Business Is Booming For Big Drug Negotiators You may have never heard of a "pharmacy benefit management company" — but if you are insured, odds are that you are a customer of one. With more than 200 million clients, PBMs have the power to set drug prices and control markets.

Business Is Booming For Big Drug Negotiators

Business Is Booming For Big Drug Negotiators

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If your health insurance covers prescriptions, you are probably a customer of a pharmacy benefit management company. These are third-party administrators for prescription drug programs, and they make up one of the few industries growing during this recession.

These so-called PBMs are now poised for even more growth, as baby boomers age and Congress prepares to insure more Americans.

An Island Of Prosperity

St. Louis-based Express Scripts is now the nation's largest PBM. It is an island of prosperity located near a long-shuttered car plant and an empty airport terminal.

The company employs about 4,000 people in St. Louis and plans to hire more when it opens a new mail-order-prescription center.

Chief Medical Officer Steve Miller says the company is in an economic sweet spot. With prescription demand rising, along with costs, he says someone needs to manage all of those pills and negotiate lower prices with producers. "Pharmacies [are] the No. 1 touch point in health care," Miller says. "People use hospitals on average once a year. They use the pharmacy on average 11 times a year."

Controlling The Market

The PBM industry emerged when health plans started covering prescriptions. Big insurers found negotiating with pharmaceutical companies to be a hassle, so PBMs began cropping up, offering to take that task off of their hands.

Today, PBMs cover more than 200 million Americans. With the ability to create or eliminate large numbers of customers, Express Scripts scientist Bob Nease says, PBMs have the clout to check the power of drug companies.

They tend to push customers in the direction of less-expensive generics, which is good for some. But not for Pat Cleeland. She takes medication to prevent seizures, and when a generic version of her drug came onto the market, her PBM said it would only pay for the cheaper option.

Her doctor advised her against the switch, which put her in a difficult position. "We didn't know how we were going to pay for getting a name brand in this medication," Cleeland says. "We had a partial refill from a local pharmacy, and it was three days' worth and it was $85."

She says her doctor got involved and helped her avoid what she feared would be a bureaucratic nightmare.

Surveys show other customers are generally happy with PBMs. And Consumers Union health care analyst Steven Findlay says the companies are usually on the patient's side, helping to drive down prices. "They absolutely do deliver a service to workers and consumers. There's no question," Findlay says.

But PBMs have a tendency to urge customers toward mail-order prescription companies, and, Findlay adds, this has hurt small independent pharmacies.

The Corner Pharmacy

At Lindenwood Drug in St. Louis — a street-corner shop a world away from the Express Scripts office park — pharmacist Tom Hunt is still making a living, even as similar shops close. Nevertheless, he says PBMs are making life difficult.

"How many businesses do you know of that 80 to 90 percent of their sales are priced by a third party? Everything I fill on a prescription card for a patient with insurance, they're setting the price on it," Hunt says.

Hunt says these days he keeps his competitive edge with good customer service and even fills prescriptions for pets. But with drug costs continuing to climb and Congress on the verge of expanding access to health insurance, the prescription benefits management industry shows no immediate signs of slowing down.