EY Pharmacist Examining Machine

How Pharmacy Benefit Managers are evolving to add value in a changing industry

Pharmacy benefit managers have come under scrutiny. They must differentiate by addressing service, convenience, and transparency.

In brief

  • Disruption has brought scrutiny to PBMs and changed how they must compete in today’s market.
  • Traditional PBM value has been around managing pharmacy cost for health plans and large group employers.
  • Groups that can reorganize and adapt quickly within regulatory frameworks will see success.

The pharmacy industry – particularly Rx spend – is increasingly under the microscope

With drug spending projected to grow to nearly US$850b by 2028ᶦ and the unknown impact of landmark pricing legislation on the horizon, pharmacy benefit managers (PBMs) need to develop durable growth strategies that can both withstand economic pressures and provide clear value to their customers.

Innovation in drug discovery and increased regulatory scrutiny have fueled pressure on PBMs to show clear value, especially as technology and transparency continue to improve. As pharmaceutical spending grows faster than overall health spending, recent surveys also suggest that plan sponsors and self-insured employers are increasingly dissatisfied with the cost and quality of their pharmacy benefits. This has led to increased pressure from regulators and purchasers.


Value propositions are evolving for pharmacy benefit managers and disrupters


Across the pharmacy value chain, competition for industry profit pools has compelled stakeholders to innovate business models and deliver on three key value propositions:

  • Cost control solutions to provide programs and services that lower overall prescription drug costs
  • Consumer experience plays that leverage digital platforms to “delight” patients and meet them where they are
  • Clinical outcomes focus to drive medication adherence and advance value-based care initiatives

While PBMs have traditionally succeeded by controlling costs for customers, competitors will need to differentiate by improving service, convenience and transparency.


Other emerging players are targeting clinical outcomes by promising to impact results through medication adherence, delivery of specialty and personalized protocols, or more general medication therapy management. While these players are potentially smaller in scale, we believe these companies will continue to drive value and create viable business models.


Large-scale PBMs will continue to enhance value creation through purchasing leverage, yet their ability to capture additional profits via mail-order, dispensing and clinical services is likely to be challenged. Vertical integration with health benefits and pharmacy services does create a more defensible position as the industry evolves, but the models of big payers are not immune to increasing employer and consumer demands.


Looking ahead, we believe the industry will see a shift in direction toward three main archetypes:

  • Scale driven, supply-side models that focus on lowering unit cost (“Cost Champions”)
  • Consumer-centric convenience models dependent on aggregating demand of individual customers (“Digital Delighters”)
  • Highly specialized integrated models aligned to driving effective clinical outcomes (“Adherence Advocates”)

The traditional PBM value proposition has been around managing pharmacy cost, primarily for health plans and large group employers. Cost continues to be a viable value proposition, yet how it will be delivered to customers will change. Narrow strategies may focus on creating unique containment solutions for specific medications; other players will compete on scale and supply chain leverage. All these models will need to consider the increasing transparency of costs driven by legislation and new competitive pressures, notably consumer demand.


Understanding the specific actions and basis of competition can help organizations rethink their strategy to drive value for their customers.


Cost Champions


Cost Champions promise lower drug spending through pricing power and utilization management, coupled with digital tools to increase price transparency for savvy consumers. This is the most traditional and mature archetype and will require scale and efficiency to win.


One such example is Mark Cuban Cost Plus Drug Company. This venture has been making waves with its push to increase access to affordable generic medications through a direct-to-consumer model. By manufacturing top generic drugs and offering them out of pocket at a flat 15% markup, Cost Plus offers remarkable price transparency on highly utilized medications. Cost Plus is seeking opportunities to expand its catalog to include branded and specialty products.


If your company is considering a Cost Champion-style approach, a few points to consider:
  • Can you control or reduce growth spend, specialty spend growth and spend per member?
  • How will you drive unit costs down?
  • As upstarts gain customers with promises of transparency and resource management, are you prepared to offer greater transparency to new and existing customers?

Digital Delighters

Digital Delighters simplify the pharmacy consumer journey and provide omnichannel access to medications and pharmacy services through virtual tools that integrate with other critical health care functions. Their key competency is the ability to drive recurring digital engagement by providing a seamless, tailored purchasing experience.

Leading Digital Delighters offer discounts off the cash price of prescription drugs at the point of sale by providing direct access to PBMs’ negotiated network rates and rebates through a convenient user-friendly interface. Coupling discount programs with easy-to-use digital tools enables them to maintain a captive audience while building new revenue streams. Some companies in this space have even positioned themselves as distributors, while others tout their attractive platform as an ideal place for pharmaceutical manufacturers to advertise to targeted populations and directly connect them to patient assistance programs.

Digital Delighters have capitalized on virtual health trends and widespread telemedicine adoption by integrating pharmacy and fundamentally resetting expectations for service and experience. Furthermore, these models will start to incorporate behavioral data and analytics in an efficient way to drive greater insight into patient preferences, patterns and clinical outcomes.

With value linked to consumer loyalty, net promoter scores (NPSs) and customer lifetime value, Digital Delighters focus on delivering differentiated experience and convenience.

If the Digital Delighter track best suits the strengths of your company, ask:
  • Do you already attract customers online? If not, are you prepared to build the presence to do so?
  • How will you deliver increased convenience to your users?
  • How will you protect user data, even as suppliers clamor for access to a loyal, growing pool of customers?

Adherence Advocates

Adherence Advocates are defined by their ability to engage individuals and influence consumer behavior around taking medications. 

Lack of medication adherence and adverse drug reactions are significant drivers of waste in the health care industry, costing between $100b and $289b every yearᶦᶦ. Poor medication adherence and adverse drug reactions also result in 125,000 deaths and more than 10% of hospitalizations each year, according to Annals of Internal Medicine. Adherence Advocates utilize a combination of consumer applications that tap into patient (and provider) psychology, traditional outreach and coordination with retail pharmacists, analytics, and emerging innovative workflow and dispensing technologies.

One example of this archetype is ScriptDrop. Through a robust digital platform, ScriptDrop partners with traditional health care players so that patients receive medications safely and in a timely manner through on-demand or same-day delivery. ScriptDrop’s logistics backbone relies on existing delivery networks through the U.S. Postal Service and other ground carriers, enabling the company to reach patients in hard-to-reach-places in all 50 states.

Adherence Advocates connect the value proposition of the drug to actual clinical outcomes by championing appropriate use. Ultimately, with appropriate drug use, especially with chronic conditions, total medical costs can decline and health outcomes can improve, with measurable benefits to the entire system. As value-based reimbursement continues to gain traction, this archetype may be able to participate directly in the value they deliver through risk-based contracting. 

The ultimate measures of success are lower total medical cost and better clinical outcomes. Critical leading indicators focus on direct medication adherence rates, including those used in Medicare STARS ratings. Many players will also track success around condition-specific cohorts and patient risk scores as well as the ease of getting prescriptions filled.

To adopt the Adherence Advocate archetype, consider the following:

  • How will you influence consumer behavior?
  • Which parts of your established process will you further optimize or automate to attract customers?
  • Is your technology stack prepared for deeper coordination between providers and customers alike?

How PBMs can win in the market

In an increasingly competitive and dynamic industry, ultimate success will be determined by organizational agility to adjust and transform through new competitive pressures and regulatory frameworks. EY teams have worked with clients to renew their focus on consumers, driving efficiency in existing operations through their cost rationalization, automation and digital transformation. This deliberate balance to maintain agility has allowed winners to continue to grow and adapt in a dynamic environment.

Specific actions that we have seen across multiple players include:

  • Creating supply chain infrastructure to support personalized medications/therapies
  • Creating scale through shared services, centralization and/or outsourcing investments in customer relationship management platforms
  • Integrating medical and pharmacy utilization management
  • Investing in analytics and data management
  • Partnering with new entrants and, in some cases, historical competitors

Thank you Deblina Ghosh, Vivian Grover and Joseph Baez for their contributions to this article.


Competition and regulatory scrutiny have pushed Pharmacy Benefit Manager to show greater value. To show value by addressing service, convenience, and transparency, PBMs can adapt different strategies.

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