Pharmacy Benefit Manager (PBM) Reform

By: Charlotte Hanby, Jennifer Ellis

PBM Overview

Pharmacy Benefit Managers (PBMs) work with health insurers, large employers and other payers to manage prescription drug benefits. The initial role of PBMs was to negotiate reimbursement rates with drug manufacturers, manage prescription drug claims, and reimburse pharmacies for dispensed medications. Since its inception, the role of the PBMs have evolved over time to now being more complex, with multiple lines of business (eg, specialty pharmacies, mail-order pharmacies, and group purchasing). Today, PBMs play a central role in shaping patient access to medications by developing and managing formularies of covered drugs, which significantly impacts the application of utilization management strategies and patient cost-sharing requirements.

The PBM Problem: How Revenue Models May Drive Misaligned Incentives

PBMs generate revenue in several ways:

  • Health insurers compensate PBMs through administrative fees for managing the prescription drug benefits and related services.
  • PBMs receive a share of the manufacturer drug rebates that they negotiate with pharmaceutical companies. However, manufacturers argue that the increasing rebate demands are driving them to raise drug prices.
  • PBMs may also profit from the difference between the amount reimbursed by the insurer and the payment made to pharmacies (otherwise known as “spread pricing”).
  • PBMs can more easily maximize profits through the reduction in competition due to mergers and acquisitions over the years; more than 80% of all prescriptions are filled by 3 pharmacies (CVS Caremark, Cigna Express Scripts, and UnitedHealth Group’s Optum Rx)
  • There is evidence that PBMs and manufacturers enter into agreements that limit access to lower-cost competitors. This includes actions such as formulary exclusions, placement on higher-cost tiers, or implementation of restrictive utilization management rules. These practices often favor higher-cost drugs, which in turn generate larger rebates for PBMs.

Another indirect way that PBMs generate additional revenue is by steering business to their specific pharmacies, which allows them to save on dispensing fees and pharmacy operations costs as well as capture revenue for high-cost drugs by limiting the networks to the pharmacies that they own. PBMs then reimburse other smaller, independent pharmacies at a lower rate.

While PBMs were intended to help control rising drug prices and patient costs through price negotiations and formulary management, many believe that their financial incentives have often driven the opposite effect.

Role of a Pharmacy Benefit Manager in Providing Services and Flow of Funds for Prescription Drugs

Includes establishing formulary and patient adherence programs and implementing utilization management tools, such as prior authorization, step therapy, and tiering, to steer patients toward certain drugs on formulary.

Data: Adapted from Congressional Budget Office, “Prescription Drug Pricing in the Private Sector” (CBO, Jan. 2007).

Source: Kristi Martin, “What Pharmacy Benefit Managers Do, and How They Contribute to Drug Spending” (explainer), Commonwealth Fund, Mar. 17, 2025.
https://doi.org/10.26099/fqag-v980

Key Issues Driving PBM Reform Today

In 2024, 24 states have taken action in the form of passing 33 bills aimed at regulating PBMs. Example legislation included prohibiting “spread pricing” and mandating that PBMs provide reports on the rebates that they receive. The momentum continues to grow in 2025, as more states have introduced legislation for PBM reform.

Other areas considered for PBM reform include:

  • Delinking rebates from the drug’s list price (restrict basing rebates on list prices, which incentivizes higher drug prices)
  • Requiring greater transparency through increased data reporting (eg, providing more details on rebates, how prescription claims are priced, standardized pricing terms in pharmacy contracts)

Legal Challenges Targeting PBMs: Reform in Action

PBMs have faced more scrutiny in recent years, resulting in several lawsuits against PBMs; PBMs are also countersuing:

  • Federal Trade Commission (FTC) filed an administrative complaint against the “Big 3” for inflating insulin prices. Subsequently the “Big 3” filed suit against the FTC to prevent the insulin complaint proceedings.
  • Express Scripts filed a defamation suit against the FTC following the FTC’s claims in an industry report that found PBMs are steering and preferencing higher cost drugs.
  • National Community Pharmacists Association (NCPA) member and Iowa pharmacy owner Matt Osterhaus filed a lawsuit against the vertically integrated CVS Health, Caremark, and Aetna, alleging that the pharmacy Direct and Indirect Remuneration (DIR) fees they assess violate federal antitrust laws and state contract laws.
  • Old Baltimore Pike Apothecary, Inc. and Smith’s Pharmacy II, Inc. filed a class action lawsuit against GoodRx, CVS Caremark, Express Scripts, MedImpact, and Navitus Health Solutions. The lawsuit claims these companies worked together to fix prices that PBMs pay pharmacies, leading to lower reimbursements and higher fees for independent pharmacies.

How Magnolia Market Access Can Support Manufacturers in Responding to PBM Reform

With the mounting pressure on the PBM industry, Magnolia can help you navigate the changing landscape and protect patient access through strategic, data-driven market access solutions. Here are several ways we support manufacturers in responding to PBM reform:

  • Navigate Shifting Rebate and Pricing Strategies: With increased scrutiny on rebates and formulary placement, our team helps manufacturers develop pricing strategies that align with new transparency requirements and evolving PBM contracting models, including net-price or cost-plus approaches.
  • Model Financial Impact of Access and Coverage Changes: We build financial models to quantify how reforms—such as spread pricing bans, copay accumulator restrictions, or delinking PBM compensation from list price—affect gross-to-net dynamics, market access budgets, and patient affordability strategies.
  • Inform Payer and Channel Strategy Adjustments: PBM reform may shift decision-making authority to payers or pharmacies. We support segmentation and targeting strategies to prioritize the right access stakeholders across commercial, Medicare, and Medicaid channels.
  • Monitor and Interpret Legislative and Regulatory Trends: With federal and state PBM reforms accelerating, our policy expertise ensures manufacturers stay ahead of changes—translating complex policy shifts into actionable insights and access strategies.

Partner with Magnolia Market Access 

Contact us today to learn more about how we can support your market access strategy in this evolving environment. Our team is ready to help you stay ahead of PBM reforms and ensure sustainable access for your therapies

Related Content:

What Is Cost-Effectiveness Research?
Impacts of Cost-Effectiveness Assessments on Patient Access in PDAB States

References:

  1. https://oversight.house.gov/wp-content/uploads/2024/07/PBM-Report-FINAL-with-Redactions.pdf
  2. https://www.commonwealthfund.org/publications/explainer/2025/mar/what-pharmacy-benefit-managers-do-how-they-contribute-drug-spending
  3. https://www.ftc.gov/terms/pharmacy-benefits-managers-pbm
  4. https://www.reuters.com/business/healthcare-pharmaceuticals/ftc-puts-hold-insulin-lawsuit-against-drug-middlemen-2025-04-02/
  5. https://www.fiercehealthcare.com/payers/pbms-strike-back-ftc-claim-administrative-process-unconstitutional
  6. https://www.fiercehealthcare.com/payers/express-scripts-files-suit-against-ftc-demands-retraction-report-pbm-industry
  7. https://ncpa.org/hp-pbms-are-docket-two-legal-fights-2024
  8. https://www.ajmc.com/view/goodrx-pbms-hit-by-price-fixing-lawsuits
  9. https://www.pharmacytimes.com/view/pbm-reform-takes-off-in-2025