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My 2002 PBM "Aha Moment"

Updated: Sep 5, 2023

About the author: Lawrence W. Abrams

I have a B.A. in Economics from Amherst College

and a Ph.D. in Economics from Washington University in St. Louis.

Emails welcome:

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 feet 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 wrote the following three papers in 2002 and 2003 and created an early Wordpress website and made them accessible via .pdfs for free:

In addition, I was an early adopter of PBM as acronym for pharmacy benefit managers and

I published the first publicly available papers to quantify the PBM business model

and retained rebates:

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