In The News | Why the PBM battles are just beginning

Congress passed its most significant changes yet, but implementation and industry maneuvering will determine whether drug prices fall.

WP Intelligence

Reporter: Rebecca Adams

Key Takeaways

Congress has cracked open the PBM black box — but the real battle now shifts to implementation. The most significant federal legislation to date targeting pharmacy benefit managers (PBMs) aims to restructure how they are paid, increase transparency and curb practices that critics say inflate drug costs. But key definitions, enforcement decisions and regulatory details will determine whether the law meaningfully lowers costs — or leaves PBMs room to adapt and preserve profits.

The law targets PBMs’ financial incentives, but industry restructuring may blunt its impact. Major PBMs have already shifted portions of their rebate negotiations to affiliated group purchasing organizations (GPOs), some based offshore, and reclassified rebates as administrative fees. Critics warn that without clear guidance, these or other structures could allow companies to sidestep some compensation and disclosure requirements.

Savings projections are modest compared to other recent drug pricing reforms. The Congressional Budget Office estimates roughly $2 billion in savings over 10 years — far smaller than projected savings from the Inflation Reduction Act’s Medicare drug pricing provisions. Lawmakers in both parties say additional changes will likely be needed.

Independent pharmacies see opportunity — but outcomes hinge on CMS rulemaking. New provisions requiring “reasonable and relevant” contracts between PBMs and drugstores, and establishing complaint mechanisms could strengthen community pharmacies’ position. However, CMS has broad discretion in defining those standards, and implementation is years away.

Federal scrutiny of PBMs extends beyond the new law. The Federal Trade Commission continues investigating major PBMs and studying their GPO affiliates. A significant settlement proposed this month addresses insulin pricing practices. Executive branch action could prove as consequential as the legislation itself.

Summary

The new law — the first major legislation since PBMs evolved in the past decade to become an increasingly consolidated and powerful force in the health care sector — is intended to require the secretive middlemen companies to provide more information on their business practices, reduce the incentives for PBMs to steer patients toward higher-priced drugs and lead to better contracts for local pharmacies. President Donald Trump signed the legislation, which was tucked into a broader spending law, on Feb. 3.

Lawmakers in both parties are expressing concerns about how the power of health care corporations, including PBMs, grew in recent years. PBM legislation is one part of Trump’s focus on lowering prescription drug prices, an issue resonating with consumers concerned about affordability in a midterm election year.

PBMs are the middlemen that manage pharmaceutical benefits for insurers, employers and government programs such as the Medicare Part D prescription drug plans. They negotiate rebates with drug companies, handle claims, put together formularies and create pharmacy networks. While PBMs maintain that their negotiations reduce drug spending, their opaque finances and escalating profits over the years led many on Capitol Hill to question the extent of savings.

Yet even before the first rules implementing the law are released, some advocates and lawmakers say that the law is only a modest first step — and decisions made during implementation will make a major difference in whether consumers see the intended effects. Some industry observers note that PBMs have shifted some business practices to avoid losing profits, and predict that the PBM industry will seek to evade regulation.

“We will be watching implementation really closely,” Elizabeth Carpenter, executive vice president of policy and research for the Pharmaceutical Research and Manufacturers of America trade association, said during a Friday WP Intelligence briefing.

The PBM industry has evolved and is dominated now by three big companies, all of which are affiliated with major insurers, as lawmakers noted in a Feb. 11 House Energy and Commerce hearing on the drug supply chain. Optum Rx is owned by UnitedHealth Group, Express Scripts is owned by Cigna, and CVS Caremark is owned by CVS Health, which owns Aetna.

Together, the three large PBMs wield significant power and control nearly 80 percent of prescription drug claims. The drug benefits of about 270 million Americans are managed by these PBMs.

Each of the PBMs in recent years has started working with affiliates that the PBM industry labels GPOs. These GPO affiliates perform some of the tasks that PBMs used to do.

The new PBM GPOs negotiate with drug companies over certain rebates. The GPOs consolidate purchasing power among their members and take over the hassle of contracting. These PBM affiliates are not buying from suppliers or physically storing goods. The GPOs, many of them offshore, take fees that the companies do not identify as rebates. Critics say these practices may allow the companies to keep more of the money.

The PBM industry said that its work in negotiating rebates and designing formularies is helpful to employers, insurers and consumers.

“Our industry has responded to the market and evolved on its own, which is why we think Congress’s mandates were unnecessary and harmful to patients and employers,” said Greg Lopes, vice president of public affairs and communications for the Pharmaceutical Care Management Association, the trade group representing PBMs.

Analysis: The new PBM law reshapes incentives and expands regulatory oversight

The law is designed to change PBMs’ practices and incentives

At its core, the legislation is an attempt to rewire the incentive structure that defines the PBM industry. Lawmakers concluded that tying PBM compensation to drug prices and rebates created distortions that favored higher list prices and opaque contracting. The statute seeks to replace those incentives with flat-fee compensation, rebate pass-through requirements and enhanced oversight. Whether those structural changes translate into lower costs will hinge on regulatory definitions and the industry’s ability to adapt. The legislation is not a complete restructuring of the industry, but aims to control rising drug costs through updates including:

• Flat fees: One of the law’s key provisions focuses on the financial incentives for PBMs by requiring that PBMs receive flat fees, starting in January 2028, rather than having their compensation tied to the price of the drug or rebates. That is intended to eliminate the perverse incentives that some said led PBMs to favor high-priced medications over lower-cost alternatives.

• Rebate rules: The law also requires that the rebates that PBMs secure be passed on to employer health plans. The goal is ensuring that the savings generated through rebate negotiations ultimately benefit consumers and employers.

• Protections for independent pharmacies: The law also sets in motion new Medicare rules designed to curb the influence of PBMs over pharmacies. Independent pharmacists have said that PBMs’ business practices have been driving them out of business. The law requires that contracts between PBMs and pharmacies be “reasonable and relevant.” The Centers for Medicare and Medicaid Services (CMS) is tasked with defining these terms.

• Redress: The law also establishes a mechanism for pharmacies to file complaints with the government, providing a means of enforcing these upcoming rules and promoting greater transparency in the PBM industry.

• Transparency: More stringent reporting requirements on PBMs, including the disclosure of compensation and the provision for annual audits of PBM records, are another part of the law. These measures are intended to shed more light on PBMs’ business practices, enabling policymakers and stakeholders to better understand the complex dynamics at play.

The overall impact of the law may be modest

The final version of the law was scaled back from earlier versions prior to passage after strong lobbying by the industry. The PCMA trade association spent $13.7 million on lobbying in 2025, according to the Open Secrets research organization.

The legislation is expected to yield only approximately $2 billion in savings over the course of a decade, a modest figure compared to the hundreds of billions of dollars in anticipated savings from another recent law targeting prescription drug prices, the Inflation Reduction Act (IRA). The IRA included provisions such as penalizing drug manufacturers that raise their prices more than inflation, and allowing Medicare to negotiate for lower prices on a limited number of drugs each year.

Supporters who pushed for the passage of the PBM law for eight years say it’s an important step forward. They were encouraged that the Department of Labor also proposed a separate rule requiring granular disclosures from the PBM industry. The Jan. 30 proposal would require PBMs to disclose information about their fees and other financial compensation to group health insurance plans often offered by big employers.

But even some Capitol Hill lawmakers deeply involved in the law’s construction say more action will be needed.

“Historic PBM reform is just the beginning, and more needs to be done throughout the drug supply chain to improve affordability for all Americans,” said House Energy and Commerce Committee Chairman Brett Guthrie (R-Kentucky) at the Feb. 11 hearing.

Offshore GPOs are a target

One of the biggest concerns of the drug industry and some patient groups are that PBMs may be able to maneuver to avoid parts of the law.

“These vertically integrated entities that really own every step along a patient’s journey in many ways are built to evade and sort of shift their business model in a way that could diminish the very types of rules and impact that this policy is meant to have,” Carpenter said.

The offshore PBM GPOs are identified in the law as an entity that must follow new requirements and PBMs are not publicly fighting that. But drug companies will be pushing for regulators to confirm that GPO affiliates must comply.

The offshore GPOs are “designed to siphon rebate dollars from the ultimate end user,” said Carpenter, adding, “We have to work really carefully and thoughtfully about how these policies are implemented to really ensure that they have their desired effect.”

• UnitedHealth Group and its PBM, Optum Rx, are affiliated with a GPO known as Emisar Pharma Services, based in Ireland.

• CVS Caremark is affiliated with the GPO known as Zinc Health Services, based in the United States.

• And Cigna’s Express Scripts PBM founded Ascent Health Services, based in Switzerland.

Critics push for enhanced PBM disclosure requirements

PBMs are in many ways a black box, with little information about the details of their financial transactions. Among the new law’s requirements are fee disclosures. The PBMs also are directed to give group health insurance plans information at least twice a year that includes specifics on prescription drug spending, drug rebates, pharmacies that are used, and the reasons behind why specific drugs are covered on preferred drug formulary lists.

Critics of PBMs want to ensure that the scope of PBMs’ fees required to be reported under the law is clear and cannot be gamed. For instance, they are watching to see if PBMs make arguments for excluding certain types of fees from their reporting to plan sponsors.

And the critics of PBMs also want to make sure that the disclosures are not vague and provide meaningful information, with details on PBM practices such as whether patients need to get permission to use certain drugs and what PBMs offer in cost-sharing assistance that helps patients pay their out-of-pocket costs if they use certain drugs.

Pharmacists ask Trump administration to accelerate new rules

Independent community pharmacy leaders say that PBMs have hurt their business and are hoping that upcoming changes will improve the situation... Continue Reading