by Rupa Palanki
On September 20, the Federal Trade Commission (FTC) filed a landmark lawsuit against the three largest prescription drug benefit managers (PBMs) — Caremark Rx, Express Scripts, and OptumRx — and their affiliated group purchasing organizations. The FTC alleges that these entities engaged in “anticompetitive and unfair rebating practices,” artificially increasing insulin drug prices and shifting costs to vulnerable patients.
This litigation is not an isolated case, but rather represents a broader effort by federal agencies and lawmakers to curb the power of PBMs and reduce drug costs. This article explores the role of PBMs in the health care system and potential next steps for federal reform.
PBMs: The Health Care Middlemen
PBMs act as intermediaries among pharmaceutical companies, drug wholesalers, pharmacies, and health insurers. They negotiate drug prices with manufacturers, design drug formularies (lists of covered drugs and copayment tiers), and manage pharmacy networks. A PBM typically generates revenue in three ways: (1) rebates negotiated with drug manufacturers; (2) spread pricing contracting, whereby PBMs charge insurers more than they pay pharmacies to dispense drugs; and (3) administrative fees for the PBM’s services.
Initially established in the 1950s to control drug spending, PBMs have since evolved into powerful entities. Critics contend that mergers have allowed modern PBMs (and their owners) to concentrate market power, allowing them to profit at the expense of patients and other health system stakeholders. Indeed, the three largest PBMs — Caremark Rx (owned by CVS Health), Express Scripts (Cigna), and OptumRx (UnitedHealthcare) — manage around 80% of American prescriptions.
How PBM Drive Up Costs
This oligopolistic dominance, combined with vertical integration, has created perverse financial incentives for PBMs. According to a House Committee on Oversight and Accountability report, PBMs encourage patients toward higher-cost drugs with greater rebates by placing the products on more favorable tiers. PBMs also can overcharge employers and government programs for prescription drugs due to the opacity of drug pricing. Additionally, PBMs leverage their market power to underpay small pharmacies and guide patients toward their own pharmacies. Thus, PBMs generate revenue for themselves, while patients, employers, and taxpayers lose out.
According to a 2024 KFF study, about half of American adults are worried about affording prescription drug costs and/or monthly health insurance premiums. Moreover, about 20% of Americans have forgone medication due to the cost of prescription drugs. Amidst this health affordability crisis, Democrat and Republican legislators are aligned in advocating for PBM reform.
Federal Legislative Reform Efforts
There is rare bipartisan agreement on the need to reform PBMs. However, while there have been successful state-level reforms, federal efforts have stalled due to legislative gridlock. Key proposals include eliminating spread pricing, instituting more stringent PBM oversight and reporting requirements, reducing transactions between PBMs and their affiliated pharmacies, and limiting PBM remuneration.
This Congressional session, several promising bipartisan PBM reform bills have advanced out of House and Senate committees, including the Telehealth Modernization Act of 2024, the Pharmacy Benefit Manager Reform Act, and the Modernizing and Ensuring PBM Accountability Act. However, with limited time remaining, it remains uncertain which, if any, of these efforts will pass in the current Congressional session. Even if these reforms do not pass this term, bipartisan interest suggests they may be reintroduced and enacted in some manner under next session’s Republican-led Congress.
Potential Executive Action
If Congress fails to act, the next Trump administration may also pursue executive measures against PBMs. In 2020, President Trump issued an Executive Order directing the U.S. Department of Health & Human Services to remove safe harbor protections for PBM rebates under the Anti-Kickback Statute and replace them with limited protections for discounts at the patient’s point-of-sale. While the change in administration ultimately stymied President Trump’s efforts at that time, PBM reform could be a priority for President Trump under his second term.
Conclusion
PBMs hold significant power over prescription drug pricing and access. By addressing the anti-competitive behaviors of these “medication gatekeepers,” the federal government can ensure that lifesaving medications remain within reach for all Americans.
Rupa Palanki is a law student (J.D. 2026), whose research interests include innovative medical technologies and chronic disease policy. She is a graduate of the University of Pennsylvania, where she studied Economics and interned for the U.S. Department of Health & Human Services and the Louisiana Department of Health. Prior to law school, she worked as an analyst at ClearView Healthcare Partners.
