How is the cost of PBM services calculated?

The calculation of the cost of Pharmacy Benefit Manager (PBM) services can involve various financial factors and components. The correct formula indicates that the calculation of earnings after cash disbursements includes elements that factor into the PBM's revenue and expenses.

At the heart of the answer provided is the equation which accounts for “Earnings After Cash Disbursements.” This represents the net earnings or profit once cash outflows, such as cost of goods sold or operational expenses, are accounted for. The variables included in the formula—AF (Administrative Fees), DF (Drug Formulary management), IC (Inventory Control), MR (Managed care expenses), and CD (Cash Disbursements)—are all essential components that help define the profitability of PBM services.

The inclusion of cash disbursements as a subtractive factor ensures that only the earnings after essential expenses are reflected in the net earnings. This accurately represents the financial performance of PBM services, enabling decisions regarding pricing, cost efficiency, and overall strategic planning. This comprehensive approach assists healthcare systems in understanding the true cost associated with PBM services and aids in managing pharmacy benefits more effectively.

In contrast, the other formulas provided in the options focus on different terms like "Earnings Before