How a PBM Differs from a PBO Pharmacy Plan

Pharmacy benefits are one of the highest expenses incurred by businesses and employees in the United States. Consumer Reports states that in 2019 prescription drug costs went up for at least 30 percent of Americans. Some individuals and families even find themselves deciding between buying their medications or paying rent. reports that prescription drug spending rose to almost $370 billion in 2019.

When health insurance producers, benefit brokers, or other company decision-makers are selecting the best pharmacy plans, they must balance keeping costs down while still providing high-quality care. There are generally two types of plans to choose from — Pharmacy Benefit Optimizers (PBO) and Pharmacy Benefit Managers (PBM). There are several important points you need to understand when selecting between a PBO and a PBM pharmacy plan.

What is a Pharmacy Benefit Optimizer (PBO)?

Pharmacy Benefit Optimizer operates independently of big pharmaceutical companies. They assist a benefit consultant in finding savings while identifying risks. PBOs are relatively new in the marketplace. The following are a few aspects of a PBO you will want to know:

  • PBO contracts are negotiated annually. This means you will spend more time negotiating in comparison to a PBM.
  • The PBO works independently from the major pharmaceutical companies.
  • A PBO may sometimes partner with a PBM.
  • Lower-cost medications are sometimes not at the same tier level as one would have with a PBM.

What is a Pharmacy Benefit Manager (PBM)?

Pharmacy Benefit Manager is a company that will specifically handle the prescription drug portion of your health care plan. PBMs have been around since 1968 and often work with self-funded companies or municipalities and administer Medicare Part D Plans. The following are a few important aspects about most PBMs:

  • PBM's are responsible for negotiating medication costs with various pharmacies on members’ behalf.
  • PBMs will establish the list of medications - or a drug formulary - that are available to employees or clients based on their utilization.
  • The PBM system normally provides multiple channels, programs and strategies for services managing pharmacy needs.
  • PBMs will usually process and pay pharmacy claims.
  • PBM contracts usually last three years.
  • Three major companies cover approximately 92 percent of those enrolling in a PBM.

It's important to note that PBMs can offer two types of pricing models – traditional or transparent. Traditional pricing models offer guaranteed discount rates and no base administrative fee. The contracts will guarantee the discount and/or rates for the employer or plan sponsor and the employer or plan sponsor price is greater than the PBM price to the pharmacy. A flat rebate guarantee is also provided to the employer, but all else is retained by the PBM. Adherence to contract specifics can be stricter when choosing a traditional pricing model.

A transparent model will offer “pass-through” pricing and has a base administrative fee. The contract guarantees the PBM will pass through the cost of a drug to the employer. The plan price for the employer and/or plan sponsor is equal to the PBM price to the pharmacy. In addition, rebates are passed through in full to the employer. With a pass-through model, all fees and business practices are auditable and visible to all parties involved.

What is the Best Choice for Your Organization?

Understanding the specifics of each individual pharmacy plan is critical when making the best choice. When deciding what pharmacy plan is the best for your organization, you will want to ask a few important questions:

  • Are you looking for clarity in your pharmacy, and overall health care costs?
  • Would you rather negotiate a contract every three years instead of annually to save time and keep your clients from needing to adjust to possible changes and plan disruption on a yearly basis?
  • Is a transparent or flexible formulary important to you and your clients?
  • Is it important for you and your client to predict long-term costs?
  • Do you want ongoing visibility into the terms regarding pricing and the performance data?

If the answer to most of those questions was yes, then you'll want to consider a PBM like Pharmacy Benefit Dimensions (PBD). As health care costs, and in particular prescription drug costs, continue to rise, it is important to partner with a pharmacy benefit plan that fits the specific needs of your client or organization.

Talk with our team to learn more about if a PBM or PBO is better for your group or company.

Back to Blog