Pbm Industry Analysis

Industry Analysis Paper: Pharmacy Benefits Management Industry

Pharmacy Benefit Management Industry

A Pharmacy Benefit Manager (PBM) is a third party administrator of a prescription drug plan. The main responsibilities of a PBM is adjudicating prescription drug claims, creating, and maintaining formularies, benefit plans, negotiating prescription drug discounts and manufacture rebates. PBMs offer value by providing a wide range of tools and techniques that include electronic prescribing, clinical management, and pharmacy networks. The industry has become an oligopoly through several acquisitions and the companies with most volumes have been able to demonstrate greater bargaining power with suppliers. In addition, they are able to lower their average cost per claim by spreading their fixed costs over a larger base. Therefore, the PBM industry has become an industry that requires scale, which can make it difficult for new entrants and creating moderate rivalry among existing competitors. However, the growth of the private exchange industry could change the landscape of the PBM industry as more employers turn to private exchanges for health coverage. This could mean that PBMs could potentially face lost revenue as the market shifts to the private exchange. PBMs will also need to leverage technology to create a more viable integrated care solution to solidify their market share.

In order to understand if the industry is attractive it is important to review Porter’s (2011) five competitive forces that shape strategy. The bargaining power of suppliers and buyers in the PBM industry is relatively low. The reason for this on the supplier side is that pharmaceutical companies lose their bargaining power when generics are standardized and are readily available as an alternative to the branded drugs with identical performance. On the contrary, pharmaceutical companies have increased bargaining power for drugs that do not offer viable substitutes. The power of the buyers...