reducing out-of-pocket costs for patients.       

Understanding pharmacy benefit management     

The Affordable Care Act of the US mandates all states to have a ‘marketplace’ where all forms of health insurance plans are accessible. Each jurisdiction has the autonomy to tailor its basic health packages. However, the law obliges these plans to offer prescription drug benefits coverage, often administered by pharmacy benefit managers, insurance companies, and government-run Medicare programs. (2)  

Pharmacy benefit managers act as middlemen in the state marketplace. These are third-party companies hired by various organizations providing health insurance—from private and public employers to health insurance companies. Companies typically tap prescription drugs covered by their insurance providers, which may or may not include eye care procedures. However, self-insurance is allowed in some cases, so companies hire pharmacy benefit managers to assist beneficiaries.  

As intermediaries, PBMs negotiate with pharmaceutical manufacturers and perform administrative tasks such as processing prescription claims. Their primary objective is to reduce costs without sacrificing access to prescription-related medications.  

What PBMs do  

With the said goals, it’s not surprising that PBMs continue to expand. In concrete terms, PBMs have individual programs that help patients access cheaper medicines and pharmacies. These companies perform the following tasks to accomplish their goals:   

  • Processing and paying prescription drug claims 
  • Negotiating rebates and discounts with drug makers and pharmacies on behalf of the beneficiaries 
  • Promote the use of more affordable yet equally effective medications 
  • Improve patient adherence to treatment plans  
  • Provide individualized services to manage prescription drug expenditure   
  • Develop and update the drug formularies (1) 

What is a drug formulary? 

A drug formulary refers to the prescription medications approved by the PBM and covered by the prescription drug benefits scheme. Specialists have reviewed and confirmed these products, including doctors and pharmacists, to be effective and cost-efficient. The list is updated continually to ensure its relevance. Primary considerations include drug interactions, cost, medical efficacy, and adverse and side effects.    

The importance of PBMs 

By performing the tasks discussed earlier, PBMs have become one of the prominent players in the health sector. They have also contributed to the growth of the pharmacy benefit management industry

On a broader scale, pharmacy benefits management companies deliver the following benefits, making them indispensable in improving the delivery and access of medical care.  

  1. Minimizing drug spending  

The PBM companies can negotiate lower prices because they ensure bulk purchases and payments. The benefits then trickle down to consumers. Other competitors will react positively by lowering their costs to attract more buyers when this happens. (3)   

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These organizations also provide different programs to help insurance beneficiaries access competitively-priced generic medications. Other price reduction measures include quantity restrictions, particularly for certain drugs that can be changed and reduced, depending on patient response.  

  1. Improving patient outcomes  

By bringing down the cost of prescription drugs, PBM companies help ensure appropriate medication usage and maintain drug use safety. According to the Pharmaceutical Care Management Association or PCMAT, pharmacy benefit managers can help prevent up to one billion medication errors.  

The industry group also mentioned that PBMs contribute to patient adherence among people with diabetes, effectively reducing the risks of kidney illness, heart failure, stroke, and amputations. Managers are also believed to help patients with rheumatoid arthritis and multiple sclerosis. (1) 

  1. Expanding access to medication 

Ensuring that the medications are safe and cost-effective helps improve access to healthcare services. Individualized services can also give patients enough confidence to take their prescription medications without worrying about the costs and length of treatment. Speaking of a customized approach, PBMs can also collaborate with employers to provide valuable advice about effective health plans. This activity aims to provide the best possible care at the lowest price possible. In addition, these organizations can look for ways to make specialized drugs more accessible to patients who need them.  

4.     Protecting individuals’ well-being  

A benefits manager can work with both the member and physicians to ensure treatment compliance and safe drug usage. The PBMs can regularly validate and monitor medication usage and efficacy to ensure that individuals access adequate treatment at reasonable costs by initiating clinical programs and policies:  

  • Prior authorization: Some PBMs require prior approval before covering particular medications to prevent drug misuse. Without this, individuals will spend out-of-pocket costs to obtain the drugs in question. The same goes for some products prescribed to young patients.    
  • Quantity limits: Managers may require purchases to be limited from one to three months. In some cases, insurance may cover one dosage per day only, depending on the patient’s condition.   
  • Step therapy: This policy suggests that patients try generic drugs before moving to pricier medications and only if their health condition doesn’t improve. (4) 
  • Drug utilization review: The PBMs may request to review the efficacy, side effects, and other drug interactions or potential safety issues with a specific medication. Drug review may be necessary in patients who need to take multiple prescription medications. 

In some cases, PBMs may establish criteria for administering prescription drugs. This could include diagnosis validation, proper testing, genetic predisposition review, and hiring a specialist during the treatment period.  

  1. Easing administrative processes  

Private companies and government agencies hire many PBMs to process claims and pay for prescription medications consumed by covered members. A considerable chunk of PBM work entails handling and validating paperwork to kickstart the process. In addition, PBMs also ensure that rebates and discounts are administered properly to qualified members.   

Without these companies, employers and health insurance companies will continue to perform tedious administrative tasks. Further, as the keeper of formularies, PBMs coordinate with medical professionals to review, maintain, and update the list of covered medications.   


Apart from taking care of individual cases, pharmacy benefits managers perform several tasks that require proper coordination with the private and public organizations—like health professionals, insurance providers, and commercial employees.  

The PBMs enable patients to enjoy the benefits discussed above such as reducing costs, improving patient outcomes and access, and ensuring patients’ well-being by negotiating and discussing with multiple sectors. Ultimately, PBMs are essential to providing individuals with the best health package at the lowest costs while ensuring safety. 


  1. “The Value of PBMs”, Source: 
  1. “Prescription Drug costs and Health Reform: FAQ”, Source: 
  1. “Pharmacy Benefit Managers: Basics 101”, Source: 
  1. “Prior Authorization, Step Therapy and Quantity Limits”, Source: