Top 3 Things You’ll Learn
- The key players in the pharmacy ecosystem
- Their functions within the system
- How they work together
The term “ecosystem” is defined as a system, or a group of interconnected elements, formed by the interaction within their environment. This intermingling of elements within the pharmacy industry can be very complex with many moving parts, constantly evolving and interacting with the others.
Pharmaceutical manufacturers are the direct source of your prescription medications. They handle research and development, the testing and approval process, product launching and marketing, etc. Manufacturers work under two distinct models (manufacturer for brand drugs or manufacturer for generic drugs) and manage the actual distribution of drugs to drug wholesalers and government purchasers, and in some rare cases to pharmacies and others.
Among many of the activities that manufacturers perform, some stimulate demand for drug products by underwriting clinical studies, marketing to prescribers and patients, and ensuring drugs have U.S. Food and Drug Administration (FDA) approved labeling.
Wholesale distributors purchase drugs from manufacturers. For branded products, the price rarely varies, with little negotiation possible by the wholesale distributor. The distributor typically purchases branded products for a discounted rate referred to as the wholesale acquisition cost (WAC). Volume discounts, prompt pay discounts, and discounts related to the sale of short-dated products are examples of negotiated discounts. For generic products, the purchase price can vary depending upon drug class competition and the ability of the wholesale distributor to increase market share or volume sold.
The wholesale distributor sells the product at WAC plus some negotiated markup to a variety of customers, including pharmacies, hospitals, and long-term care and other medical facilities.
Pharmacies purchase prescription drugs from wholesalers (and in rare cases direct from manufacturers) and include traditional retail, mail-order, specialty, hospitals and institutions, and long-term care pharmacies. They may negotiate with wholesalers for purchase discounts and rebates, as well as negotiate with PBMs for inclusion in their networks and the pharmacy’s reimbursement rate.
Pharmacies serve as a vital link of information between PBMs, drug manufacturers, and wholesalers. Entities like PBMs can provide pharmacies with instructions and important details at the point of sale, for instance, drug to drug interaction. Pharmacies are required to act on these instructions or warnings to the consumer as the prescription is dispensed.
The intermingling of key players in the Rx industry can be very complex with many moving parts and constantly evolving. #PBM
Pharmacy Benefits Managers (PBMs)
A Pharmacy Benefits Manager is a company that administers the prescription drug benefit component for a variety of customers including health plans, government agencies, employers, and others. PBMs now implement prescription drug benefits for some 266 million Americans. PBMs assist plan sponsors in developing formulary or medication tiers, a list of medications covered under your plan and their co-pay amounts. PBMs may achieve savings for their customers by negotiating discounts and rebates and through cost containment programs.
Pharmacy Benefits Optimizers (PBOs)
A Pharmacy Benefits Optimizer specializes in advocating in the best interest of employee benefits consultants, their self-funded employer clients, and their members to derive maximum value from pharmacy benefit arrangements by acting independently of the PBM and Big Pharma to create a level playing field for plan sponsors regardless of their size. PBOs help employers improve prescription drug benefit program outcomes beyond what is possible with a standard PBM agreement by emphasizing three core areas: competitive pharmacy contract pricing and rebate terms year-over-year, tailored clinical management programs focused on appropriate Rx utilization, and direct member services and quality assurance. The relationship between an employer (or payer) and PBO is managed by that payer’s Employee Benefits Broker, Consultant, or Third-Party Administrator.
These elements are part of the picture and barely scratch the surface of how the pharmacy system operates. There are additional players within the pharmacy ecosystem that include the consultant and the employer.
Learn more about the relationship of these key players and where payers fit.
The Kaiser Family Foundation and Health Strategies Consultancy, 2015
Pharmaceutical Care Management Association, 2016
Updated August 27, 2020