PBM 101: The Three PBM Business Models

In the pharmaceutical and healthcare industry, pharmacy benefit managers (PBMs) are regarded by the media as intermediaries between drug manufacturers, pharmacies, health plans and plan sponsors. But they’re so much more than that. PBMs act as conduits of expertise, poised to deliver exceptional health care while driving down costs. That’s why choosing the right PBM is such an important decision for any organization.  

From a basic standpoint, all PBMs negotiate discounts and rebates with manufacturers on behalf of their clients. However, depending on the PBM model, what the plan sponsor receives and/or pays may vary. What’s more, the model influences every aspect of the PBM contract and affects how pharmacy benefits function and perform.  

So, let’s take a look at the three models and how they impact critical PBM components. 

Traditional Model

Traditional PBMs offer volume discounts and high rebates to achieve cost savings. However, they often retain spread-based compensation from pharma revenue on rebates, discounts and incentives. They also may earn spread from pricing through various channels (i.e. retail, mail order and specialty). While they might share some of the pharma revenue with plan sponsors, on average they offer little to no transparency, preventing visibility into how much the PBM retains. Additionally, traditional PBMs offer guarantees on savings, but they may place a cap on the amounts, so they can retain the difference. Some plan sponsors prefer a traditional PBM model since it offers performance guarantees that may serve as a safety net to prevent Rx costs from going out of control. 

Hybrid Model

Hybrid PBMs bridge the gap between traditional and pass-through models to offer a slightly transparent option, allowing visibility into pricing and revenue business practices. To provide more flexibility for those they serve, some channels (i.e. retail, mail order and specialty) may be pass-through while others may contain spread. A hybrid model may also share some pharma revenue such as rebates, discounts and incentives with plan sponsors. However, transparency remains limited in this model, leaving little visibility into how much the PBM keeps. Hybrids may also charge a minimal admin fee. 

Pass-through Model

Pass-through PBMs, like Navitus, offer the most transparency among PBM models. They pass 100% of all rebates and discounts back to the plan sponsor, due to their only source of revenue being an administration fee. They typically provide full financial and operational disclosures and offer comprehensive audit rights down to the individual claim and invoice level, so plan sponsors can verify their savings. Additionally, they focus on lowering overall drug spend with the right drug mix and selective rebates, helping plans achieve better drug trend and a low per member per month (PMPM) cost. They may also offer additional opportunities to improve member health through adherence programs, specialty care and medications and non-drug treatment options. 

At the end of the day, finding the right PBM is about more than the model. It’s about a PBM putting the satisfaction of your key constituents ahead of their own interests. 

Reach out to us to learn more about our 100% pass-through model and how it can work for your organization or members: [email protected].