Understanding the language of PBMs
Pharmacy benefit managers (PBMs) use many complex terms that can be confusing. Check out the following simple definitions to better understand these frequently used terms.
Administrative (admin) fee
A fee that a health plan will pay to a PBM for that PBM to process pharmacy claims according to the plan’s benefit design.
Average wholesale price (AWP)
The average price for brand and generic drugs bought in bulk.
The most accurate AWPs are published by Medi-Span, a nationally recognized application that relies on pricing information reported by drug manufacturers. However, there is no regulatory body governing what makes up an AWP, so a PBM may choose to use their own methodology to define it.
Dispensing fee
A fee that a PBM pays to a participating pharmacy for dispensing a drug. This is another charge you’ll see on a standard PBM price quote.
Maximum allowable cost (MAC)
A limit PBMs set on how much a plan will pay for generic drugs and for brand drugs that have generic versions available.
MAC pricing helps manage the difference in prices that happen when multiple manufacturers make the same drug. Some manufacturers charge more than others for the same generic drug. A MAC list calculates the average cost of a drug across all manufacturers that make that drug. The PBM then uses this number as the highest amount they will reimburse their network pharmacies for that drug.
This promotes competitive pricing and encourages pharmacies to buy cheaper, equally effective generic drugs — ultimately driving savings across the health care system.
Medication adherence
When a person takes their medication as their doctor prescribed it.
Taking a medication correctly can involve many factors, such as getting prescriptions filled, remembering to take medication on time and understanding the directions.
Multi-source brand drug
A brand drug that has generic versions available (meaning it is developed by multiple drug manufacturers).
Pass-through pricing
A way PBMs are paid for their services that involves charging health plans a flat admin fee and then passing savings from the PBM’s programs directly through to the health plan. With this method, the admin fee is the primary way the PBM is paid for its services.
Program costs
Additional costs (outside of admin fees or spread pricing) for services a PBM offers.
Some PBM services are considered standard, while others are considered value-adds that incur a cost. Examples of additional programs may include:
- Manual eligibility
- Fraud, waste and abuse
- Auditing
- Reporting services
- Care management
- Medication therapy management
Rebate
A payment from a drug manufacturer to a PBM to offset the cost the PBM paid that manufacturer for a drug.
PBMs typically receive rebates for certain brand and specialty medications on their formularies, and manufacturers provide rebates to help promote use of their drugs.
Traditional (spread) pricing
A way PBMs are paid for their services that involves charging health plans a contracted rate that is slightly more than what the PBM pays their pharmacy networks. Through this method, the cost difference, or “spread,” is the primary way the PBM is paid for its services. Typically, there are no admin fees with spread pricing.
Administrative (admin) fee
A fee that a health plan will pay to a PBM for that PBM to process pharmacy claims according to the plan’s benefit design.
Average wholesale price (AWP)
The average price for brand and generic drugs bought in bulk.
The most accurate AWPs are published by Medi-Span, a nationally recognized application that relies on pricing information reported by drug manufacturers. However, there is no regulatory body governing what makes up an AWP, so a PBM may choose to use their own methodology to define it.
Dispensing fee
A fee that a PBM pays to a participating pharmacy for dispensing a drug. This is another charge you’ll see on a standard PBM price quote.
Maximum allowable cost (MAC)
A limit PBMs set on how much a plan will pay for generic drugs and for brand drugs that have generic versions available.
MAC pricing helps manage the difference in prices that happen when multiple manufacturers make the same drug. Some manufacturers charge more than others for the same generic drug. A MAC list calculates the average cost of a drug across all manufacturers that make that drug. The PBM then uses this number as the highest amount they will reimburse their network pharmacies for that drug.
This promotes competitive pricing and encourages pharmacies to buy cheaper, equally effective generic drugs — ultimately driving savings across the health care system.
Medication adherence
When a person takes their medication as their doctor prescribed it.
Taking a medication correctly can involve many factors, such as getting prescriptions filled, remembering to take medication on time and understanding the directions.
Multi-source brand drug
A brand drug that has generic versions available (meaning it is developed by multiple drug manufacturers).
Pass-through pricing
A way PBMs are paid for their services that involves charging health plans a flat admin fee and then passing savings from the PBM’s programs directly through to the health plan. With this method, the admin fee is the primary way the PBM is paid for its services.
Program costs
Additional costs (outside of admin fees or spread pricing) for services a PBM offers.
Some PBM services are considered standard, while others are considered value-adds that incur a cost. Examples of additional programs may include:
- Manual eligibility
- Fraud, waste and abuse
- Auditing
- Reporting services
- Care management
- Medication therapy management
Rebate
A payment from a drug manufacturer to a PBM to offset the cost the PBM paid that manufacturer for a drug.
PBMs typically receive rebates for certain brand and specialty medications on their formularies, and manufacturers provide rebates to help promote use of their drugs.
Traditional (spread) pricing
A way PBMs are paid for their services that involves charging health plans a contracted rate that is slightly more than what the PBM pays their pharmacy networks. Through this method, the cost difference, or “spread,” is the primary way the PBM is paid for its services. Typically, there are no admin fees with spread pricing.