Pharmacy Benefit Managers were initially founded to process pharmaceutical claims for health plans.  In the late 1980s, PBMs began to create more significant “pharmacy benefit” networks by creating a system for reimbursement of drug claims, claim processing and cost control.  PBMs contract with drug manufacturers and pharmacies to create these networks. PBMs negotiate with drug manufacturers to have their drugs included in the PBM’s formulary.  The major PBMs’ market clout allows them to obtain payments (in the form of rebates and other compensation) from drug manufacturers in exchange for promoting the use of the manufacturer’s more expensive brand-name drugs. PBMs negotiate with retail pharmacies to participate in the PBMs’ networks, but instead of the opportunity for arms-length negotiations, pharmacies are typically provided with take-it-or-leave-it contracts.  Ultimately, the PBMs sell the formulary services and the pharmacy network, along with its claim processing to health plans.

Here is a schematic showing the complicated role of PBMs