In cases of a bilateral oligopoly (Pharma - PBMs), sometimes countervailing big bad buyside agents are better for consumer welfare than small good ones. L. Abrams tweet, Jan 2023
See my paper on FFS Equivalent of PBM Business Model
Conceptualization of a formulary as a set of Markets -- L. Abrams 2005
The need by Google to go beyond simple $ per unit bids is similar to the need for PBMs to go beyond assigning formulary positions solely on the basis of net unit prices. Because the objective of a PBM is to minimize total benefit costs, this requires them to assign formulary positions on the combined bases of net unit prices and estimates of expected demand
Table of Contents: List of Paper URLs
Section 1: The PBM Business Model (click on titles to download .pdf)
Section 2: PBM Rebates and Formularies (click on titles to download .pdf)
International, 8th Annual Conference, July 2005
The Effect of Corporate Structure on Formulary Design: The Case of Large Insurance Companies Poster Presentation, ISPOR 10th Annual Meeting, Washington DC, May 2005
Section 3: PBM Policy and Law (click on titles to download .pdf)
Practical Issues With PBM Full Disclosure Laws Originally Published in FDLI Update Magazine, Issue 4, 2004.
About the author:
I have a B.A. in Economics from Amherst College and a Ph.D in Economics
from Washington University in St. Louis.
I post often on twitter @larrywabrams on issues relating to PBMs, biosimilars
investing in biotech stocks in my portfolio and issues relating to Monterey
County, California where I reside.
My writings are at the intersection of economics, accounting, financial
analysis, and high tech. I have received no remuneration for these articles
and have no financial relation with any company discussed in these articles.
In 2002, I started looking at the 10-Qs and 10-Ks of the drug store chains and pharmacy benefit managers
after an "aha moment" in a Mountain View CA. Longs Drug store (later bought out by CVS).
I had gone there to to pick-up my renewal Rx of Type 2 diabetes drug Glucophage.
Several things happened that night piqued my interest in PBMs and big drug store chains.
First, I found out my Rx for Glucophage was now an Rx for Metformin without my prior knowledge.
I asked the pharmacist what was going on. He mentioned that my Rx now had a cheaper generic available
and my drug benefit plan manager made the switch automatically.
That night I was also struck by the fact that here was a 12,000 square foot store and all the customers were lined up
at the pharmacy counter in the back. I asked myself, "Could it be that hole in the wall in the back generated
all the profits while the front store was just a relic of the bygone days of lunch counters and shopping on Main Street?
The question of relative source of pre-tax profits -- pharmacy vs front store -- piqued my interest all the more
as I compared the pathetic merchandising I saw in this big drug store chain versus the amazing health product
merchandising I saw a week earlier at the first Whole Foods store on the West Coast in downtown Palo Alto, CA.
Based on that "aha moment", I created an early Wordpress website https://nu-retail.com
to host the following 3 papers that embody that moment:
In addition, I was an early adopter of PBM as acronym for pharmacy benefit managers and
I published the first publicly available papers that quantified the PBM business model and retained rebates.