Duke Economics Working Paper #95-50
The Use of Cost-Effectiveness Analysis
by Pharmacy Benefit Management Companies
Henry Grabowski, Duke University
C. Daniel Mullins, University of Maryland
Abstract
Pharmacy benefit management companies (PBMs) have emerged over the past decade in
response to increased demand for health care cost containment. The ability
to obtain volume rebates from drug manufacturers was the principle
value added by the PBM industry during the early 1990s.
However, PBM firms anticipate a growing future role in
the management of patient care (disease management) for
certain high cost chronic diseases and conditions. As the scope of PBM
activities broadens over time to various disease management activities,
the importance to PBMs of drug cost-effectiveness (C-E) studies
is expected to increase significantly. At present, however, PBM formulary
decision making based on C-E studies has been limited because few C-E studies
have compared therapeutic substitutes in populations with characteristics
that are similar to those of PBM client enrollees. The data
infrastructure inherent to the PBM industry
and the increasing number of PBM employees with advanced training in
pharmacoeconomics will permit the industry to perform their own internal C-E studies.
The PBM industry s desire for C-E studies with "real world" medical practice
environments and comparators may also lead to participation in joint ventures with drug
manufacturers, HMOs, and academic institutions. Based on interviews with top
management, PBMs tend to favor active participation in the development of
methodological approaches to C-E studies over regulated guidelines such as those
proposed by the FDA in 1995.
JEL: DG1, I11
Published under the title "Pharmacy Benefit Management, Cost-Effectiveness Analysis and Drug Formulary Decisions," in Social Science and Medicine, Vol. 45, No. 4, 1997, pp. 535-544.