FEB. 4, 2026: Rep. Buddy Carter, R-Ga., participates in a news conference at the U.S. Capitol on the pharmacy benefit manager reforms included in the Consolidated Appropriations Act. (Bill Clark/CQ-Roll Call, Inc via Getty Images)
CQ-Roll Call, Inc via Getty Images
A bipartisan group of lawmakers reintroduced a sentence last month — the Patient Law Before Monopolies — which would prohibit health care companies with pharmacy benefit managers from owning retail pharmacies. If the bill passes, the companies will have one year to sell their pharmacies. This proposed legislation poses a far greater threat to the profitability of the health insurance industry than any of the PBM reforms that have gone forward to date.
Vertically integrated conglomerates such as Cigna, CVS Health and UnitedHealth control many parts of the prescription drug supply chain, from pharmacies and health insurers to the “Big Three” pharmacy benefit managers — Express Scripts, CVS Caremark and OptumRx, respectively.
Over the years, PBMs have always found ways to offset declining revenue streams and create new ones. They will likely continue to do so, particularly since the entities they belong to have been left untouched by the latest reform measures. But the proposed bill will break up of vertically integrated organizations and targeted retail pharmacies, including specialty units, one of the industry’s most important profit engines. Specialty pharmacies focus on dispensing and managing high-cost, high-complexity drugs for patients with serious, chronic or rare health conditions. As a source of significant revenue streams, this could have a far greater impact than the PBM reform plan currently in place.
PBM reforms so far
Media attention has focused on PBM reforms brought about by passage of the Consolidated Credit Act, a Federal Trade Commission settlement and a proposed rule issued by the Department of Labor, all three of which occurred last winter. PBMs serve as intermediaries between health insurers, drug manufacturers, and pharmacies. They administer prescription drug benefits, negotiate drug prices, including rebates and discounts, process claims, and maintain lists of covered drugs (prescriptions).
Federal regulations targeting PBMs are designed to increase their transparency, eliminate hidden fees and force the pass-through of drugmaker rebates to employers and public and private health plans that go along with the middlemen.
The CAA seeks to give employers and others more visibility into prescription drug pricing by standardizing PBM reporting on items such as rebates, fees and margin prices, or the difference between what PBMs reimburse pharmacies and what they receive from fully insured and self-funded providers.
A focus of policy discussions has been the role of rebates in potentially increasing list prices and thus patient cost-sharing, which is calculated based on percentages of list prices. Rebates are payments from drug manufacturers to PBMs in exchange for shifting market share toward products with preferred positions on formularies or covered drug lists. When a patient fills a prescription for a discounted drug, the drug manufacturer pays an amount to the PBM, according to the terms set forth in the contract. The PBM then passes through a portion of the discount to the patient’s plan sponsor, while retaining a portion as profit. PBMs can pass on up to 100% of these payments to those they contract with. The percentage of the rollover depends on the parameters of the agreements signed between PBMs and contractors.
The CAA requires PBMs to pass on 100% of the “rebates, fees, rebates and other fees” they receive from drug manufacturers. This is true in both the commercial and Medicare markets, where PBM reimbursement must be decoupled from drug list prices, removing the incentive for PBMs to sometimes favor drugs with high list prices and high rebates. PBMs must be paid in fixed bona fide dollar fees and not in rebate portions.
The legislation won’t go into effect until 2029, with the DOL’s proposed rule acting as a bridge to require self-funded plan sponsors to disclose PBM reimbursement arrangements as early as sometime this year.
The third set of regulations included in the FTC settlement states that starting next year, PBMs must offer plan sponsors a standard option that gives manufacturers discounts and rebates directly to patients at the pharmacy counter. In other words, not simply a transfer for donor programming as contemplated in the CAA. Additionally, PBMs must provide standard offerings that eliminate spread pricing. Specifically, the FTC settlement contains a forecast allowing employer plan sponsors to opt out of the standard offering and continue previous arrangements that do not include pass-through of rebates to end users or margin pricing.
Although enactment of the law and other provisions contained in the FTC settlement have not yet occurred, I have seen market shifts from discount-oriented contracts to contracts focused on net pricing for quite some time in all markets.
Possible separation
Regardless of the legislation and other actions of the federal government, there has been a rather dramatic one change on primary sources of revenue and profit for PBMs since 2012, from rebates and margin pricing to specialty pharmacies and various fees imposed on drug manufacturers, pharmacies and employer-sponsored plans. While discounts and related cash flows made up nearly 50% of revenue in 2012, by 2023, the figure had fallen below 15%. Meanwhile, administrative fees were just 5% in 2012, rising to 22% by 2023, and specialty pharmacies from 16% to 35%. Although publicly available data has not yet been released this year, it is likely that this change in the mix of revenue sources will have increased by 2023.
And so, while the regulations in place will further disrupt the rebate system, they follow an already existing process rather than instigating a transformation. However, given the sweeping moves at the federal level, it is expected that the new rules will broaden the scope of the change.
However, PBMs have historically found ways to add or offset revenue streams. And since the conglomerates they own have been left untouched by the current set of reforms, PBMs can continue to diversify where they make money in the system.
But potentially possible Non-retail (specialty) pharmacies, one of the industry’s major profit engines, from healthcare companies can be particularly demanding for profitability.
There have been several attempts at the state level to prohibit PBMs from owning specialty pharmacies. Although legislation at the federal level would have a significantly greater impact given its universal nature.
There is no guarantee that such a law will pass, despite the fact that there are bipartisan sponsors. However, a mandatory sale of specialty pharmacies, in particular, would reduce the profitability of PBMs. They have been able to generate increasingly large revenue streams and high profit margins through specialty pharmacies by directing patients to their own captive, vertically integrated mail order and specialty pharmacies, and even subsidiary manufacturers in the case of biosimilars (biologic medical products that are near-identical versions of the original biologics).
By controlling the pharmacy that dispenses expensive specialty drugs, such as biologic oncology drugs, a vertically integrated PBM can inflate dispensing margins, force patients to use restrictive provider networks, and discriminate against independent pharmacies by submitting them.
Overall, the federal actions reflect a clear shift toward greater scrutiny of PBMs, and specifically the extreme opacity of the system in which these intermediaries operate. While PBM reforms passed earlier this year will prompt further changes in the way business is conducted, it is antitrust legislation that could have the biggest impact.
