How Pharmacy Benefit Managers (PBMs) Affect Your Prescription Costs — And What You Can Do About It

If you have health insurance and you’ve ever been surprised at the pharmacy counter by what you owe, there’s a good chance a pharmacy benefit manager (PBM) played a role.

Most people never deal with PBMs directly, yet these companies help decide:

• Which drugs are covered
• How much you pay at the pharmacy
• Which pharmacy you can use
• Whether there are extra steps before a medication is approved

Understanding how PBMs work will not make prescriptions cheap overnight, but it can give you more control, better questions to ask, and clearer options when costs feel confusing or unfair.

What Is a Pharmacy Benefit Manager (PBM)?

A pharmacy benefit manager is a company that administers prescription drug benefits on behalf of:

• Health insurance plans
• Employers that offer health benefits
• Government or public plans in some cases

Think of a PBM as the middle layer between:

• You and your pharmacy
• Your health plan and the drug manufacturer

PBMs do not usually make the drugs, and they are not your pharmacy. Instead, they design and manage the rules and prices for your prescription coverage.

What PBMs Say They Do

PBMs typically describe their main roles as:

• Negotiating discounts and rebates with drug manufacturers
• Contracting with pharmacies to create pharmacy networks
• Managing formularies (lists of covered medications)
• Processing prescription claims and setting copays or coinsurance
• Using tools like prior authorization, step therapy, or quantity limits to manage use and costs

From the consumer side, what you mostly see are:

• The copay or coinsurance you pay
• Whether your medication is covered or denied
• Notices about preferred pharmacies or mail-order options

Who Are the Main Players in Your Prescription Costs?

Prescription pricing is shaped by several different groups interacting at once. Understanding these can help clarify where PBMs fit in.

1. You (the patient)

You are the one:

• Receiving the prescription
• Paying a portion of the cost (copay, coinsurance, or full price if not covered)
• Navigating coverage rules and exceptions

2. Prescribers (doctors, nurse practitioners, etc.)

Prescribers:

• Choose medications based on your health needs and their clinical judgment
• May or may not know the exact coverage rules for your specific plan
• Sometimes receive alerts in their electronic systems about coverage or preferred alternatives

3. Pharmacies

Pharmacies:

• Dispense the medication
• Submit claims to your PBM to find out what you owe
• Are paid by the PBM for the medication and dispensing service
• May be “in-network,” “preferred,” or “out-of-network,” depending on your plan

4. Health Plans / Employers

Health plans and employer benefit sponsors:

• Hire PBMs to design and run the prescription benefit
• Decide on general benefit design (e.g., deductibles, copay tiers)
• Often rely heavily on PBM pricing models and recommendations

5. Drug Manufacturers

Manufacturers:

• Set the list price of medications
• Offer rebates and discounts to PBMs and health plans to gain better placement on formularies

6. Pharmacy Benefit Managers (PBMs)

PBMs sit in the middle of all of this and:

• Negotiate rebates with drug companies
• Negotiate reimbursement rates with pharmacies
• Design formularies and tiers
• Set many of the rules that determine your out-of-pocket costs

How PBMs Influence What You Pay for Prescriptions

PBMs affect your costs in visible and invisible ways. Here are the main mechanisms.

1. Formularies and Drug Tiers

A formulary is the list of drugs your plan covers. PBMs usually group drugs into tiers, such as:

• Tier 1: Preferred generics (lowest copay)
• Tier 2: Non-preferred generics or preferred brand-name drugs
• Tier 3: Non-preferred brand-name drugs (higher copay or coinsurance)
• Specialty Tier: High-cost or specialty drugs, often with coinsurance

PBMs help decide:

• Which drugs are on the formulary
• Which drugs are excluded
• Which drugs are preferred over others
• Which tier a drug falls into

💡 Why this matters:
The same medication can cost very different amounts depending on its tier placement, even within the same insurance plan.

2. Copays, Coinsurance, and Deductibles

Your out-of-pocket cost is often structured as:

• Copay: A fixed amount (for example, a set dollar amount)
• Coinsurance: A percentage of the drug’s price
• Deductible: An amount you must pay before your plan’s coverage starts

PBMs usually design or influence the prescription benefit structure, working with health plans or employers. They:

• Decide which tiers have copays vs. coinsurance
• Set rules for which medications are subject to deductibles
• Determine how preferred drugs are incentivized with lower costs

When you hear “your plan requires a higher copay for this drug,” that structure is typically shaped by PBM design.

3. Prior Authorization, Step Therapy, and Quantity Limits

PBMs also use utilization management tools to control which medications are approved and under what circumstances.

Common tools include:

• Prior authorization (PA):
  Your prescriber must get approval from the PBM before a medication is covered.
• Step therapy:
  You must try one or more preferred drugs first before the PBM will cover a different (often more expensive) option.
• Quantity limits:
  Limits on how much medication can be dispensed at once (for example, a 30-day supply instead of 90).

💊 Impact on you:
These tools can:

• Delay when you get your medication
• Require extra paperwork or calls from your prescriber
• Push you toward lower-cost or plan-preferred options

4. Negotiated Pharmacy Reimbursement and Networks

PBMs create pharmacy networks, which might include:

• Major chain pharmacies
• Independent community pharmacies
• Mail-order or specialty pharmacies

They negotiate how much they will reimburse each pharmacy for a given drug. Based on these agreements, PBMs may:

• Label some pharmacies as “preferred” with lower copays
• Encourage use of mail-order for maintenance medications
• Reduce or exclude some pharmacies from the network

🛒 What you notice:
Your plan may say things like:

• “You’ll pay less at preferred pharmacies.”
• “Mail-order has a lower copay for 90-day supplies.”

All of this flows from PBM contracts and decisions.

5. Rebates and List Prices

A major area of debate around PBMs is drug rebates. In simple terms:

• Manufacturers set a list price for a drug.
• PBMs negotiate rebates and discounts in exchange for favorable placement on the formulary.
• These rebates usually flow between the manufacturer and PBM (and sometimes the health plan or employer), not directly to the person filling the prescription.

This can create situations where:

• A more expensive brand-name drug may be favored over a generic version because it offers a larger rebate.
• Your coinsurance is based on the list price, not the net price after rebates, so your share can feel high even if the PBM or plan pays less overall.

Many consumers find this structure difficult to understand because it is rarely transparent at the point of sale.

Why the Same Drug Costs Different Amounts for Different People

Two people can pick up the exact same medication, in the same strength and quantity, and pay completely different prices. PBMs are a central reason why.

Key factors include:

• Different formularies: Each PBM can place drugs on different tiers.
• Different benefit designs: One plan may use copays, another may use coinsurance.
• Network differences: A preferred pharmacy for one person might be out-of-network for another.
• Use of coupons or discount cards: Some people pay using pharmacy discount programs instead of insurance.

This is why simply asking your friend, “How much do you pay for that medication?” often doesn’t predict what you will pay.

Common Frustrations People Have With PBMs

Many consumers and healthcare professionals express concerns about how PBMs operate. Common themes include:

1. Lack of Transparency

People often say it is hard to know:

• How prices are calculated
• Whether lower-cost alternatives are available
• How much PBMs keep from rebates or spreads between what they pay pharmacies and what they charge plans

2. Confusing or Changing Coverage

You might notice:

• A drug that was covered last year is now denied or moved to a higher tier
• Copays changing mid-year for the same medication
• Letters about formulary changes that are hard to interpret

These changes are often driven by PBM negotiations and formulary updates.

3. Administrative Barriers

Things like prior authorization or step therapy can lead to:

• Delays in starting or continuing medication
• Multiple phone calls between prescribers, PBMs, and pharmacies
• Confusion when medications are suddenly flagged for extra approval

4. Impact on Pharmacy Choice

Pharmacists sometimes report:

• Being paid less than the cost of acquiring certain medications
• Being excluded from preferred networks
• Having difficulty explaining to patients why their copay is what it is

From your side, this can show up as:

• Being told you’ll pay more if you don’t switch to a preferred pharmacy
• Learning that a medication is “not covered here,” but might be covered elsewhere in the network

Practical Ways to Navigate PBMs and Lower Your Prescription Costs

While you cannot control how PBMs operate, you can take specific, practical steps to navigate the system more effectively.

1. Always Ask: “Is There a Lower-Cost Option?”

When you or your prescriber selects a medication, it can help to ask:

• Is there a generic equivalent?
• Is there a therapeutic alternative in a lower tier?
• Does my plan have a preferred drug in this category?

Pharmacists often have tools that show:

• Whether a similar drug is on a lower tier
• Whether a 90-day supply might be cheaper overall than multiple 30-day fills

📝 Tip:
If your pharmacy tells you a medication is expensive, you can:

• Ask if your PBM/plan lists a lower-cost alternative
• Contact your prescriber to see if switching is clinically appropriate

2. Check Your Plan’s Formulary Each Year

Many people keep the same medications year after year but do not check whether:

• The drug’s tier has changed
• New preferred alternatives exist
• A specialty pharmacy is now required

You can usually:

• Log in to your health plan or PBM portal and look up your medications
• Request a printed formulary from your plan administrator

📌 Good times to check:

• During open enrollment
• When you get a letter about formulary changes
• When your pharmacy suddenly charges more for a familiar prescription

3. Understand Your Cost Structure (Copay vs. Coinsurance)

Your out-of-pocket can behave very differently depending on whether you have:

• Flat copays by tier
• Coinsurance (paying a percentage of drug cost)
• A deductible that applies to prescriptions

If your drug uses coinsurance, higher list prices matter more to you because your portion scales with the price.

Knowing your structure helps you:

• Spot when a switch to a preferred drug could save a meaningful amount
• Understand why a small price change in the drug can make your cost jump

4. Compare In-Network and Preferred Pharmacies

Because PBMs negotiate differently with each pharmacy, your costs can vary across locations. You can:

• Check your plan’s list of preferred or in-network pharmacies
• Ask your pharmacy whether it is preferred for your plan
• Consider mail-order options if your plan offers discounted 90-day fills

🚶 Example scenarios:

• You pay one amount at a local pharmacy, but significantly less at a preferred chain under the same plan.
• Mail-order offers the same medication for a lower total copay over three months.

5. Ask About Planned or Required Prior Authorization

If your medication is denied at the pharmacy for prior authorization, it usually means:

• Your prescriber must send information to justify coverage
• The PBM will review it and decide whether it qualifies

You can help reduce delays by:

• Letting your prescriber’s office know right away about the denial
• Asking if they are familiar with your plan’s criteria or if an alternative drug might avoid PA

✅ Key point:
Prior authorization is a PBM tool that can be frustrating, but knowing it exists helps you respond quickly instead of being caught off guard.

6. Track Letters and Notices From Your Plan or PBM

It can be easy to ignore or recycle letters that look technical. However, many of these notices explain changes like:

• A drug moving to a higher tier
• The need to switch to a preferred alternative
• Requirements to use a specialty or mail-order pharmacy

Keeping and reading these letters can give you time to:

• Talk with your prescriber about alternatives
• Budget for changes in cost
• Avoid gaps in therapy caused by unexpected denials

Quick-Glance Guide: PBMs and Your Prescription Costs

Here’s a simple overview to connect PBM actions with what you experience at the pharmacy.

Key Questions to Ask Your Pharmacist or Plan

Having specific questions ready can make conversations more productive.

Questions for Your Pharmacist

• “Is this medication on my plan’s preferred tier?”
• “Is there a generic or lower-tier alternative that might be covered?”
• “Would a 90-day supply reduce my total cost?”
• “Is this pharmacy preferred for my plan, or is there another location where I’d pay less?”

Questions for Your Health Plan or PBM Customer Service

• “How is this medication covered under my plan?”
• “What tier is it on, and what does that mean for my copay or coinsurance?”
• “Are there formulary alternatives that are more affordable?”
• “Does this medication require prior authorization or step therapy?”
• “Can you send me the most recent formulary and pharmacy network list?”

How PBMs Affect Independent Pharmacies and Community Access

From a community perspective, PBM policies can influence:

• Whether independent pharmacies can afford to stay in network
• Which pharmacies people in certain areas can use without extra cost
• How much support pharmacists can provide when reimbursement is low

Many pharmacists report that PBM contracts can be complex, with reimbursement amounts that sometimes do not fully cover acquisition costs.

For patients, this can contribute to:

• Reduced pharmacy options in some neighborhoods
• More pressure to use large chains or mail-order
• Challenges maintaining long-term relationships with local pharmacists

While this may not directly change your individual costs each month, it shapes where and how you receive pharmacy care.

PBMs, Generic Drugs, and “Preferred” Status

PBMs often promote generic drugs as a major cost-control tool. Generics are typically:

• Clinically similar to their brand-name counterparts
• Often priced lower at the pharmacy level

However, PBMs sometimes treat generics differently depending on:

• The availability of rebates on brands
• Contract specifics with manufacturers and pharmacies
• Internal cost-savings strategies

As a result, you may occasionally see:

• A brand drug placed in a preferred tier
• A generic listed as non-preferred or priced differently than expected

🎯 What you can do:
Whenever you encounter these situations, asking specific questions about tier status and alternatives can help you identify a more affordable option, if one is available and appropriate.

Policy Debates and Ongoing Changes Around PBMs

PBMs are an active topic in:

• Public discussions about prescription affordability
• Regulatory and legislative proposals
• Debates among insurers, pharmacies, and manufacturers

Themes often include:

• Transparency: Calls for clearer information about rebates, spreads, and pricing practices
• Fair reimbursement: Concerns about how pharmacies are paid
• Patient protections: Efforts to reduce surprise costs and improve access

For consumers, this means:

• PBM-related rules may change over time
• Coverage structures may gradually become clearer—or more regulated—in certain areas
• It can be useful to stay informed during open enrollment or plan changes

You do not need to follow every policy discussion, but being aware that PBM practices are under scrutiny can explain why you might see new notices, new plan language, or updated coverage rules over the years.

At-a-Glance: Practical Tips for Managing PBM-Driven Costs

Here is a quick checklist you can refer to when you’re facing a high prescription cost or sudden change.

🧭 Smart Steps Before and After the Pharmacy Counter

• 🧾 Review your formulary yearly

  • Especially during open enrollment or if your medications are expensive.

• 💬 Ask about alternatives

  • At both the prescriber’s office and the pharmacy, ask whether a covered, lower-tier, or generic option is available.

• 🏥 Check pharmacy networks

  • Confirm whether your current pharmacy is preferred or if another in-network option could lower your cost.

• 📞 Use customer service strategically

  • Call your health plan or PBM to ask about coverage, tiers, and required approvals before filling new, potentially expensive prescriptions.

• 📨 Pay attention to mailed notices

  • Formulary or network changes often arrive by mail; set these aside and review them carefully.

• 🧩 Understand your cost-sharing

  • Know whether you pay copays or coinsurance, and whether a deductible applies, so cost changes are less surprising.

• 🕒 Plan for prior authorization or step therapy delays

  • If you start a new, high-cost brand medication, ask in advance whether PA or step therapy is likely to apply.

Bringing It All Together

Pharmacy benefit managers operate mostly out of sight, yet their decisions shape which medications are covered, where you can fill them, and how much you pay.

You may not be able to change how PBMs negotiate rebates or design tiers, but you can:

• Learn how formularies and networks work
• Ask targeted questions about coverage and alternatives
• Pay attention to plan notices and changes
• Work with your prescriber and pharmacist to navigate prior authorization and tier structures

The prescription system can be complex, and PBMs are a major reason why costs can feel unpredictable. By understanding the basics of what PBMs do—and how their decisions show up on your receipt—you can move from feeling completely in the dark to being a more informed, proactive participant in your own pharmacy care.