Pharmacy Benefit Managers.

The American Drug Cartel.

A $100 bill covered in pills. Image Description: A $100 bill covered in pills.

Summary: Uncover the scandal of Pharmacy Benefit Managers in the healthcare industry, revealing their ascent to power through drug price hikes and government contracts.

A hospital janitor works a 40 hour work week for decades. Lives a modest existence. Has some savings. Clocks in, clocks out. Since the janitor is so reliable, the board of the hospital allows them to start checking in patients. In return for their trouble, the hospital gives them a small percentage of each patient’s stay. A few years later, the janitor buys the hospital. The end.

This is the analogy a source in the independent pharmacy world gave me when I first inquired about this story.

Most people probably haven’t heard of the term Pharmacy Benefit Manager (PBM). But in the healthcare industry, PBM has become a four letter word, unless, of course, you are one. In which case, you’re killing it right now. And you have been for about 20 years.

PBMs aren’t anything new. In fact, they’ve been around since the 1960s. But over the last two decades, these administrative organizations have become so big and unwieldy that they drive hundreds of billions of dollars in revenue each year. Just how big have PBMs gotten in the past few years? Big enough that the three largest ones are all in the top 15 largest companies in the United States.

They don’t spend millions of dollars on lobbyists because the legislation they need already exists. They don’t really worry about competition because they have 90% market share.

So what the hell is a PBM?

A PBM is, well, it’s complicated. In short, they’re the middleman between Big Pharma and patients.

Actually, Senator Shelley Capito recently tried to map all of this out at a senate hearing on PBMs. Here she is interviewing pharmacist Ryan Oftebro:

Sen. Capito: “It would [have] been really helpful, I think, for everybody to bring a flow chart that starts from the research of the drug to the person who actually gets it. And what they pay. So I made a little list myself. You’ve got the research, the manufacturing, the distributor, the PBM, the insurer, the doctor, hospital, the pharmacy, and then it gets to the patient…Did I accurately portray in your mind what a flowchart might look like? How would you respond to that if you had to bring a flow chart here?”


Oftebro: “No, I think what you described was not complicated enough.”

Buckle up, Unfuckers. Because if you’re not familiar with this story, it will blow your mind.

Chapter One: The Birth of the American Drug Mafia

Almost without exception, the one thing that federal regulators and congresspeople all seem to agree upon is that PBMs are out of control and need to be reined in. Everyone except this fucking guy, of course. Here’s Senator Ted Cruz’s contribution to the Senate hearing on PBMs:

“No one wants higher drug prices and I think we need to look for creative solutions to lower them. But with every legislative solution we’ve got to consider the trade-offs, especially when our solution is to grant additional authority to a government agency to regulate in a particular market.”

That’s right. The lone oppositional voice at the senate hearing was none other than Gollum himself, Ted Cruz. And even his opposition was tepid at best.

For the past two years the Federal Trade Commission (FTC) has been stonewalled by PBMs in its attempt to pierce the opaque pricing system behind prescription drug prices. This prompted Congress to jump in to try and figure it out as well. In the House of Representatives and Senate, the sentiment is nearly universal that PBMs are a significant driver of pharmaceutical costs.

And yet, despite the fact that the FTC theoretically has dominion over trade and Congress literally crafted the laws that made PBMs juggernauts in the healthcare industry, neither has made meaningful progress in bringing PBMs to heel. There is a bright spot on the state level, which we’ll talk about, and while it’s marginal on the grand scale of things, it might provide a path forward.

Before we get to this silver lining, let’s go back to the beginning to understand why PBMs even exist.

According to the National Association of Insurance Commissioners (NAIC):

“When insurance companies began offering prescription drugs as a health plan benefit in the 1960s, PBMs were created to help insurers contain drug spending. Originally, PBMs decided which drugs were offered in formularies and administered drug claims. In the 1970s, PBMs began to adjudicate prescription drug claims.”

Simple enough. When prescription drugs were originally introduced into the marketplace it was a very straightforward relationship between manufacturers and patients. Essentially, once a drug was authorized for personal use, physicians were given the ability to prescribe. A patient could take this prescription to a pharmacy where the drug was given to the patient, assuming the patient could afford to pay for it.

It’s easy to see how this presented economic efficiency issues, and because we had no central healthcare system to speak of, there was as much competition and as there was variation in drug prices. This was the nascent stage of what would become one of the biggest industries in the world. Because holistic and centralized approaches are anathema to the capitalist system, it was left to the marketplace to solve a few things. How could these transactions happen at scale and how could more people access the explosion of life saving pharmaceuticals?

I spoke with Antonio Ciaccia of 46Brooklyn Research, an Ohio non-profit corporation whose purpose is to improve the accessibility and usability of U.S. drug pricing data. We’ll talk more about 46Brooklyn and the work they’ve done, but first let’s hear from him on the origins of PBMs and what they initially solved.

Ciaccia: “If you were a sick patient in the 1950s, you would get prescribed something from your doctor, and that medicine would be made by one or many pharmaceutical companies. And you could go to one or many pharmacies to obtain those medicines. And if you couldn’t afford it, well, you probably didn’t get it. And that wasn’t a great thing. In general, companies have to be sensitive to our wants and desires as consumers. If a medicine was produced, and regardless of where somebody was taking liberties with price, if at the end of the day it was unaffordable for a patient, that meant that somebody went without that medicine.

“And so in general, that created healthy competition between manufacturers, wholesalers, and pharmacies to ensure that the end price was at least reasonable. The problem with that approach was that sometimes people couldn’t afford their medicines. And so many people could be disenfranchised by the costs associated with pharmaceuticals, even when they might be what you and I might consider to be ‘affordable.’

“And so over time, we started to look at pharmaceuticals and say, ‘Hey, these are really integral to our well-being and might help us save a lot of money on medical expenditures.’ It was actually the United Auto Workers in the 1960s who, through collective bargaining, got coverage of pharmaceuticals through their benefits plans to say, ‘Look, these are great value adds to us as workers. We want to integrate them in.’ And that was seen as a great victory because, again, it didn’t make sense for somebody to go without their medicine. But the second that you say that, you’re losing a degree of price sensitivity, right?

“The question then is, if we say that somebody must always have their medicines, what message does that send to those who charge for those medicines?

“And so over time, we started to say, ‘All right, we’re going to cover more and more medicines,’ which was good. But over time, as we covered more and more, now that traditional pressure was starting to be relinquished by consumers and handed over to insurance companies and pharmacy benefit managers.

“PBMs were brought in to be efficiency experts; to process pharmacy claims on behalf of our health benefits plans to say, ‘Okay, this drug is covered.’ Here’s how much I have to pay as a consumer and ensure that the pharmacy is made whole, et cetera. Well, over time, as more and more medicines came to market, and as more and more people started covering medicines, we as consumers eventually lost our power and ceded it over to health insurance companies and PBMs. We’re no longer the consumer. Now it was the PBM and the insurance company.

“If you can get better discounts through leverage, well, then it stands to reason that you should try to gain more leverage through mergers and acquisitions. And so you have an arms race to the point where today you have three PBMs, who make up over 80% of all pharmacy transactions just at the PBM level—we can get into vertical integration and how that’s less or more of those companies over time. But really where things started to go awry was PBMs started to taste the forbidden fruit. Rather than just working to make claims more efficient and pass along the savings, they started to make money off the very transactions they were hired to control. They started getting paid by drug companies in exchange for covering medicines. They started opening their own pharmacies. They started marking up the drugs. Fast forward the tape, today most people probably have never heard of a PBM, but the three largest PBMs are Fortune 15 companies And they’re larger than the drug companies and pharmacy companies they were hired to control.”

Let’s walk through some of what Antonio just revealed in the history of PBMs, because the timeline is important. If you recall from our healthcare series, insurance coverage in the United States grew asymmetrically alongside the economy and population growth. As far back as Lyndon Johnson’s administration, the federal government has been trying to chart a path toward universal coverage of all Americans. It was unions who pushed health coverage as a membership benefit to combat wage disparity and regulatory pressures.

This worked for a time because this created large buying groups that centralized the purchasing power in the healthcare market from hospital stays to prescription drugs. In turn, this put reverse pressure on private employers to create their own buying groups by introducing employer sponsored health insurance plans.

Now, understand that this system developed outside the purview of the federal government, because it was believed that providing healthcare to everyone would bankrupt the government. There was already a sense that the dual Great Society plans of Medicare and Medicaid would ultimately topple the federal budget. Adding everyone to a shared pool seemed politically impossible given our insistence on balanced budgets.

As the healthcare field matured and private companies jumped into the fray, we moved further and further away from universal coverage, while other developed economies were simply adding taxes to the broader populations to cover the expense of administering a public system and driving down costs as a result.

For their part, PBMs were essential to the pharmaceutical equation, though it’s important to note that spending on prescription drugs was nominal in the early days. Very few plans incorporated this type of coverage outside of high end private plans and unions. Throughout the back half of the 20th Century, PBMs were essentially pencil pushers. They were claims administrators shuffling paperwork between pharmaceutical manufacturers, wholesalers, pharmacies and physician practices. Drug X was made for Y dollars, paid for by the patient or the insurance company and everyone in between got their fair share of it.

Then in 2003, the Bush administration signed Medicare Part D into law in the Medicare Prescription Drug, Improvement and Modernization Act, known as the MMA.

It took a couple of years to work out but starting in 2006, Medicare recipients could sign up for Part D to cover prescription drugs and that’s when a lightbulb went on at the PBMs.

Chapter Two: Unraveling the Supply Chain

Let’s go back to our conversation with Antonio so understand the scope of the pharmaceutical supply chain.

Ciaccia: There are five main pillars of the prescription drug supply chain. Drug companies sell drugs to drug wholesalers. If you’re unfamiliar with a wholesaler—McKesson, Cardinal Health, Amerisource-Bergen. They sell the drugs to pharmacies and the pharmacies are ultimately compensated with some combination of the patient’s money and the PBM’s money, which ultimately comes from the health insurance company. The health insurance company and the PBM are hired by the plan sponsor or the government program, etc. Now there are a lot of other intermediaries in the system. There are switch operators, there are rebate aggregators, GPOs, PSAOs—a whole bunch of alphabet soup…There are many mouths to feed within the prescription drug supply chain, each one of which can have a distorting impact, positive or negative, on the prices that we pay.”

Previously, Antonio mentioned how the three largest PBMs that control 80 to 90% of the market are all top 15 companies in the United States. Well, in this brief rundown of the supply chain, it’s worth noting that the three wholesalers he mentioned are also in the top 15: McKesson, Cardinal and Amerisource, which recently changed its name to Cencora.

Six of the top fifteen companies in the United States are within the pharmaceutical supply chain.

But if we widen our lens, you can make a case that three others—Amazon, Costco and Walmart— are also part of this cartel. While not their primary revenue drivers, all three are invested in prescription drugs and angling to make further inroads into the marketplace. That means nine of the top 15 companies in the United States are all primarily or peripherally involved in the prescription drug game.

Now here’s where things get fucked.

In theory, the market should have worked out the payment system to bring drugs to market at the most efficient price possible given the size and buying power of the market. But, as Antonio pointed out, the consumer is no longer driving drug prices. The consumer is not the customer. Pharmaceuticals exist in a captured market that is different from other industries.

Ciaccia: I know that there are analogous marketplaces. People have told me that auto dealerships and their relationships with car manufacturers might be somewhat similar. I have heard people use the analogies of Ticketmaster and Live Nation. I’ll be honest, I’m less sophisticated with the dynamics of those marketplaces. But there are a lot of different suppliers of cars. There are many different opportunities to buy a vehicle. You can go direct. You can use any number of outlets. And if there’s vertical schemes going on that can inflate the price of a car, well, the good news is there’s used cars and there [are] cheaper brands out there. With tickets, I can just not go to the damn show.

With drugs, I don’t really have those choices. It’s life or death. And I can’t just go get a different medicine. The medicine I need is the one that I need. And so you really have a more captive consumer base, if you will, than you do in other marketplaces. And furthermore, because of the nature of how the finances of medicines work—because they’re not priced in a sober way anymore, meant to entice a cash paying consumer—it’s unrealistic to buy medicines…within a system that is governed by inflated prices and negotiated discounts. Because if you decide, ‘Hey, I’m going to go on it on my own, I’ll pay out of my own pocket’. Well, the prices weren’t meant for you to pay with cash. So you really are captive to a degree within a system. And any time you need to work outside that system, bad things can happen.”

This is where the layers come in. Antonio is talking about capture. The necessity of the products and the avenues in which they are made available. We’ll get to pricing, but let’s hang here for the moment.

There are places you can go to pay cash for prescriptions. In fact, there are a few independent pharmacies and start-ups like Mark Cuban’s Cost Plus that allow you to do just that. And oftentimes, the prices are less than what you would pay at a chain pharmacy. So how can that be?

There’s also the question of availability. As Antonio said, you have options when it comes to buying cars. You don’t have to go to the concert so Ticketmaster is avoidable. But prescription drugs are often quite necessary. So there’s two things to consider here. Who decides which drugs are made available and what price will the patient ultimately pay?

The answers lie with the PBMs. Nowhere in the description of why and how PBMs came to be were these factors ever mentioned. The original purpose of PBMs were to lower drug costs through bulk purchasing power and to track the flow of payments through the claims management process. The drugs themselves were supposed to be priced by the manufacturer, marked up by the wholesaler and sold at the pharmacy.

The last step is covered by the patient out-of-pocket or through insurance. Insurance companies add a wrinkle to the process because, of course, they get to decide which drugs will be covered based upon the price inputs, availability, efficacy and a host of other factors. And for their trouble they too get a cut of the action in the spread between the premiums they charge and the payouts they’re responsible for.

For posterity, let’s do this again real quick:

  1. The manufacturer sets the price of a drug. It costs them X to make it and they sell it at Y.
  2. Then the wholesaler buys it from them at Y and marks it up for the effort to distribute it to all of the pharmacies.
  3. Then the pharmacies themselves get to charge Y+ for giving it to the patient.
  4. Along the way the insurance company gets a piece for knowing who gets the drug through their plans…
  5. And the PBMs take a fee out of the middle for the trouble of tracking all this paperwork and managing regulations.

That’s how it’s supposed to work.

Not anymore. When the government added Medicare Part D it basically created a market. The biggest market in drug history. According to the Office of Health Policy, in 2022 alone, 43 million Medicare D enrollees filled 1.1 billion prescriptions.

Instead of developing an internal mechanism to set drug price (like every other country does) and track claims through a centralized system (like every other country does), the U.S. government basically handed these responsibilities over to the PBMs.

So from that point forward, PBMs not only managed the claims process, they were also given the authority to negotiate drug prices; the theory being that their buying pool would be so enormous that it would drive down the price of drugs from the manufacturers who were all too happy to have a new guaranteed marketplace of seniors. And the PBMs did indeed use their leverage to drive down the cost of drugs. Only patients didn’t reap the benefits. The PBMs did.

They pocketed the difference?

In so many ways, yes. Here’s Antonio again to help us follow the money.

Ciaccia: “Context is everything here. The first thing I would say is that PBMs are doing a very good job at lowering the costs of medicines for themselves. They’re in the business of using their might and their strength and their sophistication to materially get large discounts from drug companies and pharmacies. And they’re very successful at that—at paying below what manufacturers of pharmacies would otherwise like to charge. The rub is, are they passing along that value? I think they are; they’re passing it to shareholders. And in some instances, they are passing it through to their clients and their patients. But in aggregate, there’s a significant amount of inflation that I think you and I and any onlooker would say is beyond the pale of what is supposed to happen.”

The PBMs couldn’t just pocket the difference straight up. But they didn’t have to because they had a back door to doing so. In addition to negotiating prices, PBMs were also put in charge of the formularies. Formularies are essentially lists of drugs that are approved for use by healthcare providers to be distributed through pharmacies to the consumer.

Someone, somewhere had the bright idea to allow the pencil pushing PBMs to determine which drugs get covered by the insurance companies.

The result? PBMs suddenly became the most important link in the supply chain. Can’t get paid for a drug that isn’t on the reimbursement list.

Ciaccia: “Let’s look at insulin as an example. Insulin is a drug that has been much maligned for its pricing over the years. And you’ll see over time that the large insulin companies are taking almost lockstep price increases over time to the point where something that should be very cheap has been around for a long time. And there’s three main manufacturers that are making that product.

“One would assume that that competition would result in lower prices for that medicine, but the opposite is happening. You’re seeing prices increase significantly over the last decade, save for this past year, where we can talk about why that is. But you’ve seen insulin prices just become increasingly more expensive over time. So the question then is, if PBMs are in the business of finding the lowest priced versions of medicine and there’s three main suppliers of insulins, why aren’t they competing with one another to undercut to get favor with the PBMs in terms of coverage?

“Well, the reason is because we have a system of kickbacks.

“PBMs and drug companies have exemptions to federal anti-kickback laws that allow drug companies to give big kickbacks back to PBMs in exchange for preferential treatment on what we call their formularies, which is like the menu of drugs that PBMs will say is covered under your benefit plan. So as I said before, how patients are no longer really the consumers from a manufacturer’s perspective, It’s the PBM. If I’m a drug company, I don’t sell my drugs to patients. I sell them to PBMs.”

Chapter Three: Is that all? Please tell me that’s all.

That’s not all. But it’s a good time to do a brief recap because we’ve thrown a lot out there.

In the 1950s there were several breakthroughs in prescription drugs, and pharmacies started offering more and more beneficial drugs to consumers. As the population grew and healthcare coverage expanded through the Great Society programs, the United States began charting a different path from other developed countries by letting the marketplace deliver health coverage through private markets and employers. Unions were among the first to pursue collective bargaining agreements to cover large groups, thereby providing a benefit that spurred huge competition among other unions and private employers. Prescription drug coverage was added to many union plans starting in the late 1960s and early ‘70s with private insurers following suit.

PBMs were established to help coordinate the payouts and paperwork associated with these group plans and drug prices started to decrease as a result of the efficiencies in the marketplace. When Medicare Part D was introduced in the early 2000s, the prescription drug market exploded and the government once again looked to the market to find ways to manage the entire system. At this point, the PBMs were essentially deputized by the government and then by the health insurance companies to determine which drugs were covered on what they called formularies. With this newfound power, PBMs started charging higher fees along the supply chain and demanding rebates, (aka kickbacks) from the drug manufacturers in order to be considered on the formularies. So instead of passing along bulk purchasing power discounts to consumers, they pocketed them through a series of complex rebate schemes. From there it was simple math. The higher the drug prices, the larger the kickbacks.

Now, as if that all isn’t fucked enough, it actually gets worse. In addition to minting the PBMs by allowing them to set prices, determine formularies and get around federal kickback regulations, the government also turned a blind eye to vertical integration within the supply chain. For that, we head back to my conversation with Antonio.

Max: “Can you talk about, and maybe use an example of, a vertically integrated PBM and all the areas that they control along the supply chain?”

Ciaccia: “You have a company like CVS Caremark, right? People recognize the three letters, CVS, as the pharmacy. Caremark is the PBM. That same company owns Aetna, which is one of the largest health insurance companies in the United States. They own CVS Specialty Pharmacy and Mail Order Pharmacy. They have their own wholesaling line of business where they partnered with Cardinal Health and actually act as the largest purchaser of generic drugs as a wholesaler. We talked earlier about one of the five drug supply chain: Health insurance company, Aetna; PBM, Caremark; CVS Pharmacy; Wholesaler, Red Oak Sourcing. Well, now CVS launched a new subsidiary called Cordavis, where they’re actually taking inventory of drugs and slapping labels on them, essentially becoming quasi drug manufacturers. So here you go. The largest companies in the system are now basically the entire drug supply chain all rolled up into one.”

It’s probably as good a time as any to talk about who Antonio is and why he’s such an instrumental voice in this story. Antonio’s organization, 46Brooklyn, is a data journalism non-profit that dug into drug pricing in Ohio specifically related to Medicaid reimbursements. Hold that thought.

Ciaccia: “In the summer of 2016—if you’re unfamiliar with Medicaid managed care—the old school Medicaid was essentially, you would create a fee schedule and they’d say, Okay, we’ll pay you for everything that you do. We’ll cover the cost of the drug and then a set dispensing fee’. Over time, governments look to come up with a private public partnership in Medicaid where they said, ‘Rather than just paying direct every time, we are going to turn over our Medicaid business to private health insurance companies we call managed care organizations.’ Some of them are UnitedHealthcare, Aetna, Molina, Centene, et cetera. And from a state perspective, the idea is trying to create more predictability. You pay an insurance company a per-member, per-month fee. They go out and buy all the Medicaid stuff, right?

“And so in Ohio, we had five Medicaid managed care plans. Four of them were all using the same PBM: CVS Caremark. The second that CVS Caremark got all four plans on non-transparent arrangements, all of a sudden pharmacy saw a significant cut in reimbursement to the point where, I mean, I saw pharmacies that were losing 60 to 80% in their profitability in the Medicaid sector within a month time span. If you’re unfamiliar with Medicaid, Medicaid serves the poorest of poor in every state. So if you were a pharmacy in an underserved community, those cuts were the death blow. And so we saw about 200 pharmacies close their doors within a three year period over the time that these cuts occurred.”

Long story short, 46Brooklyn got a hold of pricing data from various sources, and through data mapping determined that the state was overpaying the managed care organizations by $245 million in just a single year they examined. This kicked off a wave of reforms in Ohio that in turn kicked off investigations in other states, which is why PBMs have found themselves in the hot seat with the FTC and Congress.

Now we can add state Medicaid plans to the tally of fuckery occurring at every link in the prescription drug supply chain:

  • Kickbacks from manufacturers.
  • Overbilling Medicaid and Medicare.
  • Hiking up prices.
  • Buying out competitors and creating monopolies.
  • Swallowing up the supply chain one link at a time to the point where, in certain cases, they own the wholesaler, the insurer and the pharmacies themselves, and there’s no one to hold them accountable because the regulations were designed to foster this behavior.

But wait, there’s more…

It’s brutal. But just one final bit of fuckery to really get your blood boiling. This one is personal. If you’ve ever had a sick person in your life who required lifesaving or life preserving medication, and you’ve had the option to work closely with a local pharmacist versus a corporate chain, you’ll understand this one.

Local pharmacies are just different. A great pharmacist is the last line of defense, that last gut check in the medicine dispensing chain. They catch things like drugs that conflict with one another. When refills are due. They see patients. They know them.

When my mother was ill and on myriad cocktails of cancer drugs and related issues, the pharmacist was there every step of the way. No question too small. They stayed open late. Dropped off packages in emergencies. They knew her. When the prescriptions stopped and she passed, I visited them. It’s a family owned business. The pharmacist and the family members who worked behind the counter all stopped what they were doing and came out to see me. I couldn’t get out a word. And I didn’t have to. With customers waiting quietly, we just hugged and we cried.

That’s healthcare. That’s the difference between corporate chains and a family owned pharmacy.

Well, here’s what PBMs have done to them, directly from the Pharmacists Society of the State of New York’s (PSSNY) website:

“Currently there’s no law preventing PBMs from owning retail, mail order, specialty or any other type of pharmacy - a clear conflict of interest since PBMs not only negotiate which drugs will be covered and at what cost, they have direct and proprietary access to their prescription drug benefit plan enrollees and can use their access as a platform to guide, steer, direct or mandate which pharmacies plan enrollees can use.


“PBMs use their role as drug plan administrator to entice plan enrollees to use PBM pharmacies by offering incentives to patients that they directly disallow other pharmacies to use. For example, a PBM can offer a 90-day medication supply for the price of 60 days at its mail order pharmacy, but prohibits the local community pharmacy in your neighborhood from being able to do the same thing, even though your community pharmacy may be part of the PBM’s pharmacy network.


“Furthermore, CVS and Express Scripts have been caught in the act - and fined - for engaging in misleading scare tactics that pull patients away from their local pharmacies to a CVS or Express Scripts “preferred status” (large retail) pharmacy, claiming if patients don’t leave their local pharmacy, the price of their medication will greatly increase.”

The reason thousands of locally owned and operated pharmacies have gone out of business over the past two decades is due to this gangster behavior. To make matters worse, because the PBMs have essentially been deputized by the government, PBMs routinely conduct Medicare and Medicaid audits of independent pharmacies, which cost the operations an enormous amount of time and money.

They basically shut these operations down on a regular basis to make them jump through onerous hurdles and levy hefty fines even when there’s no fraud, waste or abuse. They just do it and force the pharmacies to appeal. All the while, the audits produce something else: Data. These audits force independent pharmacies to hand over their customer data to their direct competitors who then magically solicit the very same customers with mail order options that might have lower copays.

Chapter Four: Bring it home, Max.

Here’s the final tally. According to the NAIC, there are 66 PBM companies but the three largest—Express Scripts, CVS Caremark and OptumRx—control approximately 89% of the market and are serving about 270 million Americans. Adding insult to injury, there have actually been amazing legal and technical developments in Big Pharma with the explosion of generic drugs. According to a white paper out of USC Leonard D. Schaeffer Center for Health Policy and Economics, the use of generic and biosimilar drugs saved the healthcare system $338 billion in 2020 alone. And none of the savings went to the consumer.

Imagine that. $338 billion in savings from generics and biosimilar drugs in a single year and yet consumer prices went up. Where did it all go? Because of the lack of transparency among PBMs, no one can say for sure. But dig this. Take the big three we just named. Here’s their top line revenue in 2023:

  • Express Scripts: $150 billion.
  • CVS Caremark: $178 billion.
  • Optum Rx: $116 billion.

The big three took in $604 billion in 2023 alone. This isn’t pharmacy, wholesaler or insurance company revenue. This is the revenue specifically allocated to the PBM divisions of these goliath companies.

So even though we don’t know, we know.

According to Lever News, “a total of 24 bills related to PBMs have been introduced in the House and the Senate during the 2023-2024 Congressional session.” Several of these bills actually made it out of committee but none has made it into law and the lobbying groups on behalf of the PBMs have started to turn up the heat and the donations.

Despite the stonewalling of the FTC, Congress is onto the PBMs because of the work of groups like 46Brooklyn that use hard data to expose price discrepancies in the market. Another study conducted by a medical journal compared the cost of 184 different drugs between Medicare claims and Costco, which has more than 500 stores nationwide and a mail order business for members. It found that, “Medicare overspent by 13.2% in 2017 and 20.6% in 2018 compared with Costco member prices for these prescriptions.” The difference is the streamlined and transparent system employed by Costco, which demands transparency from its benefit managers.

Obviously, the PBMs are singing a different tune. For example, CVS Caremark cites research from the—wait for it—University of Chicago…and writes on their website that the data speaks for itself. U Chicago finds that, “PBMs deliver nearly $150 billion annually in value through negotiated discounts, more cost-effective drug utilization, and other cost-saving services; almost $60 billion (40%) of that value would be lost in a world without PBMs.”

Of course, they’re right about PBM negotiating power delivering $150 billion annually in discounts; they just omitted the part about kickbacks that drive the whole cost up. It’s like retailers who markup clothing items by 50% before putting them on sale for 25%.

So the trillion dollar question is, what happens next? Given the state of intransigence in D.C. right now it’s obviously impossible to say. But if any major issue we’ve covered has a shred of optimism attached to it, it could be this one, because Congress seems pretty aligned in their antipathy toward PBMs and how they’re being stonewalled. And regardless of which side of the aisle you’re on, there are clear wins to be had.

First off, it needs to be said definitively that the United States is the outlier in the world because we don’t have universal healthcare. The whole issue of affordability and accessibility goes out the window if we do the most logical and human thing and that’s Medicare for All. But even in this scenario, considering even Medicare has ceded its power to the PBMs, it’s not immediately obvious that the cost of prescription drugs reduces to a more reasonable level. It is for the consumer, but assuming nothing changes in the relationship between Big Pharma and the PBMs, shareholders would continue to reap massive profits and the government would be exposed to cartel-like behavior in the middle. That’s just the nature of this particular public/private partnership.

The fact of the matter is that PBMs shouldn’t even exist in that scenario. The government would have to take over formularies, claim adjudication and pricing on a wholesale basis for prescription drugs to fit rationally within a universal system; and that means unwinding a trillion dollar plus industry. This is just one small window into just how complex and wide ranging the dismantling of our entire system would be. And for shit sure, the appetite for this does not exist in either the Republican or Democratic Party.

But where there’s potential optimism is in the regulatory measures and proposed legislation to eliminate rebates and demand transparency in the system.

The biggest lesson of all, as usual, is that when it comes to the health and welfare of citizens, capitalism has never been the answer to maximizing outcomes.

Here endeth the lesson.


Pharmacy Benefit Managers (PBMs)

Pharmacy Benefit Managers were created in the 1960s and 1970s as intermediaries between insurance companies, pharmacies, and drug manufacturers. Their primary purpose was to manage prescription drug benefits on behalf of health insurers, ensuring that medications were dispensed to patients efficiently and at reduced costs. Initially, PBMs focused on processing claims, creating formularies (lists of covered drugs), and negotiating discounts and rebates with pharmaceutical companies to control drug spending.

Medicare Part D, established under the Medicare Modernization Act of 2003, provided prescription drug coverage to Medicare beneficiaries and was implemented in 2006. This legislation created a significant opportunity for PBMs to expand their market share and influence in the pharmaceutical distribution and pricing market. PBMs were instrumental in managing these new Medicare drug plans, allowing them to capture a large share of the prescription drug market. As a result, PBMs were also responsible for creating and managing formularies for Medicare Part D plans. By determining which drugs were covered and at what level, PBMs could negotiate prices with drug manufacturers and pharmacies. This control over formularies gave PBMs substantial leverage in the market.

With the increased volume of prescriptions through Medicare Part D, PBMs gained significant bargaining power to negotiate rebates and discounts from pharmaceutical manufacturers. Over time, the success and growth opportunities presented by Medicare Part D led to consolidation within the PBM industry. Large PBMs acquired smaller ones, and some PBMs integrated vertically by merging with health insurers and pharmacies. This consolidation increased their market dominance and control over the pharmaceutical supply chain.


When a PBM charges a health insurer a higher price for a drug than what it reimburses a pharmacy.


When copayments paid by commercially insured patients exceed a drug’s cost. In both cases, PBMs pocket the difference. In addition, formularies often advantage branded drugs over generics, as the branded medicine comes with manufacturer rebates


A method of reimbursement in which payments are made in advance on a per-member-per-month (PMPM) basis to a health care provider for providing specified services during a specified period of time to enrolled members of a managed care organization.


A list of drugs that are approved for use by a hospital, health plan, or other health care organization and that will be dispensed through participating pharmacies to an insured person (see open formulary, managed formulary, and closed formulary).

Maximum Allowable Cost (MAC) list

List of prescription medications established by a health plan and distributed to pharmacies for which reimbursement will be provided at a generic price level only, regardless of what is dispensed.


A sum of money given to an organization (typically a health plan) by a drug manufacturer in exchange for inclusion of the manufacturer’s drug product on the formulary or, more recently, in exchange for moving market share of a particular (“preferred”) drug or combination of drugs (“bundling”).

Third-party administrator

An entity, usually an insurance company, that provides health plan administration services, including claims processing, and assumes no financial risk.

Pharmacy Services Administrative Organization (PSAO)

From the NAIC: PSAOs are service organizations that provide back-office support to independent pharmacies and small chains. These services include, but are not limited to: Evaluation and navigation of Pharmacy Benefit Manager (PBM) contracts; Help desk to assist pharmacies with communications with the PBMs; Credentialing and compliance assistance; Central payment facilitation; Claims reconciliation; Performance tracking; and, PBM audit support.

Specialty Drugs

Specialty drugs or specialty pharmaceuticals are a recent designation of pharmaceuticals classified as high-cost, high complexity and/or high touch. Specialty drugs are often biologics—“drugs derived from living cells” that are injectable or infused.

Generic Drugs

A generic drug is a pharmaceutical drug that contains the same chemical substance as a drug that was originally protected by chemical patents. Generic drugs are allowed for sale after the patents on the original drugs expire.

Wholesale Acquisition Cost (WAC)

The wholesale acquisition cost is an estimate of the manufacturer’s list price for a drug to wholesalers or direct purchasers, but does not include discounts or rebates.

Average Manufacturer Price (AMP)

The average manufacturer price (AMP) is a measurement of the price wholesalers pay to purchase drug products from the pharmaceutical manufacturer. The AMP was originally mandated as a part of the Omnibus Budget Reconciliation Act of 1990 (OBRA ’90), and the actual definition continues to evolve. AMP is meant to calculate the cost of a drug directly from a manufacturer after any rebate or discount is included.

National Average Drug Acquisition Cost (NADAC)

The National Average Drug Acquisition Cost is the approximate invoice price pharmacies pay for medications in the United States. This applies to chain and independent pharmacies but not mail order and specialty pharmacies. Rebates pharmacies may receive after paying an invoice are not included.


The federal 340B Drug Pricing Program allows qualifying hospitals and clinics that treat low-income and uninsured patients to buy outpatient prescription drugs at a discount of 25 percent to 50 percent. The program is intended to help safety-net health care providers stretch their financial resources to reach more financially vulnerable patients and deliver comprehensive services.

Medicare Part B

Medicare Part B helps cover medical services like doctors’ services, outpatient care, and other medical services that Part A doesn’t cover. Part B is optional. Part B helps pay for covered medical services and items when they are medically necessary. Part B also covers some preventive services like exams, lab tests, and screening shots to help prevent, find, or manage a medical problem. If you have Part B, you pay a Part B premium each month. Most people will pay the standard premium amount. Social Security will contact some people who have to pay more depending on their income. If you don’t sign up for Part B when you are first eligible, you may have to pay a late enrollment penalty.

Medicare Part D

Medicare Part D, also called the Medicare prescription drug benefit, is an optional United States federal-government program to help Medicare beneficiaries pay for self-administered prescription drugs. Part D was enacted as part of the Medicare Modernization Act of 2003 and went into effect on January 1, 2006.

National Drug Code (NDC)

Drug products are identified and reported using a unique, three-segment number, called the National Drug Code (NDC), which is a universal product identifier for human drugs.

Average Wholesale Price (AWP)

The published suggested wholesale price of a drug obtained from the drug manufacturer/labeler or from a price survey of wholesalers; often used by pharmacists to price prescriptions; drug manufacturers suggest a list price that wholesalers charge pharmacies; the average of the list prices, collected for many wholesalers, is called a drug’s AWP.

Max is a basic, middle-aged white guy who developed his cultural tastes in the 80s (Miami Vice, NY Mets), became politically aware in the 90s (as a Republican), started actually thinking and writing in the 2000s (shifting left), became completely jaded in the 2010s (moving further left) and eventually decided to launch UNFTR in the 2020s (completely left).