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Are Pharmacy Benefit Managers the Next Target for Prescription Drug Reform?

Pharmacy attendant wearing a face mask while checking a patients insurance card

A pharmacy attendant wearing a face mask checks a patient’s insurance card. Lawmakers in Washington, D.C., are currently focused on reforms to address the high cost of prescription drugs. Photo: Erik McGregor/LightRocket via Getty Images

A pharmacy attendant wearing a face mask checks a patient’s insurance card. Lawmakers in Washington, D.C., are currently focused on reforms to address the high cost of prescription drugs. Photo: Erik McGregor/LightRocket via Getty Images

  • As pharmacy benefit managers have come under scrutiny for their role in high drug prices, the industry is ripe for disruption by policymakers and new competitors

  • Policymakers concerned with rising drug costs are considering whether they should increase oversight and regulation of pharmacy benefit managers

Lawmakers in Washington, D.C., are focused on reforms to address the high cost of prescription drugs. They have advanced policy proposals to empower the Secretary of Health and Human Services to negotiate prices for certain drugs, require drugmakers to provide rebates when the price of medicines exceeds inflation, and redesign the Medicare prescription drug benefit to include an out-of-pocket spending cap for beneficiaries.

Some policymakers are considering increased oversight and regulation of pharmacy benefit managers (PBMs) as the next area for reform. PBMs are third-party administrators that handle prescription drug benefit programs for health plans and employers. They were originally designed to process claims for health plans but also serve as fiscal intermediaries arbitrating prescription drug claims and perform other related tasks.

Because of their expansion of scope, PBMs have received significant scrutiny over the years for the role they play in drug spending. Congress, regulators, and market disrupters are interested in pursuing solutions to address PBM practices that have led to consolidation, lack of transparency, and spread pricing, as well as the impact rebates (i.e., the return of part of the purchase price of a prescription drug in exchange for favorable formulary placement) may play in driving up overall drug prices.

Below we outline some of the policy and market-based reforms that could disrupt the PBM industry in the years ahead.

What Types of Reforms Have Federal Policymakers Proposed to Regulate PBMs?

In recent years, there have been a number of legislative efforts to reform the PBM industry.

In the House of Representatives, Democrats introduced a drug-pricing reform package in 2019, the Elijah E. Cummings Lower Drug Costs Now Act. It would have prohibited PBMs from adding premiums to the cost of drugs — also known as spread pricing — in Medicaid. The proposal would have prevented this practice; it was estimated to produce $929 million in savings over 10 years to the federal government.

The bipartisan package negotiated by the leadership of the Senate Finance Committee in 2019 included provisions that would have required the public disclosure of price concessions negotiated by PBMs. A similar but narrower provision was included in the House Democrats’ Build Back Better Act, which passed the chamber last year but stalled in the Senate. Under that policy, PBMs would be required to submit reports to health plan sponsors with information regarding the rebates, fees, and other compensation paid to PBMs.

In 2021, Senators Chuck Grassley (R–Iowa) and Maria Cantwell (D–Wash.) introduced legislation requiring the Federal Trade Commission (FTC) to study the role of PBMs, including possible anticompetitive behavior. While that bill is still pending in Congress, the FTC is considering the idea of launching a formal inquiry into PBM practices, likely requiring them to turn over information for investigation. The findings could provide clarity on how pharmacies and consumers are impacted by PBM business practices and would be submitted to Congress for deliberation and further action. To that end, Senator Grassley recently sent a letter to the FTC Commissioners urging them to find common ground and proceed with a study on the PBM industry.

Finally, legislation currently being drafted by a bipartisan group of Senators and Representatives proposes to restrict the use of rebates by PBMs for certain insulin products. Today, the average list price of an insulin vial is about $300. Under this framework, PBMs and health plans would be prohibited from collecting rebates from drugmakers for insulin products whose prices have been lowered to 2006 levels, when the average list price for an insulin vial was about $68. Policymakers hope that restricting the use of rebates will help act as an incentive for drug manufacturers to lower their prices for insulin.

How Are Marketplace Disrupters Changing the Playing Field?

The PBM industry has seen dramatic consolidation over the years. Caremark (CVS Health), Express Scripts (Cigna), and OptumRx (UnitedHealth) are the three largest PBMs, controlling almost 80 percent of the market. While there is increasing concern about consolidation, new entrants are disrupting the marketplace and hoping to increase market share by addressing common criticisms lodged at PBMs.

Many of these newcomers share common characteristics — namely increased transparency and a fixed-fee business model. Navitus and EmsanaRx pass through to employers 100 percent of the drug discounts negotiated with manufacturers. Employers who use their services pay a set fee for the administration of their pharmacy benefits, as opposed to a percentage of the discounts negotiated.

Other new entrants are shedding the role of middlemen, which PBMs typically play. Rather than act as the intermediary between drug manufacturers, health plan sponsors, and pharmacies, some companies are launching direct-to-consumer pharmacy initiatives.

Entrepreneur and investor Mark Cuban recently established the Mark Cuban Cost Plus Drug Company, an online pharmacy that offers more than 100 generic medications directly to patients. In marketing itself to health care providers and prescribers, the company claims that its “pharmacy cuts out the middlemen to offer hundreds of common generic medications at wholesale prices.” Amazon Pharmacy and Civica Script similarly market pharmacy services directly to consumers.

Where Do We Go from Here?

It is unclear whether Congress will be able to complete its work on drug-pricing reforms this year, or whether a final package will incorporate any reforms related to enhancing transparency for pharmacy benefit managers. But policymakers and business leaders are expressing a clear interest in examining and changing PBM practices, setting the stage for significant reforms to wash over a $500 billion industry and dramatically altering the way prescription drugs are accessed and paid for in the United States.

Publication Details



Bobby Clark, Principal, Pyxis Partners


Bobby Clark and Marlene Sneha Puthiyath, “Are Pharmacy Benefit Managers the Next Target for Prescription Drug Reform?,” To the Point (blog), Commonwealth Fund, Apr. 20, 2022.