Pharmacy benefit managers (PBMs) were supposed to lower drug costs, but instead the system is a maze of hidden markups and quietly absorbed rebates that drive prices up for employers and patients alike. After years of watching PBMs pocket discounts meant for those actually paying the bills, employers are beginning to revolt—abandoning opaque PBMs for a growing class of transparent, flat-fee competitors that make their money through straightforward, predictable fees.
Corporations are feeling the bite of opaque PBM practices of absorbing drug rebates. To avoid this, many employers are turning to transparent PBMs that guarantee 100 percent of negotiated discounts are passed through and rely solely on disclosed fees rather than back-end markups.
Eliminating spread pricing—when PBMs absorb patients’ discounts—aligns PBMs’ incentives with the interests of their clients. Under the traditional model, the most expensive drugs generate the largest rebates for PBMs. Transparent PBMs treat rebates as a pass-through, forcing them to compete by delivering lower-cost medicines, effective medicines—often the generics many legacy PBMs sideline.
Corporations aren’t the only ones making the switch. Local governments, unions, and even mid-size health insurers have begun abandoning opaque PBMs as well. Both the public and private sectors increasingly recognize how PBMs have gamed the system, and they are seeking alternatives. Thankfully, the private market is moving in to help. Members of the Alliance of Community Health Plans commit to operating transparent, fee-based PBMs.
A transparent fee structure also gives employers and pharmacies clear expectations instead of surprise bills. These unexpected PBM fees have been cited repeatedly by independent pharmacies as a reason they have closed shop. Transparent PBMs ease the financial pressure on pharmacies PBMs cause. With pharmacies closing nationwide and leaving patients with fewer options, especially in rural and low-income areas, reducing that pressure is essential to protecting access to medicine.
Patients benefit as well. Transparent PBMs lower out-of-pocket costs—a lifeline for the millions of Americans who skip prescriptions because they can’t afford them. Traditional PBMs profit from the rebates they keep on high-priced drugs; the higher the list price, the more they collect and the more patients pay. When PBMs compete to reduce price instead of rebates, they must negotiate name brand list prices down rather than pushing manufacturers to keep them high, and they have a reason to favor generics when they save patients and insurers money.
Federal and state lawmakers could extend this transparency into the broader PBM market but have so far failed to do so. Requiring PBMs to publicly report what they pay for medicines, what they charge insurers, the fees they impose, and the rebates they retain would allow employers and insurers to accurately compare PBMs based on real performance.
While transparency is the best course, in the absence of federal action, states can at least help raise awareness of the transparent PBMs many public agencies already use. The private sector will continue to innovate and build consumer-focused alternatives to today’s predatory PBMs, with or without legislative action. But transparency reporting would accelerate the shift toward a drug-benefit market that works for patients, pharmacies, and plan sponsors—rather than for PBMs.
Justin Leventhal is a senior policy analyst for the American Consumer Institute, a nonprofit education and research organization that advocates for consumers through evidence-based analysis and data. Visit www.TheAmericanConsumer.Org or follow us on X @ConsumerPal.