The Role of PBMs in Managing Drug Costs: Implications for a Medicare Drug Benefit

Extending a drug benefit to Medicare beneficiaries has been a highly publicized issue in recent months. To address the question of how to finance and administer such a benefit while controlling its cost, some have proposed using pharmacy benefit managers (PBMs)–companies that administer pharmaceutical benefits for health plans, HMOs, and employers while managing drug utilization and obtaining discounts from both retail pharmacies and manufacturers. Most recently, the Clinton Administration introduced a proposal for a Medicare Part D benefit that would use a PBM-focused approach and other private-sector best practices. This report examines the role of PBMs and considers the implications of using PBMs to manage a Medicare drug benefit, based on a review of the literature and interviews with senior executives in the PBM industry and pharmacy benefit consultants.