Commonly Used Terms

PBM stands for Pharmacy Benefit Manager. They were created in the early 1960's to help process pharmacy insurance. Slowly, over the last 60 years, PBM's have evolved to become the vertically integrated giant that they are today. The top 3 PBM's are CVS Health, Express Scripts, and Optum, which control over 85% of the market. The largest of the three, CVSCaremark, owns the pharmacy (CVS) and insurance (Caremark). PBM's were created to lower the price of medications, but they are working to do just the opposite.

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Three of the most harmful practices that cause prices to soar include:

1. Steering patients to PBM-owned affiliated pharmacies & limiting patient choice.

2. Paying affiliated pharmacies up to 22 times more than non-affiliated pharmacies.

3. Accepting rebates for certain drugs to be included on formularies in a pay-for-play scheme, instead of what is recommended by the patient's physician. 

NADAC stands for National Average Drug Acquisition Cost and it is one of many different ways prescription drug costs are calculated. Another price index used is WAC - Wholesale Acquisition Cost, which is the manufacturer's list price to wholesalers. 

Steering is the practice PBM's use when they direct patients to their affiliated pharmacy or mail-order services. CVSCaremark (CVS) and Optum (Walgreens) often reject claims when patients fill outside their affiliated pharmacies. Not being able to use insurance where the patient chooses greatly limits access to care and quality of care. 

ERISA stands for Employee Retirement Income Security Act of 1974 and it is a federal law that sets minimum standards for privately funded (self-insured) insurance and retirement plans. 

Self-insured plans are insurance plans that are directly funded by employers, instead of paying premiums to an insurance company. Self-insured plans are generally regulated under federal law (ERISA), rather than State insurance regulations.

PBM affiliated pharmacies are pharmacies that are directly owned by the PBM or in a partnership. Examples include: CVSCaremark (CVS) and Optum (Walgreens).

Spread Pricing is a common practice that PBM's use where they tell the insurance Drug X is $100, when it actually cost $50, but they only pay the pharmacy $45-$50 and then pocket the rest. This practice directly inflates the price of medications.

An underwater claim is when the pharmacy is paid LESS for the medication than they paid. This often occurs when the PBM pays independent pharmacies less than they pay their affiliated pharmacy. Recent audits have found that on average PBM's pay affiliated pharmacies EIGHT times more (sometimes as high as TWENTY-TWO times more) than non-affiliated pharmacies.