A formulary is the list of medications your plan covers. It should be built around two things:
1. What’s best for your employees’ health, and
2. What’s financially smart for your plan.
Here’s what actually happens.
A pharmaceutical company offers a $500 rebate on their $1,000 medication. When one of your employees fills that prescription, they pay $1,000 at the counter. That $500 rebate flows through the system and lands with the PBM. Not with your plan. Not with your employee. With the PBM.
Your employee just paid $1,000 for a medication that could have cost $500.
Your plan overpays today, and maybe nine months later some of that money comes back to your plan. If any. In the meantime, you have handed the drug company and the PBM a no-cost loan. No interest. No accountability.
The real problem with how formularies get built
When a PBM is collecting significant rebates from certain drug manufacturers, they have a financial reason to favor those drugs on your formulary, whether or not those medications are the right choice for your employees.
The PBM is also the one advising you on formulary design. That advice is not neutral when they are receiving revenue from the same companies whose products they are recommending.
What you can do about it
When rebates stop driving formulary decisions, medications get selected based on actual clinical value. Outcomes improve. Costs come down.
Ask your advisor whether your PBM contract includes pass-through rebates, meaning those rebates come back to your plan rather than staying with the PBM. Ask how your formulary is structured and what is driving those decisions. Ask if your plan has had a PBM audit.
If your advisor cannot answer those questions clearly, that tells you something.
Your employees deserve medications chosen because they work, not because someone else profits from the recommendation.