PBMs Are Intermediaries BW Upstream Drug Manufacturers and Insurance

PBMs Are Intermediaries BW Upstream Drug Manufacturers and Insurance

Pharmaceutical Benefits Managers (PBMs) are intermediaries between upstream drug manufacturers and downstream insurance companies. They design formularies (lists of drugs that insurance will cover) and negotiate prices with drug companies. PBMs want a wider variety of drugs available to their insured populations, but at low prices. Suppose that a PBM is negotiating with the makers of two nondrowsy allergy drugs, Claritin and Allegra, for inclusion on the formulary. The “value” or “surplus” created by including one nondrowsy allergy drug on the formulary is $80 million, but the value of adding a second drug is only $24 million.

Assignment Solutions