Pharmacy benefit managers were supposed to be the solution to runaway drug costs. Instead, they have become the subject of their own reform debate, one that has spent years circling Washington without landing anywhere definitive.
Reform Momentum That Keeps Losing Steam
PBMs sit between drug manufacturers, health insurers, and pharmacies, negotiating rebates, setting formularies, and determining what patients pay at the counter. The business model is built on complexity, and that complexity has made reform genuinely difficult to write into law. Every attempt to standardize or restrict PBM practices runs into the same wall: the parties who benefit from the current structure have both the resources and the incentive to slow the process down.
Congress has made several runs at PBM legislation over the past three years. The Pharmacy Benefit Manager Transparency Act, the Lower Costs, More Transparency Act, and various provisions folded into larger spending packages have all advanced in some form before stalling or getting stripped out during final negotiations. The core provisions that keep getting cut tend to be the ones with the most teeth: requirements to pass rebates directly to patients at the point of sale, prohibitions on spread pricing, and restrictions on PBMs owning the pharmacies they reimburse.
Spread pricing is the practice where a PBM charges an insurer more for a drug than it pays the pharmacy, pocketing the difference. State Medicaid programs have documented this practice extensively in their own audits, and some states have moved to ban it within Medicaid. But at the federal level, the legislative language needed to address spread pricing in commercial markets has consistently been softened or removed before a bill reaches a floor vote.
The three largest PBMs – CVS Caremark, Express Scripts, and OptumRx – together manage roughly 80 percent of prescription claims in the United States. That level of market concentration makes them difficult to regulate without also disrupting the insurance and pharmacy systems built around them. The vertical integration makes it worse: these same companies own major pharmacy chains, specialty pharmacies, and in some cases the insurers themselves. Untangling those relationships through legislation is not just a policy challenge; it is a logistical one.
Who Actually Pays When Reform Stalls
When federal reform stalls, the cost burden does not stay neutral. It moves. Employers who self-fund their health benefits have absorbed much of it, facing PBM contracts that are notoriously difficult to audit and rebate structures that are nearly impossible to verify independently. A self-insured employer technically receives rebates negotiated by their PBM, but the calculation of what those rebates should be is almost entirely controlled by the PBM itself. This is the kind of information asymmetry that breeds overcharging.
Patients feel it most directly through out-of-pocket costs. Formulary design – which drugs are covered, at which tier, with which cost-sharing requirements – is largely a PBM function. When a PBM places a lower-cost generic on a higher cost-sharing tier than a branded drug with a larger rebate attached to it, the patient pays more, not less. The rebate benefits the insurer’s bottom line; the patient at the pharmacy counter sees only the copay. This structure has been documented repeatedly in academic research and congressional testimony, yet it remains legal and widespread.
Independent pharmacies have been among the loudest voices on PBM reform, and with good reason. Reimbursement rates set by PBMs for generic drugs have in many cases fallen below what pharmacies pay to acquire those drugs. The National Community Pharmacists Association has tracked pharmacy closures tied directly to unsustainable reimbursement rates, particularly in rural areas where a single pharmacy may serve a large geographic region. When that pharmacy closes, the access problem becomes a public health problem, not just an economic one.
States have tried to fill the gap. A growing number have passed their own PBM transparency laws, spread pricing bans within Medicaid, and pharmacy access protections. Arkansas, Kentucky, and several other states have enacted legislation that gives independent pharmacies the right to appeal below-cost reimbursements. These measures have helped at the margins, but PBMs have challenged several of them in federal court, arguing that state laws are preempted by ERISA when self-funded employer plans are involved. Courts have sided with PBMs in some of these cases, leaving state-level reform with a narrower reach than legislators intended. The broader freeze in small business capital spending compounds this: independent pharmacy owners already under financial pressure have fewer resources to absorb continued reimbursement cuts while litigation plays out.
Drug manufacturers, meanwhile, have complicated the reform picture in their own way. List prices for branded drugs remain high partly because the rebate system rewards them for it – a higher list price creates a larger rebate, which gives PBMs and insurers a financial incentive to favor those drugs over lower-list alternatives. Reforming PBMs without also addressing list price dynamics risks solving one piece of the problem while leaving the underlying incentive structure intact.
What Comes Next, and What Probably Does Not
The Federal Trade Commission has been more aggressive than Congress on this issue. The FTC’s 2024 interim report on PBMs laid out a detailed case for how the largest PBMs use their market position to favor affiliated pharmacies, steer patients away from independent competitors, and generate revenue streams that are not disclosed to plan sponsors. The report stopped short of announcing enforcement actions, but it set the groundwork for scrutiny that legislative inaction has not provided. Whether the FTC under its current leadership pursues that scrutiny with the same intensity is an open question that the industry is watching carefully.
What is unlikely to change quickly is the fundamental economics. PBMs generate revenue from every transaction in the drug supply chain, and the complexity of that chain is partly what protects their margins. Any reform significant enough to alter that would require either a coordinated federal legislative push or a court ruling that the FTC could build an enforcement framework around. Neither is imminent. In the meantime, employers renewing their PBM contracts this year are being advised to negotiate audit rights, demand pass-through pricing structures, and build in performance guarantees – basic contract hygiene that many did not think to require when the market felt simpler than it does now.
