Pharmacy Benefit Manager (PBM)
A company that acts as a middleman between drug manufacturers, insurers, and pharmacies — negotiating drug prices, managing formularies, and processing claims.
How It Works
Three PBMs — CVS Caremark, Express Scripts (Cigna), and OptumRx (UnitedHealth) — control roughly 80% of the U.S. prescription drug market. PBMs negotiate rebates from manufacturers, determine which drugs go on formularies, set pharmacy reimbursement rates, and run mail-order pharmacies. Critics argue PBMs profit from the complexity of drug pricing and don't always pass rebate savings to patients. Defenders say PBMs reduce costs by leveraging their purchasing power. PBM reform legislation has been introduced in Congress multiple times, and the FTC has investigated PBM practices.
Related Terms
- Formulary — A list of prescription drugs covered by an insurance plan, organized into tiers that determine how much the patient pays for each drug.
- Rebate — A discount paid by a drug manufacturer to an insurer or PBM after a sale, reducing the effective price below the list price.
- Wholesale Acquisition Cost (WAC) — The manufacturer's list price for a drug sold to wholesalers — often called the "sticker price" before any rebates or discounts.
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About This Definition
This definition is part of the DrugPrice Drug Pricing Glossary — 34 terms explaining how prescription drug pricing works in the United States. All definitions are written in plain language for patients, caregivers, journalists, and healthcare professionals.