Ph Pharmacy benefit managers Loading... : Investor Sentiment and Bull/Bear Views

The Great Healthcare Plan will end kickbacks from pharmacy benefit managers to large brokerage middlemen, which threatens the PBM business model and could reduce their revenue.

The pharmacy benefit manager industry is probably at the end of its S-curve. Its two original functions, claims adjudication (a real IT problem in 1993, trivial now) and bulk discount negotiation, are now offered by dozens of transparent or 'light' PBMs with better service, and Lilly itself is moving its own employee benefits off one of the mainline PBMs because it is in its business interest and the service is better. The consolidated incumbents have reached a terminal state where every action serves their own benefit rather than the customer, which is why everybody hates them and why the model should give way to something else.

Friedberg says the most removable cost in the US drug chain is the pharmacy benefit manager layer. Three firms, CVS Caremark, Express Scripts and Optum Rx, sit between insurers, pharmacies and manufacturers and make on average about three dollars of operating profit per prescription claim processed, earning money on markups and spread taking while obscuring the true cost of drugs, and they are allowed to be owned by the payer itself. The FTC has had several open cases between 2017 and 2022 and estimates these companies generated $7.3 billion in excess profit by marking up specialty generic drugs. Taking the PBMs out of the market would solve one of the biggest problems in drug pricing, which makes that profit pool the part of the chain most exposed to this executive order and to regulators.