Are We Reaching the End of the Line for PBM Exclusion Lists?

In the rapidly evolving U.S. healthcare landscape, the pharmacy benefit manager (PBM) exclusion lists feel almost venerable. First introduced at the start of the decade, PBMs have used the threat of formulary exclusions to extract steep rebates from manufacturers across dozens of categories. Over the subsequent years, PBMs have been able to expand the number of categories subjected to formulary exclusions as well as the level of rebating that manufacturers have been willing to pay to avoid landing on those dreaded lists. In so doing, PBMs have successfully reshaped their value proposition from driving generic utilization to managing branded drug spend. But are we now reaching the end of the line for this particular PBM play? And if so, what comes next for the PBM industry?

The number of categories subject to formulary exclusions and the rebate percentages offered by manufacturers are unlikely to grow significantly moving forward. Many pharmaceutical companies realize that they simply cannot afford to offer ever-greater rebate rates to maintain product access. Meanwhile, legislative efforts to bring greater transparency to the PBM business model will put pressure on the profits that PBMs can realize through retention of manufacturer rebates. These twin forces will require PBMs to transform again in the coming years. As PBMs consider their next evolution, it will be interesting to see whether they choose to evolve from highly sophisticated and profitable middlemen to supporters of better patient health outcomes.

What Will PBMs Do Next?

The core PBM business today is swimming against the healthcare tide. While providers of care are becoming increasingly sophisticated about quality of care and cost of delivery, PBM drug management focuses largely on costs. While drugs are consumed in a variety of settings—the community, clinics, hospital outpatient and inpatient centers, etc.—PBM drug management focuses mainly on the community setting. While care is becoming more integrated, pharmacy benefit management operates in a silo.

To resolve this growing gulf between the PBM business and the evolving healthcare landscape, PBMs have several potential paths. They could take on a more comprehensive role in drug management, including therapies covered today under a plan member’s medical benefit. Fully integrated drug management remains a challenge for many payers, and PBMs can play a more significant role. Another path might be to more systematically integrate their drug utilization data into the bigger picture of health outcomes, generating real-world evidence that supports payers and providers in improving the total quality of care delivery. Or they can double down on today’s strategy and push for continued rebate growth for as long as manufacturers are willing to engage.

The current PBM outlook seems challenging, but they have successfully reinvented themselves before. Their strategic choices in the years ahead will determine whether they will play a key role in enabling the nation’s continued evolution to true value-based care, or if that change will leave the PBMs behind in its wake.

  • Howard Deutsch

    Howard Deutsch is a principal at global sales and marketing firm ZS. He leads the firm’s managed care practice and has helped clients across a spectrum of sales force and marketing issues.


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