Pharmacy Benefit Management Agreement

Pharmacy Benefit Management Agreement: A Comprehensive Guide

Pharmacy Benefit Management (PBM) is an essential part of the healthcare industry. The PBM industry is responsible for managing prescription drug benefits on behalf of health insurance plans, self-insured employers, and other organizations. In simple terms, PBMs are intermediaries between drug manufacturers, pharmacies, and health plans. PBMs have a massive influence on the drug prices, and as a result, they play an important role in controlling the overall healthcare costs.

PBM Agreement: What is it?

A PBM agreement is a contract between a PBM and a health plan, usually an insurance company or an employer. The agreement outlines the terms and conditions under which the PBM will provide prescription drug benefits management services to the health plan. The agreement will typically include provisions related to network access, formulary management, rebate management, claims processing, analytics, reporting, and other services.

The main objective of a PBM agreement is to establish a mutually beneficial relationship between the PBM and the health plan. The agreement serves as a roadmap for the PBM to provide effective, efficient, and cost-effective drug benefit management services to the health plan. On the other hand, the agreement ensures that the health plan receives the best possible value for its money.

Key Components of a PBM Agreement

There are several key components of a PBM agreement that both parties must consider. Here are some of the most important aspects of a PBM agreement:

1. Network Access: The PBM agreement should define the types of pharmacies that will participate in the network. This includes retail pharmacies, mail-order pharmacies, and specialty pharmacies. It should also specify the geographical coverage of the network.

2. Formulary Management: The formulary is a list of drugs that are covered by the health plan. The PBM agreement should specify the process for establishing and updating the formulary. It should also outline the criteria for drug selection and the process for addressing requests for non-formulary drugs.

3. Rebate Management: The PBM agreement should describe the process for managing rebates from drug manufacturers. This includes how rebates are calculated, how they are collected, and how they are shared with the health plan.

4. Claims Processing: The PBM agreement should specify the process for processing and adjudicating claims. This includes the timing for claims submission, the process for reviewing and paying claims, and the process for handling appeals.

5. Analytics and Reporting: The PBM agreement should specify the type and frequency of reports that the PBM will provide to the health plan. This includes reports on drug utilization, cost trends, and performance metrics.


A well-crafted PBM agreement is essential for ensuring that both the PBM and the health plan receive maximum value from their partnership. The agreement should establish clear expectations and responsibilities, and it should provide a framework for ongoing communication and collaboration. By carefully considering the key components of a PBM agreement, both parties can ensure that their partnership is successful and beneficial for all stakeholders.