The Changing PBM Landscape: From Hidden Profits to Transparent Alternatives

What Exactly Do PBMs Do and Why Are They Under Fire?

In recent months, the term Pharmacy Benefit Manager (PBM) has dominated conversations in healthcare policy, employer benefits, and congressional hearings. But for many plan sponsors (employers and health plans), the inner workings of PBMs still remain to be a mystery. Who are they? What do they do? And why are their practices now under federal and state legislative scrutiny?

Let’s take a step back and unpack what PBMs are and why they’ve become both powerful and controversial players in the pharmaceutical supply chain.

PBM 101: The Middlemen of the Prescription Drug World

At a high level, PBMs act as intermediaries between health insurers, drug manufacturers, and pharmacies. Their primary role is to manage prescription drug benefits on behalf of plan sponsors. This includes negotiating prices with drug manufacturers, determining which drugs are covered (via formularies), helping set copay or coinsurance tiers, and processing pharmacy claims.

In theory, PBMs were designed to help lower drug costs and simplify benefit management for plan sponsors. But over time, their growing influence, market consolidation, and opaque business models have raised serious concerns about who truly benefits from their operations.

The Transparency Problem

One of the greatest challenges in demanding accountability from PBMs is the lack of transparency surrounding how they operate. The drug pricing process is already complex, and PBMs add yet another layer of opacity. Most plan sponsors contract with PBMs to handle the administrative side of their drug benefit, yet PBMs have no obligation to disclose how they determine formulary placement, why certain drugs are favored over others, or what portion of manufacturer rebates and negotiated discounts they retain.

Contracts often restrict access to critical data on claims, manufacturer pricing and rebates, and pharmacy reimbursement rates making it nearly impossible for plan sponsors to hold PBMs accountable or identify opportunities to reduce wasteful spending. Without full visibility, plan sponsors are left in the dark about how much of their pharmacy spend is truly being used to benefit their members.

Profit Centers Hidden in Plain Sight: How PBMs Maximize Their Revenue

PBMs sit at the crossroads of the prescription drug supply chain, managing relationships between manufacturers, insurers, and pharmacies. While they receive administrative fees for managing drug benefits, their primary sources of profit often come from two less transparent practices: rebate retention and spread pricing.

• Rebate Retention: PBMs negotiate rebates from drug manufacturers that are meant to reduce costs for the insurance plan and, ultimately, patients. However, PBMs often retain a portion of these rebates rather than passing the full savings to the plan sponsor. Because rebates are calculated as a percentage off the drug’s list price, PBMs are financially incentivized to favor higher-cost drugs with larger rebates. This can lead to formularies being structured to maximize PBM profits rather than prioritize cost-effective or clinically optimal drugs.

• Spread Pricing: PBMs can also profit from the difference, or “spread”, between what they charge plan sponsors for a drug and what they reimburse pharmacies for dispensing it. The lack of transparency in this pricing model makes it nearly impossible for plan sponsors to determine how much of their pharmacy spend is actually reaching the pharmacy or being pocketed by the PBM. Studies have shown that these spreads can be significant, contributing to inflated drug costs and higher premiums for members.

For plan sponsors, understanding these hidden mechanisms is essential to evaluating whether their PBM arrangement is aligned with their fiduciary duty to act in the best interest of plan participants.

Consolidation and Vertical Integration: Power Concentrated at the Top

The PBM industry is now one of the most concentrated segments in our healthcare system. As of 2025, six PBMs control roughly 96 percent of the market, with CVS Caremark (CVS), Express Scripts (Cigna), and OptumRx (UnitedHealth) accounting for nearly 80 percent. This consolidation gives a handful of entities outsized control over drug pricing, formulary management, and pharmacy access.

The problem deepens when you consider vertical integration. Each of the top PBMs is affiliated with major insurers, mail-order pharmacies, or retail chains. For example:

• CVS Health owns CVS Pharmacy, CVS Caremark, and insurer Aetna.

• Cigna owns Express Scripts and mail-order pharmacy Evernorth.

• UnitedHealth Group owns OptumRx and insurer UnitedHealthcare.

• Humana operates both its insurer and PBM arm, Humana Pharmacy Solutions.

• Prime Therapeutics owns Magellan Rx, which operates specialty and mail-order pharmacies.

These integrated structures further blur incentives. When an insurer owns a PBM, inflating drug prices can actually increase overall profits for the parent company. Similarly, PBMs tied to retail pharmacies may favor their own dispensing operations and inflate reimbursement rates. These arrangements leave independent community pharmacies struggling to compete and can limit patient access, especially in rural or underserved areas.

The Path ForwardMarket Disruptors: The Rise of Transparent PBMs

Market Disruptors: The Rise of Transparent PBMs

Despite this growing frustration, a new class of transparent PBMs is emerging to challenge traditional players. These alternative PBMs reject the opaque, profit-driven practices of legacy entities like CVS, Express Scripts, and OptumRx, instead offering a simple, pass-through pricing model built for clarity and transparency.

These alternative PBMs eliminate spread pricing, pass through 100 percent of rebates, and provide full visibility into claims and cost data for plan sponsors. Their revenue comes solely from a clearly defined administrative fee, not from hidden markups or retained rebates. They also avoid vertical integration, ensuring their incentives remain aligned with the plan sponsor’s goal of lowering costs and improving access.

For plan sponsors, these new models represent a fundamental shift, away from the hidden margins and misaligned incentives of traditional PBMs, toward partnerships that prioritize affordability, transparency, and accountability.

The Path Forward

PBMs have evolved into powerful gatekeepers of prescription drug access and cost. Their lack of transparency, combined with deep industry consolidation, has fueled rising drug prices and limited competition. While PBM reform alone will not solve every problem in the drug pricing ecosystem, manufacturers, wholesalers, and insurers also play major roles (and they all have their own perverse incentives and contribution to the ever rising healthcare costs) it is a critical starting point.

The recent wave of congressional proposals and administrative actions aimed at increasing PBM transparency reflects a growing bipartisan acknowledgment that reform is overdue. Yet while policymakers work toward structural change, plan sponsors have an opportunity now to act, by demanding data access, auditing PBM contracts, and considering PBM RFPs to explore transparent alternatives that align with their fiduciary responsibilities.

The future of pharmacy benefits may ultimately depend on one simple principle: transparency. And for plan sponsors, that means partnering with PBMs who put clarity, value, and patient outcomes ahead of profit.