Mail order pharmacies like Express Scripts and Medco have become increasingly prominent players in health care. But these companies are a lot more than simply mail order pharmacies, they are in fact a new generation of pharmacy benefit managers (PBM’s). PBM’s are essentially middle-men between insurance and pharmacy, with companies like Express Scripts merging the dual functions of a PBM and pharmacist into one. PBM’s manage and administer medication benefits for insurance companies. The largest insurance companies contract with them not only to manage the medication benefits of their clients (that would be you), but also to contain costs. Since insurance companies are not in the business of directly managing pharmacy services themselves, they contract with PBM’s to coordinate and manage their patients’ insurance benefits for them. If a PBM can do that at a lower cost, they save (make) money for themselves and the insurance company.
Mail order pharmacies are in a unique position to do this, as they don’t have to maintain brick-and-mortar outlets, and can use the mail to reduce costs . With such an advantage in cost containment, mail order PBM’s are quickly pushing traditional brick and mortar outfits to the periphery (remember Netflix vs. Blockbuster?). Mail order pharmacies are thus becoming giants in this industry. In 2012, Express Scripts completed a $29 billion acquisition of Medco, to create the country’s largest PBM, a publicly traded company with $100 billion in annual revenue.
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