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Last Updated: 6/2/2025
Pharmacy Benefit Managers (PBMs) are third party companies that function as intermediaries between insurance carriers and pharmaceutical manufacturers. PBMs create formularies, negotiate rebates (discounts paid by a drug manufacturer to a PBM) with manufacturers, process claims, create pharmacy networks, review drug utilization, and manage mail-order specialty pharmacies. 

In light of rising health care costs, the role of PBMs are being reviewed due to the cost of prescription drugs and the effects on consumers. The cost of insulin has been the focus of much of the news coverage, with patients being forced to ration medicine when they cannot afford copays. 

Background: When insurance companies began offering prescription drugs as a health plan benefit in the 1960s, PBMs were created to help facilitate payment for covered prescription drugs. Originally, PBMs decided which drugs were offered in formularies and administered drug claims. In the 1970s, PBMs began to adjudicate prescription drug claims. In the 1990s, drug manufacturers began acquiring PBMs. Concerns about conflicts of interest caused federal orders for divestment from the Federal Trade Commission, sparking a trend of mergers and acquisitions within the PBM industry. 

Today, there are 66 PBM companies, with the three largest – Express Scripts, CVS Caremark, and OptumRx, processing approximately 79% of all prescription drugs in 2022 and serving about  Americans. 

PBMs are powerful but often behind-the-scenes players in the U.S. health care system. Their primary role is to manage prescription drug benefits on behalf of health insurers, employers, unions, and government programs. Essentially, PBMs act as middlemen between insurance plans, drug manufacturers, and pharmacies, working to control drug spending, process prescription claims, and determine which medications are covered by insurance plans. 

One of the key responsibilities of PBMs is developing and maintaining formularies—lists of drugs that are covered under a given insurance plan. They negotiate with drug manufacturers to secure rebates and discounts in exchange for placing certain drugs in favorable positions on these formularies. PBMs also contract with pharmacies to create pharmacy networks and determine how much those pharmacies will be paid for dispensing medications. 

While PBMs claim to reduce costs for patients and plan sponsors through these negotiations, critics argue that the system lacks transparency and may drive up drug prices in some cases. For instance, PBMs sometimes keep a portion of the rebates they negotiate rather than passing the full amount to insurers or patients. They may also engage in “spread pricing,” where they charge a health plan more for a drug than they reimburse the pharmacy, pocketing the difference. 

Many PBMs are now vertically integrated with large health insurers and own their own mail-order or specialty pharmacies. This allows them to not only manage drug benefits but also dispense medications directly, often steering patients toward their own services. As a result, PBMs hold significant influence over which medications patients receive, where they get them, and how much they pay—making them central players in the broader debate over prescription drug costs in the U.S.

Concerns with PBM business practices focus on transparency to consumers regarding rebates and reimbursements. In a , the Government Accountability Office (GAO) reported that PBMs retain less than 1 percent of rebates in a review of Medicare Part D plans, while passing the rest on to consumers. .

Recent actions taken to regulate or control PBMs include federal actions, state actions, and legal actions.

Federal actions:

Legislative Proposals: Multiple bipartisan bills have been introduced in Congress to regulate PBM practices. Key themes include:
-Transparency: Requiring PBMs to report costs, rebates, and fees to clients and the government.
-Spread Pricing: Banning the practice where PBMs charge health plans more than they reimburse pharmacies.
-Rebate Pass-Through: Mandating that PBMs pass all rebates from drug manufacturers to health plans or patients.
-Out-of-Pocket Costs: Prohibiting copay accumulator programs and requiring rebates to be applied at the point of sale to reduce patient costs.

FTC Investigations: The Federal Trade Commission (FTC) has launched inquiries into PBM business practices, focusing on potential violations of competition and consumer protection laws. In September 2024, the  against the three largest PBMs and their affiliated group purchasing organizations for engaging in anticompetitive and unfair rebating practices that have artificially inflated the list price of insulin drugs, impaired patients’ access to lower list price products, and shifted the cost of high insulin list prices to vulnerable patients.

Medicare and Medicaid: The Centers for Medicare and Medicaid Services (CMS) have implemented regulations to ensure transparency and fair pricing in Medicare Part D and Medicaid managed care plans.

State actions:

Between 2017 and 2023, all 50 states enacted at least one law regulating PBM business practices.

Licensure and Registration: States like California, Louisiana, Maine, and New York require PBMs to be licensed or registered, ensuring they comply with state regulations

Fiduciary Duty: Some states, such as Maine, impose a fiduciary duty on PBMs, requiring them to act in the best interest of health plans and patients

Drug Pricing and Reimbursement: States have enacted laws to limit PBMs' use of spread pricing, ensure fair reimbursement rates for pharmacies and/or regulate the use of Maximum Allowable Cost (MAC) lists to ensure transparency in drug pricing.

Transparency Reporting: States mandate PBMs to report detailed information on drug pricing, rebates, and fees to state regulators and health plans

Pharmacy Network and Access: Laws have been passed to prevent PBMs from discriminating against unaffiliated pharmacies and to ensure patient access to a broad network of pharmacies

Legal challenges:

ERISA Preemption: PBM regulations often face legal challenges under the Employee Retirement Income Security Act (ERISA), which preempts state laws that relate to employee benefit plans. However, the Supreme Court has upheld some state regulations, such as Arkansas' law requiring fair reimbursement for pharmacies.

Ongoing Litigation: States like Oklahoma have taken legal action against PBMs, arguing that their practices harm pharmacies and patients. These cases often seek to establish the legality of state regulations under federal law.

The �Ӱ���Ƶ currently has two model laws that protect the drug benefits of consumers. The Health Carrier Prescription Drug Benefit Management Model Act (#22) provides standards for the establishment, maintenance and management of prescription drug formularies and other procedures used by health carriers that provide prescription drug benefits. The Health Benefit Plan Network Access and Adequacy Model Act #74 establishes standards for the creation and maintenance of networks by health carriers to ensure the adequacy, accessibility and quality of health care services offered under a managed care plan. 

A draft model, focusing on regulating PBMs through a standardized licensing or registration process, was adopted by the Health Insurance and Managed Care (B) Committee in June 2021. However, ultimately the model was not adopted by the full �Ӱ���Ƶ membership. 

On November 2, 2023, a white paper was adopted by the Health Insurance and Managed Care (B) Committee, providing an overview of PBM industry, key stakeholders, functional issues, and state regulations. 

In March 2025, changes were made to the Health Insurance and Managed Care (B) Committee and the Market Regulation and Consumer Affairs (D) Committee to better oversee PBMs and promulgate and enforce regulations. The Health Insurance and Managed Care (B) Committee renamed the Pharmaceutical Benefit Management Regulatory Issues (B) Working Group to be called the Prescription Drug Coverage (B) Working Group to reflect its revised focus on prescription drug coverage issues and regulation, including pharmaceutical drug pricing and transparency, formularies, pharmacy payments, PBMs, and coverage options. The Market Regulation and Consumer Affairs (D) Committee established the Pharmacy Benefit Management (D) Working Group to focus on PBM enforcement, including developing a PBM examination standard and developing PBM licensing and registration standards.