Pharmacy benefit managers are under increasing scrutiny due to accusations that they are driving their smaller and more vulnerable independent counterparts out of business.
As the number of retail pharmacies in the United States declines at an “unprecedented” rate, according to a recent Health Affairs analysis, PBMs have been left to shoulder the blame.
The outrage was on full display Wednesday when approximately 400 pharmacy professionals in Kansas shuttered their businesses for the day in an act of protest and headed to the state’s capital, petitioning lawmakers to target PBM reforms.
Why PBMs are under scrutiny
PBMs mediate drug prices between pharmacies, drugmakers, and insurance companies.
There are three main PBMs operating in the U.S. that control around 80% of the country’s market: CVS Caremark, OptumRx, and Express Scripts. The role of “middlemen” they play in healthcare includes helping to determine drug costs and access to medications for over 275 million consumers in the U.S.
PBMs’ critics say they have become monopolistic behemoths, whose infatuation with raising profits comes at the expense of running independent pharmacies out of business and raising drug prices for consumers. Middlemen face widespread accusations of practicing spread pricing, or charging insurers a higher price for medications than the acquisition cost and what they reimburse pharmacies while keeping the difference as profit. PBMs have also been charged with “steering” customers to favor their own pharmacies and pushing consumers toward costly brand-name drugs, which results in higher rebates paid to them by drugmakers. Middlemen’s anticompetitive practices have left independent pharmacies with little room to negotiate, forcing a growing number to close their doors and join an expanding “pharmacy desert,” leaving consumers with fewer options, PBM critics contend.
The Federal Trade Commission filed a lawsuit against PBMs last September, alleging their “unfair” rebating practices “artificially inflated” the price of insulin. In 2022, the FTC launched what has become a three-year investigation into the middlemen, later releasing two reports, most recently last month, slamming them for practices the agency deemed anticompetitive, including raking in $7.3 billion in revenue from 2017 through 2022 by marking up drug prices.
Following a 32-month investigation into PBMs’ business practices, Rep. James Comer (R-KY) led the House Oversight Committee in releasing another report last July stating that middlemen’s “reimbursements [to pharmacies] under the cost of [a drug’s] acquisition led to the closure of 1,231 independent pharmacies in rural areas between 2003 and 2018.”
PBMs argue that as middlemen between large pharmaceutical companies and consumers, they save patients money. Middlemen contend that critics have cherry-picked cases while “completely” overlooking “volumes of data that demonstrate the value that PBMs provide to America’s healthcare system by reducing prescription drug costs and increasing access to medications.”
In 2024, CVS Caremark “achieved a client satisfaction rate of 95% and a member satisfaction rate of 96% while delivering an average of more than $1,000 in savings for every American we serve,” the PBM told the Washington Examiner. “Our average member’s out-of-pocket cost declined for the 7th consecutive year, and our average monthly copay now sits at $7.26.”
PBMs point the finger at “Big Pharma,” or giant companies that manufacture and sell drugs and medicines. One such U.S. corporation, Johnson & Johnson, is worth nearly $370 billion and has been scrutinized over raking in billions of dollars in recent years by jacking up prices on drugs. Last year, a former senior employee for the pharmaceutical giant filed a class-action complaint accusing the company of improper business practices, including setting the price of over $10,000 per 90-pill prescription for a generic multiple sclerosis drug that patients could buy from an online pharmacy for as low as $28.
“PBMs negotiate lower costs across the pharmaceutical supply chain, which is why criticism of PBMs is pushed by the drugmakers and drugstores that would profit from a weakened PBM guardrail,” CVS Caremark said.
Matt Fiedler, a senior fellow at the USC-Brookings Schaeffer Initiative for Health Policy, suggested the anti-PBM movement missed a more nuanced picture in recent comments to Healthcare Dive.
“I think a lot of the concern about PBMs owning their own pharmacies has been fomented by independent pharmacies who feel that they’re being put at a competitive disadvantage by the big PBMs. What I think is clearly true is the interests of independent pharmacies are not necessarily one and the same with consumer interests,” he said.
States take on PBM reform
During the 2024 legislative sessions, 33 bills were enacted across 20 states to regulate PBMs in a movement of solidarity for independent pharmacies. Last month, Gov. Maura Healey (D-MA) signed a law prohibiting middlemen from making payments to a pharmacy benefit consultant or broker if the action is deemed a conflict of interest, among other provisions. In December, the Arkansas Legislative Council made headlines after adopting Emergency Rule 128, which allows authorities to impose fees on PBMs if they fail to reimburse pharmacies.
Kansas
The anti-PBM momentum has continued in many states, including Kansas, where mom-and-pop pharmacists who protested in Topeka on Wednesday expressed deep consternation after two independent Kansas pharmacies closed this year and 10 drug stores closed in 2024.
Jared Holroyd, president of the Kansas Pharmacists Association, told the Washington Examiner his group is in the process of drafting a bill to regulate PBMs that includes setting a reimbursement floor, increasing pricing transparency “so that employers and insurers know where rebates are going,” and prohibiting patient steerage.
Holroyd accused PBMs of “negatively reimbursing pharmacies on 75% of the medications they dispense and reimbursing pharmacies at different rates in order to steer business to their own pharmacies.”
Iowa
After 29 pharmacies in Iowa closed in 2024, doubling the typical number of pharmacy closures in a year, the state is considering House Study File 99 and Senate Study File 1074, which requires PBMs to pay pharmacies what it costs to dispense a drug.
The majority of lawmakers on the Iowa House Commerce Committee say PBM reform is the issue they most want to target. The committee’s chair has expressed tentative optimism as well, telling the Telegraph Herald that Gov. Kim Reynolds (R-IA) “gets where we’re coming from, which is the protection of our small rural pharmacies.”
Virginia
Under legislation proposed in Virginia, multiple health-insurance-plan-run PBMs would be swapped out for a single, state-run PBM. The Save Local Pharmacies Act has gained support from a bipartisan group of lawmakers who say the reforms could save Virginia about $39 million annually, making it likely the bill will reach Gov. Glenn Youngkin’s (R-VA) desk. However, the Youngkin administration has signaled hesitations about the bill over concerns it costs $17 million to implement and could place the state at “a competitive disadvantage when going out for a single PBM.”
Mississippi
Earlier this month, the Mississippi House passed HB 1123, which seeks to target concerns about PBM rebates and reimbursement practices. A similar measure, SB 2025, is awaiting action in the Senate. However, some major pharmaceutical stakeholders have expressed reservations that the legislation doesn’t go far enough, with Republican state Rep. Stacey Hobgood-Wilkes requesting that the legislation be amended to heighten regulatory enforcement authority over middlemen.
As a host of other states eye similar reforms, including Indiana, Arkansas, Colorado, and Missouri, one of the main lobbying groups for PBMs told the Washington Examiner that pharmaceutical companies, not PBMs, are the ones that hold the power to lower drug prices.
“We share lawmakers’ goal of reducing drug costs for patients, but these bills strip away PBMs’ check on Big Pharma’s high prices and will raise, not lower, costs for hardworking Americans and businesses of all sizes,” Pharmaceutical Care Management Association spokeswoman Katie Payne said. “Big drug companies alone set the price of prescription drugs, so to truly lower costs for patients, drug companies must simply lower their prices.”
CVS Caremark similarly said in a statement that while it “welcomes dialogue with state and federal policymakers on identifying effective new approaches” to lower drug prices for consumers, “nearly all recently proposed ‘anti-PBM’ policies would ultimately increase what Americans spend on medicine, and serve as a handout to Big Pharma.”
Federal legislation targets competition
There are two major pieces of PBM-related legislation federal lawmakers could consider this year.
In December, Sens. Josh Hawley (R-MO) and Elizabeth Warren (D-MA) introduced the Patients Before Monopolies Act, which prohibits an insurance company or a parent company of a PBM from owning a pharmacy business.
The bipartisan legislation bears similarities to a recommendation from Comer, who has advised that barring PBMs from being vertically integrated with insurance companies would resolve possible conflicts of interest incentivizing questionable business practices. Chapin White, the Congressional Budget Office’s director of health analysis, said much the same during a congressional hearing last May.
Sens. Mike Crapo (R-ID) and Ron Wyden (D-OR) fought to include provisions tackling PBMs in a government spending deal last December. After the deal tanked, lawmakers on both sides are now targeting a new March 14 spending deadline as the next possible opportunity to move reforms forward.
President Donald Trump has signaled his administration will take a tough stance against PBMs, while Congress will likely play a key role in carrying out his hopes for major healthcare reform.
“We’re going to knock out the middleman,” the president said during a press conference on Dec. 16. “We’re going to get drug costs down at levels that nobody has ever seen before.”
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Robert F. Kennedy Jr., Trump’s nominee to head the Department of Health and Human Services, said last week that the president is “absolutely committed to fixing the PBMs … [and] get the excess profits away from the PBMs and send it back to primary care, to patients.”
PCMA spokeswoman Katie Payne has signaled an openness to working with Trump, saying that “PBMs share common cause with the Trump administration on the objective to make prescription drugs more affordable for all Americans.”
