What is a pharmacy benefit manager, anyway?

New legislation introduced in both the House and Senate would make it illegal for one company to own both a pharmacy-benefit manager and a pharmacy.

Pharmacy benefit managers, or PBMs, are companies that help health insurers manage their prescription drug benefits. It’s become common for one company to own both a PBM and a pharmacy. CVS, Cigna and UnitedHealth all do.

Some lawmakers say that is a conflict of interest, however.

Pharmacy benefit managers do two primary things for health insurance companies: “They negotiate with drug manufacturers and negotiate prices with pharmacies,” said Matthew Fiedler at the Brookings Institution.

The thing is, the benefit manager and the pharmacy they’re negotiating with are often owned by the same parent company.

You can think of it like this, said USC’s Neeraj Sood: “Suppose you hire my wife to negotiate with me on your behalf.”

And you say, ‘hey, I’m making a deal with your husband, and I want you to get a good outcome for me.’

“Wouldn’t you be like, ‘Hey, oh my, god, there’s a conflict of interest. She’s going to do a terrible job negotiating because she’s negotiating with her family,'” Sood said.

It’s the same thing here, he noted. There’s little incentive for benefit managers to negotiate lower prices for health plans at a pharmacy their parent company owns, and the concern is that can drive up costs for health plans and lead to higher premiums for consumers.

There’s another issue, too.

“Now imagine there’s a CVS pharmacy, and right next to that CVS pharmacy is an independent pharmacy,” Sood said — and they’re competitors. But the pharmacy benefits manager they both are negotiating with is owned by CVS. Which pharmacy is likely to get a better deal?

“The argument is that PBMs are driving pharmacies out of business,” said Matthew Fiedler at Brookings.

And that could leave consumers with fewer choices.