Gideon Tsoutsouris

22 March 2025

Pharmacy benefit managers (PBMs) are the middlemen of the prescription drug industry, acting as intermediaries between pharmacies, insurance companies, big pharma, and providing those who are insured with access to prescription drugs. PBMs began in the 1960s, originally created to streamline communication between the players involved in the pharmaceutical industry, make insurance claim processes more efficient, and keep drug prices lower for health insurers and consumers. While other countries may have passed federal laws controlling the prices of pharmaceuticals, the U.S. did not, creating the demand for PBMs to fill that role themselves. PBMs were able to negotiate and use their pharmacy networks and formularies—lists of approved drugs for an insurance plan created by an insurer’s pharmacy benefit manager—to lower the prices of drugs [2]. However, pharmacy benefit managers are no longer fully operating in the way in which they were originally intended, and now exist as monopolistic entities, driving up list prices for consumers through abusive spread pricing, rebates, and patient steering.

The PBM industry has become highly concentrated, as just a few companies control the entire market. As of 2023, three PBMs handle “79% of prescription drug claims” [2], and the two largest pharmacy benefit managers, Express Scripts and CVS Caremark, names many Americans have seen on their own prescriptions, have each merged with major health insurers Cigna and Aetna respectively. These two PBMs alone have a hold on a little over half of the market.

Pharmacy benefit managers also often own their pharmacies, furthering their control over the distribution of pharmaceuticals.

Because pharmacies, insurers, and PBMs are so interconnected, they all stand to gain from increases in drug prices, and with their vast market control, a select few companies have taken the opportunity to do exactly that. Pharmacy benefit managers derive their profits from three main sources: rebates, spread pricing, and fees on the health insurers and pharmacies they work with, or profits from the ones which they own.

Drug manufacturers offer PBMs rebates, which are essentially discounts on their drugs, because they are offered the benefit of being included on a PBM’s formulary and being sold at a PBM’s group of pharmacies [2]. Naturally, pharmacy benefit managers prefer to buy drugs which have the highest rebates to maximize their profits. However, these drugs may not be the best option the market has to offer or the cheapest for consumers.

Pharmacy benefit managers also use what is called spread pricing. This is a model in which they charge health insurance companies a fee to include the PBM’s drugs in their insurance plans, but reimburse pharmacies at a lower price to distribute the drug [1]. They profit from this pricing difference, a profit which incentivizes them to take on pharmaceuticals with higher list prices for consumers.

These practices have had negative effects on consumers across the country. In Pennsylvania, the Auditor General of the state determined that in 2022 alone, Pennsylvania taxpayers overpaid for prescription drugs provided by Medicaid by about seven million dollars. Auditor General Timothy DeFoor partially attributes this to the spread pricing strategies of pharmacy benefit managers [7]. DeFoor also added that spread pricing is not only affecting drug prices but is also putting pharmacies outside of PBMs’ networks out of business—“more than 120 independent and small chain pharmacies” [8], since 2023. Market monopolization in conjunction with these aforementioned PBM profit sources are at the core of the issue of increasing drug prices and an ever-concentrated pharmaceutical industry.

This problem has not gone unnoticed by the federal government, its agencies, or its state governments, and is a relatively bipartisan issue. In an attempt to limit PBM abuses, the Federal Trade Commission (FTC) filed a lawsuit in September of 2024 against the three major pharmacy benefit managers: Caremark Rx, Express Scripts, and OptumRx [6]. The FTC alleges that these companies have directly inflated insulin prices through their participation in the rebate system  they have formed with pharmaceutical companies. The FTC claims that they purposely bought insulin drugs with higher list prices—the price the consumer pays—because pharma companies offered greater rebates on these drugs. They allegedly did so with the knowledge that alternative insulin drugs with lower list prices existed, and even threatened drug manufacturers with excluding their drugs from the PBMs’ formularies if they were not offered the rebates that they desired. From 1999 to 2017, the price of a brand-name insulin, Humalog, has increased by over 1,200 percent, from $21 to $274, because of pharmacy benefit managers’ predatory practices [10]. In response, these PBMs filed countersuits against the FTC, claiming the commission has defamed them in their reports against PBMs, and addressed what they claim to be constitutional issues surrounding the FTC’s federal enforcement over their businesses.

Another lawsuit was filed in December of 2024 by two independent pharmacies in Pennsylvania. They filed a motion in federal court to combine multiple class action lawsuits against GoodRx, Caremark Rx, and Express Scripts, alleging that these PBMs conspired to push independent pharmacies out of the market to favor PBM affiliated pharmacies. The suit alleges that the pharmacy benefit managers together set lower reimbursement rates for drugs, with the knowledge that independent pharmacies could not stay profitable at these rates, while larger chain pharmacies could [11]. If true, this would violate federal antitrust law.

In July of 2024, the state of Pennsylvania passed bipartisan House Bill 1993, sponsored by Allegheny County Representative Jessica Benham, that would limit abuses by pharmacy benefit managers. Act 77 of 2024, the Pharmacy Benefit Reform Act, increases the fees on pharmacy benefit manager registration from $1,000 to $10,000 every two years, and limits patient steering, the practice of PBMs offering incentives to patients for choosing one of the PBM’s pharmacies. The original bill did ban spread pricing; however, changes in the state Senate version removed this provision, but called for study into the issue [8] [9]. Additionally, it requires that pharmacy benefit managers “pass back 95% of any rebates they receive to the insurance provider” [9].

In a phone interview with Policy and Political Review, Representative Benham said that complaints from her constituents over patient steering were in part what led her to pursue the issue in the legislature. Although the law did not pass with all of the provisions she had advocated for, she hopes that future legislation will lead to greater PBM transparency and regulations on spread pricing. A total ban on spread pricing as well as required disclosure practices, like pricing justifications and more rebate transparency, have the potential to hold pharmacy benefit managers accountable and reduce their control over the prices of pharmaceuticals.

While much more legislation remains to be seen from federal and state governments, the ongoing lawsuits and recent Pennsylvania legislation are positive steps in a direction towards properly regulating pharmacy benefit managers in the United States. The brazen antitrust violations and price hiking of pharmaceuticals essential for many Americans’ day-to-day health must not go unchecked, or it will likely only get worse in the future. It is the job of representatives and government organizations like the FTC and DOJ to ensure that PBMs do not operate with free reign to abuse consumers and independent pharmacies.

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Works Cited

[1] Fiedler, Matthew; Layton, Timothy; Ginsburg, Paul B.; Lieberman, Steven M.; Milhaupt, Conrad; Frank, Richard G.; Slaughter, Anne-Marie; Etiebet, Mary-Ann; Fiedler, Matthew; and Goldstein, Amy. “A Brief Look at Current Debates about Pharmacy Benefit Managers.” Brookings, September 7, 2023. https://www.brookings.edu/articles/a-brief-look-at-current-debates-about-pharmacy-benefit-managers/.

[2] Mattingly, Joseph. “Pharmacy Benefit Managers.” JAMA Network, November 3, 2023. https://jamanetwork.com/journals/jama-health-forum/fullarticle/2811344.

[3] Ginder-Vogel, Katie. “The Evolution and Future of Pharmacy Benefits Managers.” School of Pharmacy: University of Wisconsin-Madison, March 15, 2024. https://pharmacy.wisc.edu/2024/03/13/the-evolution-and-future-of-pharmacy-benefits-managers.

[4] Gale, Arthur. “If Pharmacy Benefit Managers Raise Drug Prices, Then Why Are They Needed?” Missouri medicine, 2023. https://pmc.ncbi.nlm.nih.gov/articles/PMC10441264/.

[5] Bai, Ge. “Blame the Game or the Players? Regulating Pharmacy Benefit Managers.” Forbes, January 3, 2025. https://www.forbes.com/sites/gebai/2024/12/31/blame-the-game-or-the-players-regulating-pharmacy-benefit-managers/.

[6] Murphy, Tom. “High Insulin Prices Spur a Federal Lawsuit against Three Pharmacy Benefit Managers.” AP News, September 20, 2024. https://apnews.com/article/insulin-prices-pbm-lawsuit-ftc-8bd316ed4b5c613d521f70805f0be01d

[7] “Auditor General Defoor: Lack of Oversight by DHS and Spread Pricing by Pbms Cost Pa Taxpayers $7 Million in 2022.” Pennsylvania Department of the Auditor General, August 28, 2024. https://www.paauditor.gov/auditor-general-defoor-lack-of-oversight-by-dhs-and-spread-pricing-by-pbms-cost-pa-taxpayers-7-million-in-2022/.

[8] Karbal, Ian. “Pa.. Senate Passes Pharmacy Benefit Manager Reform with near-Unanimous Vote • Pennsylvania Capital.” Star, July 10, 2024. https://penncapital-star.com/health-care/pa-senate-passes-pharmacy-benefit-manager-reform-with-near-unanimous-vote/.

[9] Koscinski, Kiley. “Gov. Josh Shapiro Signs Bill to Regulate the Middle Men of Pharmaceutical Drug Prices.” 90.5 WESA, July 18, 2024. https://www.wesa.fm/health-science-tech/2024-07-12/pennsylvania-pharmaceutical-drug-prices-shapiro.

[10] “FTC Sues Prescription Drug Middlemen for Artificially Inflating Insulin Drug Prices.” Federal Trade Commission, September 20, 2024. https://www.ftc.gov/news-events/news/press-releases/2024/09/ftc-sues-prescription-drug-middlemen-artificially-inflating-insulin-drug-prices.

[11] Pierson, Brendan. “Pennsylvania Pharmacies Seek to Centralize Goodrx Antitrust Claims in Rhode Island.” Reuters, December 2, 2024. https://www.reuters.com/legal/government/pennsylvania-pharmacies-seek-centralize-goodrx-antitrust-claims-rhode-island-2024-11-27/.

[12] Ranganathan, Sheela. “PBMS Challenge FTC Enforcement Authority in Federal Court.” Health Affairs, December 11, 2024. https://www.healthaffairs.org/content/forefront/pbms-challenge-ftc-enforcement-authority-federal-court.