Pharmacy Benefit Manager (PBM): Redefining Prescription Drug Management in Digital Health

Last month, UnitedHealth Group, the largest health insurer in the United States, acquired Catamaran, a pharmacy benefits manager (PBM), for $12.8 billion to address the rising costs of prescription drugs. In recent years, similar acquisitions and partnerships have been common abroad, yet they remain rare in China. So, what exactly is the business model operated by Catamaran as a PBM? This article will provide an overview from the perspectives of definition, business model, and trends.

What Is a Pharmacy Benefit Manager (PBM)?
Pharmacy Benefit Manager, commonly translated literally as “drug benefit management.” The concept of PBM first emerged in the 1970s and 1980s, driven by the informatization needs of pharmaceutical insurance systems and cost-containment efforts for medications. It represents a new model of drug management, with its affiliated companies providing specialized third-party services.

PBM serves self-insured large employers (providing prescription drug benefits for their employees, retirees, and members), government agencies (such as national government entities and the Department of Defense), insurance companies (coordinating levels of prescription drug reimbursement between pharmacies and employers/insurers), Blue Cross/Blue Shield plans and healthcare programs (offering support including cost auditing, claims processing and payment, formulary management, clinical pathway management, and payment model management), as well as healthcare providers (delivering services such as cybersecurity management and standards development). PBMs function as intermediary administrative and coordinating organizations among these stakeholders.

The specific coordination process includes:

• The doctor at the hospital makes a diagnosis and issues a prescription.




• Patients purchase medications at pharmacies with a prescription;




• Pharmacies upload prescription orders to the PBM system;




• The PBM automatically verifies prescription validity and feeds the processed information back to the pharmacy;




• Pharmacies dispense medications to patients based on prescriptions, delivering them via retail and mail-order channels;




• Automatically settle and issue invoices for prescription drugs eligible for reimbursement under the system's default settings;




• Payers settle with PBMs;




• PBM handles settlements with pharmacies;

As can be seen from the above process, although PBMs do not directly participate in the drug distribution process, they exert a significant influence on drug utilization. The use of medications is not solely determined by physicians; rather, PBMs and payers jointly decide which drugs are included in the reimbursement formulary and the corresponding reimbursement rates, while also collaborating with other entities to monitor physicians’ prescribing practices.

That is, theoretically speaking, as the supervisor of the entire process of medical services, PBMKey Responsibilities Include:

• Assist in the development of drug benefit plans;




• Process medication reimbursement claims;




• Review prescription medications to identify and prevent drug-drug interactions;




• Develop plans to encourage the use of low-cost generic drugs and branded drugs;




• Launch a medication mail-order service;




• Formulate online retail business for pharmaceuticals;

These responsibilities are all based on the PBM's role in communicating financial and healthcare information among patients, physicians, and other stakeholders, thereby playing an increasingly significant part in pharmacy benefit management. The main functions include the following aspects:

• Reduce drug and service costs, and promote rational drug use;




• Conduct medication evaluations to promote rational drug use;




• Implement comprehensive health management to enhance medical efficiency;




• As an information repository, guiding drug research and development;




• Disseminate information and guide patients in disease prevention;




• Assist health insurance agencies in reviewing physicians' prescription orders;

Based on the aforementioned operational mechanism, analyzeThe profit model of PBMs is as follows:

• Charge management fees and other itemized fees to the represented institutions and pharmaceutical companies;




• The price differential between the settlement price with pharmaceutical companies and the settlement price with insurance companies;




• Charge transaction fees to pharmacies;

Overall, PBMs leverage their informational advantages to coordinate among pharmaceutical manufacturers, pharmacies, and insurers, generating substantial profits.

With the application of information tools and the Internet, PBM companies are able to engage in an increasingly diverse range of business activities; therefore, the overall industry trend is upward.The main trends are in the following areas:

• Diversified businesses will increasingly apply their accumulated medical information to other healthcare sectors, such as biotechnology companies;




• Growth in Mail-Order Pharmacy;




• The advent of the era of personalized medicine will promote the development of related systems (such as systems for managing genetic data);




• Development of new markets, such as government health assistance programs;

Application of PBM in China
Amid mounting pressure to control healthcare insurance costs, domestic Pharmacy Benefit Management (PBM) companies are beginning to emerge. Since 2014, the strain on the balance between revenue and expenditure of China’s basic medical insurance funds has become increasingly apparent. Seizing the market opportunities presented by cost-containment measures in medical insurance, some innovative companies have started drawing on historical experience from the United States to explore viable pathways for developing PBM operations in China. Current representative domestic players include Hailink Holdings, Wonders Information, and Winning Health Technology Group. However, as China operates a universal social security system, launching PBM services requires overcoming two major barriers: 1. the need for deep integration of clinical medicine with information technology; and 2. strong government relations capabilities. Under the impact of the internet, medical informatics enterprises, pharmaceutical distribution companies, and insurance firms will become the primary participants in this sector.

VCBeat’s Chief Advisor for Glossary of English Hot Terms in Internet Healthcare: Zhao Xinyuan, current CEO of Beijing Yingtai Kelong Technology Co., Ltd., and member of the Technical Steering Committee of HL7 China.
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