The Pharmacy Benefit Management Landscape: A Music Industry Analogy

The management of prescription drug benefits by Pharmacy Benefit Managers (PBMs) represents a complex and often opaque aspect of the healthcare system. These entities operate behind the scenes, yet they exert significant influence over drug costs and patient access to medications.¹ This report aims to illuminate the intricate workings of the PBM ecosystem by drawing a detailed analogy with the music industry, a sector with which many are familiar. By comparing the roles, relationships, and financial flows in both industries, a clearer and more intuitive understanding of PBMs can be achieved.

At the heart of both the music and medical PBM industries lie creators and consumers. In the music world, artists are the central figures, crafting and performing music that resonates with listeners.⁵ They dedicate countless hours to honing their craft, writing lyrics, composing melodies, and practicing their instruments or vocal techniques.⁵ Similarly, patients are the ultimate recipients of healthcare services, relying on medications and treatments to manage their health and well-being. Complementing the artists are music producers, who play a crucial role in shaping the sound of a song, overseeing the recording process, and ensuring the final product meets a high standard.⁵ They are the creative backbone, bringing musical ideas to life through technical expertise and artistic vision.⁵ In the medical realm, drug manufacturers fulfill a comparable role. These companies are responsible for the research, development, and production of pharmaceutical drugs, investing significant resources in creating medications that address various health conditions.¹ Just as producers transform an artist’s vision into a tangible recording, manufacturers translate scientific discoveries into accessible treatments. In both industries, the creators and the initial producers of the core product are essential, yet their ability to connect with the end consumer often relies on a network of other key players.

Navigating the complexities of these industries often requires the expertise of intermediaries. In the music industry, music managers are pivotal figures who handle the business aspects of an artist’s career.⁵ They negotiate contracts, arrange tours, and develop the artist’s brand, allowing the artist to focus on their creative endeavors.⁵ A good manager is organized, well-connected, and possesses a deep understanding of the music business landscape, advocating for the artist’s interests in various negotiations.⁵ The medical PBM industry has its own set of crucial intermediaries: Pharmacy Benefit Managers (PBMs).¹ These companies manage prescription drug benefits on behalf of health insurers, employers, and other payers. They act as a liaison between drug manufacturers, pharmacies, and those who ultimately pay for the medications. PBMs negotiate drug prices with manufacturers, create formularies that list covered drugs, process pharmacy claims, and manage networks of pharmacies that beneficiaries can use.¹ Much like music managers navigate the music business for artists, PBMs navigate the pharmaceutical supply chain for payers, aiming to control costs and ensure access to medications. Initially, both managers and PBMs emerged to streamline processes and potentially reduce costs within their respective industries. However, over time, they have evolved into powerful entities with their own distinct revenue streams and the potential for conflicts of interest.¹ Music managers typically earn a percentage of the artist’s income.¹² Similarly, PBMs generate revenue through various mechanisms, including retaining a portion of the rebates they negotiate from drug manufacturers, profiting from the difference between what they charge payers and what they pay pharmacies (known as spread pricing), and collecting administrative fees from their clients.¹ These revenue models can sometimes create incentives that do not perfectly align with the best interests of artists/patients or the payers who utilize their services.

Financial backing and strategic direction are essential for widespread success in both industries. In the music industry, record labels serve as the primary financiers, investing in artists, funding album production, and undertaking marketing and promotion efforts to reach a broad audience.⁵ Labels provide the financial support and resources that many artists may not have access to independently.⁵ In return for their investment and services, record labels typically take a significant percentage of the revenue generated by the artist.⁵ This relationship, while crucial for many artists to achieve widespread recognition, can sometimes lead to tensions regarding contract terms, creative control, and the division of royalties.²⁹ In the medical PBM industry, health insurers and employers play a role analogous to record labels.¹ These entities provide prescription drug benefits to patients as part of their overall healthcare coverage. They contract with PBMs to manage these benefits, aiming to control costs and ensure that their beneficiaries have access to necessary medications.¹ The “investment” made by insurers and employers manifests as the payments they make to PBMs for their services and the cost of the medications themselves. Similar to the expectations of record labels, insurers and employers anticipate a return on their investment in the form of lower drug costs and improved health outcomes for their members or employees. This expectation shapes their decisions regarding the selection of PBMs and the design of prescription drug coverage plans.

The process of getting the product to the consumer involves distribution channels in both industries. In music, music distributors are the entities responsible for delivering music to various platforms, including digital streaming services and sometimes physical retail stores.²⁶ They act as the crucial link between the artist or label and the numerous platforms where music is consumed by the audience.³⁷ The rise of digital distribution has significantly transformed this aspect of the music industry, making music more accessible globally.³⁹ In the medical PBM industry, pharmacies serve as the primary distribution channel for prescription medications.¹ These can be retail locations or mail-order services where patients can obtain their prescribed drugs after receiving a prescription from their healthcare provider. Pharmacies dispense medications and are then reimbursed by PBMs or insurers based on negotiated rates.¹ The relationship between pharmacies and PBMs is critical, as the reimbursement rates set by PBMs can significantly impact the financial viability of pharmacies, particularly independent ones.³ PBMs’ control over these rates can potentially lead to challenges for independent pharmacies, potentially limiting patient choice and access to medications in certain communities.³

The way consumers access the products in both industries has also seen significant shifts. In the music industry, streaming services like Spotify and Apple Music have become the dominant platforms for music consumption.²⁶ These digital platforms offer listeners vast libraries of music for a subscription fee or through ad-supported models.⁴⁶ While streaming has revolutionized music access, it has also sparked debates regarding artist compensation and the sustainability of revenue models for musicians.⁴⁹ In the medical PBM industry, pharmacy networks function similarly to streaming platforms. These are networks of pharmacies that are contracted by PBMs, and patients with a particular insurance plan can typically fill their prescriptions at pharmacies within that network.¹ PBMs negotiate terms with these pharmacies to control costs and ensure convenient access for their members.⁸ Just as an artist’s success can be linked to their presence and popularity on major streaming platforms, a patient’s ability to access affordable medication is directly tied to the scope and terms of their PBM’s pharmacy network.

The flow of revenue in both industries is complex and involves various mechanisms. In the music industry, artists, songwriters, and publishers earn royalties based on the use of their music through sales, streams, and public performances.⁵ Additionally, licensing fees are generated when music is used in other media like films and commercials.⁷ The digital age has brought about ongoing discussions about fair compensation for artists in a landscape dominated by streaming.⁴⁹ The medical PBM industry has its own intricate financial flows. Rebates, which are discounts paid by drug manufacturers to PBMs in exchange for favorable formulary placement, represent a significant financial aspect.¹ Spread pricing, the difference between what PBMs charge payers and reimburse pharmacies, is another revenue stream.¹ PBMs also collect administrative fees from insurers and employers for managing drug benefits.¹ These financial mechanisms within the PBM industry are often opaque, leading to questions about their impact on the overall cost of drugs for payers and patients.¹ Notably, rebates, while seemingly intended to lower drug costs, can sometimes incentivize PBMs to favor higher-priced drugs on formularies, potentially increasing overall drug spending.¹

Music Industry	Medical PBM Industry
Royalties (sales, streams, etc.)	Rebates from manufacturers
Licensing Fees	Spread pricing
Merchandise Sales	Administrative fees
Concert Tickets	Formulary management fees
Sponsorships	Pharmacy network management fees

Power dynamics and negotiations shape both industries significantly. In the music industry, power imbalances often exist, particularly between emerging artists and established record labels, influencing the terms of contracts and the division of revenue.²⁹ Managers play a crucial role in negotiating on behalf of artists to secure favorable deals with labels, booking agents, and other industry players.⁵ Negotiation skills and an artist’s market leverage are vital in determining their success and financial returns. Similarly, the medical PBM industry is characterized by significant negotiating power held by the largest PBMs due to their substantial market share.¹ These PBMs negotiate with drug manufacturers to secure rebates and with pharmacies to set reimbursement rates.¹ Insurers and employers also engage in negotiations with PBMs to establish the terms of their drug benefit management contracts.¹ The concentrated nature of the PBM market raises concerns about the potential for these dominant players to exert undue influence on drug pricing and patient access.¹ Payers and pharmacies may find themselves constrained by the terms dictated by these powerful intermediaries, much like an artist might feel bound by an unfavorable record deal.²⁵

Gatekeepers and influencers play a vital role in determining what reaches the consumer in both industries. In music, getting radio airplay or being featured on popular playlists on streaming services can significantly boost an artist’s visibility and popularity.⁵ Marketing and promotion efforts undertaken by labels and managers are also crucial for generating buzz and driving music consumption.⁵ Artists and their teams actively seek to gain the attention of these gatekeepers to break through the vast amount of available music. In the medical PBM industry, formularies and utilization management tools act as key gatekeepers.¹ Formularies, the lists of preferred drugs covered by an insurance plan, heavily influence which medications patients can access and their associated costs.¹ Utilization management strategies, such as prior authorization and step therapy, are employed by PBMs to control drug spending by requiring approval for certain medications or mandating the use of less expensive alternatives first.³ Through their formulary design and utilization management protocols, PBMs act as gatekeepers, directly impacting patient access to specific medications.¹ Just as a song’s exclusion from key playlists can hinder its success, a drug’s absence from a formulary or stringent prior authorization requirements can limit its use, even if it is the most clinically appropriate treatment for a patient.

Both industries also have an “independent scene.” In music, independent artists and labels operate outside the realm of major record labels, often enjoying greater creative control but potentially facing limitations in resources for promotion and distribution.⁵ The digital age has provided independent artists with unprecedented opportunities to connect directly with their audiences.⁵ While navigating the industry independently can be challenging, it offers artists more autonomy and a direct relationship with their fans. Similarly, the medical PBM industry includes independent pharmacies, which operate outside of large chains or PBM ownership.³ These pharmacies often play a vital role in their local communities but face increasing challenges in negotiating favorable reimbursement rates with the dominant PBMs and competing with PBM-owned mail-order services.³ Pharmacy Services Administrative Organizations (PSAOs) exist to negotiate with PBMs on behalf of independent pharmacies to help them secure better terms.²¹ The struggles faced by independent pharmacies in the PBM landscape mirror the challenges encountered by indie artists trying to gain visibility and compete with major label artists who have significant resources and infrastructure behind them.

Transparency and regulation are critical concerns in both the music and medical PBM industries. In music, there are ongoing discussions and efforts to improve transparency regarding how artists are compensated from streaming revenues.⁴⁹ Regulations surrounding copyright and music licensing aim to protect the rights of creators and ensure they are fairly compensated for their work.⁵ Ensuring fair compensation and protecting creative rights are key regulatory focuses in the music industry. Similarly, the medical PBM industry faces increasing scrutiny and calls for greater transparency in its practices, including rebate negotiations, spread pricing, and the development of formularies.¹ Policymakers are actively considering various reforms to regulate PBMs and address concerns about their impact on drug costs for patients and payers.⁴ Transparency and regulation are seen as essential to ensuring accountability and fair practices within the PBM industry. Just as a lack of transparency in music royalties can disadvantage artists, the opacity surrounding PBM operations can lead to higher drug costs and limited access for patients, potentially benefiting the intermediaries.

In conclusion, the analogy between the music industry and the medical PBM industry reveals striking similarities in their structures, the roles of intermediaries, and the challenges they face. Both industries involve creators (artists/drug manufacturers) and consumers (listeners/patients) connected through a network of other entities. Managers and record labels in music find their counterparts in PBMs and insurers/employers in healthcare. Distribution channels (music distributors/pharmacies) and consumption platforms (streaming services/pharmacy networks) also exhibit analogous functions. Furthermore, both industries grapple with complex revenue flows, power dynamics, the influence of gatekeepers, the presence of an independent scene, and ongoing debates surrounding transparency and regulation. The music industry’s experience in adapting to technological shifts and addressing issues of fair compensation and access offers valuable lessons for navigating the complexities and challenges within the PBM landscape. Ultimately, greater transparency and thoughtful regulatory reforms in the PBM industry are crucial to ensuring that the system effectively serves the best interests of patients and payers, much like ongoing efforts aim to create a fairer and more transparent ecosystem for music creators and consumers.