I've read 3 years of 10K's & proxy statements & a ton of articles & still can't get a solid handle on what these guys actually do.
They appear to be a pharmaceutical distributor cum pharmacy benefits manager.
They also look like a factor of sorts for pharmacies.
They obviously have a lot of stroke in the industry because they slapped down Walgreens by removing a ton of clients from them in the blink of an eye & then restoring those same clients after Walgreen bent a knee.
What I don't understand is how come a firm as big as Walgreens can't purchase & warehouse drugs on the same scale as ESRX?
Why do companies use ESRX to manage their prescription drug benefit plans?
Why haven't the insurance companies been able to manage their own plans?
Is it really that complicated?
Are there any pharmacists on this board who can offer insights?
I wish I could tell you it is not that complicated, but it really is. Back in the day most insurance companies did their own pharmacy claims (read as PBM services) but quickly came to the realization that the volume of pharmacy claims was far greater than any other medical service (at least 10x the next most commonly used medical service) and since their claims processing systems were built to prevent large damage from a small number of claims, pharmacy being very small dollars on a very large amount of claims did not fit well. They needed to outsource that service.
PBMs are not distributors. The only drugs they actually buy are those they use for their mail order pharmacies. Retail pharmacies buy their own pharmaceutical stocks at whatever price they can negotiate. This is where it gets tricky. PBMs contract with payers (read HMO and others) to be able to get prescriptions filled for a certain cost structure (think Medicare cost-plus pricing). Then the PBM goes to the pharmacies and offer them access to that business under a certain cost structure which is lower than the cost structure they negotiated with the payer. This is the spread upon which PBMS make their money. In addition to their mail-order pharmacy profits.
Another thing that most people do not understand is that there are very few drugs that are truly "unique". Meaning that the clinical value of any given drug is almost universally relicable by some other therapeutic agent. Through the use of formularies PBMs are able to guide utilization to the most cost effective drug for the treatment of most conditions. PBMS engage pharmaceutical companies to bid down their prices to become the most cost effective agent in a given therapeutic category. The price is reduced through rebates which increase as utilization increases (thus the volume purchasing aspect). This rebate is returned to the payer minus an adminstrative fee to reduce the payers overall pharmaceutical cost.
So to wrap it all up PBM's make money buy
1. Volume purchasing
2. Demand direction
4. Direct service (mail)
I would suggest you go back 30 years in the literature and read about Express Scripts, Caremark, PCS, Medco, and understand the industry. You can never understand a company unless you understand the industry under which they operate
Anyone can go into any business they want. All you have to do is have the expertise and lots of capital. Maybe they get hired because others aren't in their business and want their expertise and are willing to pay for it and pass the costs along to their customers.