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These largely unregulated middlemen, called pharmacy benefit managers, serve as intermediaries between insurers and pharmaceutical manufacturers, determining which drugs insurers will cover and how much they cost. But they are incentivized to opt for the most expensive medicines and slash drug reimbursement rates to maximize profit, hurting both patients and small pharmacies.  

As Federal Trade Commission Chair Lina Khan just declared at a White House roundtable on the matter, these “dominant gatekeepers” have “outsized power to decide how people do or don’t receive the life-saving prescription drugs they depend on.” 

Concerns about pharmacy benefit managers, or PBMs, have reached such a level that lawmakers from both parties have introduced more than 20 federal bills to curb these companies’ power, and late last month, more than three quarters of the nation’s state attorneys general sent a letter to Congress urging action on them. 

But days after the letter, it was revealed that Congress may not include any of the reforms in the next federal funding package, which allocates money to health programs and services including Medicare and Medicaid. This comes after PBMs spent a combined $47 million on lobbying in 2023.

Meanwhile, these companies are actively stonewalling state and federal investigations into their practices.

“It is disheartening that Congress is as dysfunctional as they are and the stakes [of PBM reform] rests on what gets put into federal spending bills,” said Colorado Attorney General Phil Weiser, one of the attorneys general who signed the letter to Congress. “There is strong bipartisan support for this reform, and if this can’t get into a bipartisan spending package, I don’t know what can.” 

While big pharmacies, insurers, and PBMs often like to blame each other for high drug prices, in reality, they’re all part of the same corporate scheme. The three major PBMs are owned by health care behemoths — CVS Health, Cigna, and UnitedHealth — that together have considerable control over both the pharmacy and insurance markets. This means these conglomerates run nearly every stage of the pricing process with hardly any checks on prescription drug costs. 

The proposed laws would combat high drug prices by requiring PBMs to charge flat service fees under Medicare plans; increase transparency around pharmaceutical payments to PBMs; and ban PBMs from charging Medicaid and other providers more than they pay pharmacies for drugs and pocketing the difference, a practice known as spread pricing.

Lobbying on the bills came primarily from the three major pharmacy and insurance companies that dominate the PBM industry. The Pharmaceutical Care Management Association, a lobbying group that represents PBMs, also spent $15.4 million lobbying on PBM legislation and other matters last year, according to lobbying records. 

“It was a gut punch, I was sick, I was speechless,” said Brandi Chane, who owns a local pharmacy outside of Fort Worth, Texas, of Congress’ potential inaction on PBM reform efforts. “You’ve got to be kidding me. We’ve shown [Congress] over and over and over about the danger of PBMs and we’re not going to do anything now?” 

In response to a request for comment, Greg Lopes, vice president of public affairs and communications at the Pharmaceutical Care Management Association, wrote in an email to The Lever, “This year, Congress has held an unprecedented number of hearings focused on PBMs as Big Pharma continues its extraordinarily high advertising spending to blame-game others for high drug costs. It is imperative to educate lawmakers on the value PBMs provide to the health care system by lowering prescription drug costs and helping improve health outcomes.” 

CVS Health, Cigna, and UnitedHealth did not respond to requests for comment. 

Profits For The Middleman 

PBMs were created in the 1960s to negotiate drug prices and coverage with pharmaceutical manufacturers and insurers. In theory, these negotiations should help individuals enrolled in health insurance plans save money by finding the best prices for consumers. In reality, these middlemen often do the opposite.

That’s because PBMs are incentivized to deter insurers from covering generic and cheaper medicines, as they are paid based on the discount they arrange with pharmaceutical manufacturers, otherwise called a rebate, which critics say is effectively a legalized kickback. Consequently, the more expensive the drug, the larger the rebate, the more money that ends up in PBMs’ pockets.  

“PBMs have an incentive to pick a drug that comes with a larger rebate, so that they get a larger cut, even if the drug is more expensive overall,” Zach Freed, advocacy and outreach manager at the nonprofit advocacy group American Economic Liberties Project wrote in a 2022 analysis. 

Freed cited a 2021 Senate investigation that discovered PBMs use their aggressive negotiating tactics to “extract more generous rebates, discounts, and fees from insulin manufacturers,” which, Freed noted, contributed to “skyrocketing insulin prices and discouraged price decreases for the drug.”

The problem with PBMs goes all the way to the top.

The three largest PBMs, which control 80 percent of the prescription drug market, are owned by the country’s biggest health care companies. CVS Caremark is owned by pharmacy colossus CVS Health, which also owns the insurer Aetna. Express Scripts, meanwhile, is owned by the massive insurer Cigna; while OptumRx is owned by insurance giant UnitedHealthcare. 

With so much power, PBMs have evolved from “cost savers” to companies that profit at nearly every stage of the drug supply chain. 

Such integration also hurts smaller independent pharmacies by jacking up fees and cutting back on drug reimbursements that PBMs pay out for prescriptions, which these stores depend on to stay afloat. For Chane, the local pharmacy owner in Texas, the reimbursements she receives often don’t even cover the cost of purchasing and dispensing medications.

Thanks to these companies’ power, pharmacies are unable to negotiate better reimbursement rates. When a pharmacist in rural Minnesota, who requested to remain anonymous, asked for higher reimbursement rates from Aetna Medicare, the company responded in an email that they had to sign the contract as is in order to stay in-network. 

“Unfortunately, the terms of this agreement are non-negotiable,” noted an Aetna representative in an email reviewed by The Lever. “Please note refusal to sign the amendment will result in termination from the P3 network.”  

Overall, the drug pricing system is “perversely incentivized to pay off the middlemen while squeezing profits out of every single other part of the supply chain,” said Monique Whitney, executive director of the advocacy group Pharmacists United for Truth & Transparency. 

Although most states have passed legislation to regulate PBMs, these companies often argue that a lack of federal regulation “limit[s] states’ authority to regulate PBMs,” the attorneys general wrote in their recent letter to Congress. In some cases, these companies have purposefully obstructed state laws by withholding information from state regulators. 

Last May, the Federal Trade Commission expanded an investigation into how PBMs are jacking up prescription drug prices and hurting local pharmacies by steering patients away from independent pharmacies, charging arbitrary fees, and decreasing reimbursements. This comes after years of agency support for PBMs. 

Despite federal orders to cooperate, the agency now says that the PBMs have refused to turn over key documents and data.