A primer on brand-name prescription drug reimbursement in the US – Healthcare Economist

That’s the title of a recent article by Hernandez and Hung (2024). The article provides an excellent review of how medications are reimbursed in the US and who the key players are. I provide an abbreviated summary below, but please read the complete article.


  • Manufacturers research, develop and market new pharmaceutical products.
  • Wholesalers act as distributors of pharmaceutical products. Wholesalers purchase the medication from manufacturers and distribute it to pharmacies and healthcare providers.
  • Pharmacy Dispense self-administered prescription medications to patients. Pharmacy types include retail, mail order, online, specialty, and institutional.
  • Health service providers prescribe all prescribed medications and administer pharmaceutical products that must be administered under the supervision of a health care professional (e.g., infusions, some injections).
  • Patients are consumers of pharmaceutical products from healthcare providers (physician-administered) or pharmacies (self-administered).
  • Health plans or insurers (also known as payers) Provide coverage of medical and pharmacy services to its members. Private insurance is funded by employers and employees; Public insurance (e.g., Medicare, Medicaid) is funded by taxes. Medications dispensed to patients at outpatient pharmacies are covered under the pharmacy benefit of an insurance policy, while medications administered by a provider are covered under the medical benefit. Health plans or insurers often outsource pharmacy benefit management to pharmacy benefit managers (PBMs). Health plans or insurers are also called payers.
  • PBM administer the pharmacy benefit of insurance policies and design formularies, negotiate discounts with manufacturers, establish pharmacy networks, negotiate contracts with pharmacies or pharmacy services management organizations, and process and pay claims.
  • Group Purchasing Organizations (GPOs) They are buying consortia that add purchasing power among their members, allowing them to negotiate better discounts than they would access on their own. GPOs include health systems, clinics, specialty pharmacies, retail pharmacies, and PBMs.
  • Administrative organizations of pharmacy services. manage and negotiate contracts with PBMs on behalf of independent pharmacies. Some pharmacy service management organizations are affiliated with or owned by wholesalers.

Flow of funds for medications covered by the Pharmacy benefit

The payouts between these players are summarized in the chart below for medications that patients receive through a pharmacy. The pharmacy could be a standard independent pharmacy (e.g., CVS, Walgreens), a pharmacy within a hospital, or even a mail-order pharmacy.


Flow of funds for medications covered by the Medical benefit

Here, instead of pharmacies delivering medications to patients, medical providers supply them. These providers receive reimbursement for both the cost of the medication administered and the professional services provided to administer this medication.


Thinking in the future

The article also identifies a number of key themes:

  • Drug prices have increased in recent years, but reimbursements have increased even more
  • Federal Government’s Drug Price Negotiation Begins with Inflation Reduction Act (IRA)
  • Greater vertical integration with insurers purchasing PBMs and creation of PBM-owned GPOs
  • Health plans are increasingly moving medications administered by specialty providers to the pharmacy benefit, through “white bagging” (having a specialty pharmacy dispense the medication and sending it to the provider) or “brown bagging” (having a specialized pharmacy dispenses the medication to patients). take to the supplier for administration)

We will be happy to hear your thoughts

Leave a reply

Register New Account
Compare items
  • Total (0)
Shopping cart