In the United States, a pharmacy benefit manager (PBM) is a third-party administrator of prescription drug programs for commercial health plans, self-insured employer plans, Medicare Part D plans, the Federal Employees Health Benefits Program, and state government employee plans. PBMs operate inside of integrated healthcare systems (e.g., Kaiser Permanente or Veterans Health Administration), as part of retail pharmacies (e.g., CVS Pharmacy), and as part of insurance companies (e.g., UnitedHealth Group).
The role of pharmacy benefit managers includes managing formularies, maintaining a pharmacy network, setting up rebate payments to pharmacies, processing prescription drug claims, providing mail order services, and managing drug utilization. PBMs act as the middlemen between pharmacies, drug manufacturers, wholesalers, and health insurance plan companies.
As of 2023, PBMs managed pharmacy benefits for 275 million Americans and the three largest PBMs in the US, CVS Caremark, Cigna Express Scripts, and UnitedHealth Group's Optum Rx, make up about 80% of the market covering about 270 million people with a market of almost $600 billion in 2024.
This consolidation and concentration has led to lawsuits and bipartisan criticism for unfair business practices. In 2024, The New York Times, Federal Trade Commission, and many states' attorneys general accused pharmacy benefit managers of unfairly raising prices of drugs.
Additionally, several states have created regulations and policies concerning PBM business practices.
Business model In the United States, health insurance providers often hire an outside company to handle price negotiations, insurance claims, and distribution of prescription drugs. Providers that use such pharmacy benefit managers include commercial health plans, self-insured employer plans, Medicare Part D plans, the Federal Employees Health Benefits Program, and state government employee plans. PBMs are designed to aggregate the collective buying power of enrollees through their client health plans, enabling plan sponsors and individuals to obtain lower prices for their prescription drugs. PBMs negotiate price discounts from retail pharmacies, rebates from pharmaceutical manufacturers, and mail-service pharmacies which home-deliver prescriptions without consulting face-to-face with a pharmacist.
Pharmacy benefit management companies can make revenue in several ways. First, they collect administrative and service fees from the original insurance plan. They can also collect rebates from the manufacturer. Traditional PBMs do not disclose the negotiated net price of the prescription drugs, allowing them to resell drugs at a public list price (also known as a sticker price), which is often higher than the net price they negotiate with the manufacturer. This practice is known as "spread pricing". The industry argues that savings are trade secrets.Sarpatwari A, Avorn J, Kesselheim AS. An Incomplete Prescription.President Trump’s Plan to Address High Drug Prices. JAMA. 2018;319(23):2373–2374. doi:10.1001/jama.2018.7424 Pharmacies and insurance companies are often prohibited by PBMs from discussing costs and reimbursements. This practice has raised concerns about a lack of transparency. Therefore, states are often unaware of how much money they lose due to spread pricing, and the extent to which drug rebates are passed on to enrollees of Medicare plans. In response, states like Ohio, West Virginia, and Louisiana have taken action to regulate PBMs within their Medicaid programs. For instance, they have created new contracts that require all discounts and rebates to be reported to the states. In return, Medicaid pays PBMs a flat administrative fee.
Formulary
PBMs advise their clients on ways to "structure drug benefits" and offer complex selections at a variety of price rates from which clients can choose. This happens by constructing a "formulary" or list of specific drugs that will be covered by the healthcare plan. The formulary is usually divided into several "tiers" of preference, with low tiers being assigned a higher copay to incentivize consumers to buy drugs on a preferred tier. Drugs that do not appear on the formulary at all mean consumers must pay the full list price. To get drugs listed on the formulary, manufacturers are usually required to pay the PBM a manufacturer's rebate, which lowers the net price of the drug, while keeping the list price the same.
The complex pricing structure of the formulary can have unexpected consequences. When filing an insurance claim, patients usually are charged an insurance copayment, which is based on the public list price, and not the confidential net price. Around a quarter of the time, the cost of the insurance copayment on the list price is more than the entire price of the drug bought directly in cash. The PBM can then pocket the difference, in a practice known as a "clawback". Consumers can choose to buy the drug in cash, but in their contracts with pharmacies, PBMs often forbid pharmacists from telling consumers about the possibility of buying their medication for a cheaper price without an insurance claim, unless consumers directly ask about it. Since 2017, six states have passed legislation making such "gag clauses" illegal. This has recently been followed by a federal bans on gag orders for private insurance effective Oct 2018, and for Medicare effective Jan 2020.
PBM-affiliated Group Purchasing Organizations (GPOs) Healthcare group purchasing organizations, or GPOs, are entities meant to negotiate contracts and rebates with drugmakers. Theoretically, these GPOs can leverage an aggregate of rebates for greater bargaining power in negotiations.
Starting in 2019, each of the three major PBMs established affiliated GPOs, with Express Scripts creating Ascent Health Services in 2019, CVS Health creating Zinc Health Services in 2020, and OptumRx creating Emisar Pharma Services in 2021. Both Emisar Pharma and Ascent are headquartered in Ireland and Switzerland, respectively. Critics argue that these PBM-affiliated GPOs allow PBMs to avoid regulations and audits, an additional outlet for fee capture, and a safe harbor from antikickback statutes. The U.S. Federal Trade Commission noted these GPOs in their 2022 PBM investigation, leading to the House Oversight Committee to file a probe into their business practices.
A 2026 investigation by Hunterbrook Media found that these business entities operate as "ghost headquarters" with little day-to-day activities and minimal employees. Following sweeping PBM reform in the 2026 Consolidated Appropriations Act, legislators have expressed interest in exploring GPOs as a next step of PBM regulation.
Net effect on consumers The New York Times, Federal Trade Commission, and many states' attorneys general argue PBMs unfairly raise prices on drugs.
A report by House Committee on Oversight and Accountability chairman, Kentucky Rep. James Comer, found that PBMs use utilization schemes to increase pricing for payers and health plans.
Effect on independent pharmacies PBMs regulate how much community pharmacies are reimbursed by drug companies and health insurance plans for the drugs they sell. PBMs are not required to share how these rebate rates are calculated, and this can result in local pharmacies being paid back less or the same as the sticker prices of the drugs themselves.
Vertical integration of PBMs can lead to a preference for PBM-affiliated pharmacies compared to unaffiliated pharmacies. Some PBMs may increase the reimbursement rates for affiliated pharmacies compared to unaffiliated pharmacies. Because of this, unaffiliated pharmacies compete with affiliated pharmacies in the dispensing of drugs. For example, the vertical integration of the three largest PBMs, CVS Caremark, Cigna Express Scripts, and UnitedHealth Group’s Optum Rx, in which each owns its own insurance companies and pharmacies, allows PBMs to divert patients away from unaffiliated independent pharmacies and toward their affiliated pharmacies.
History
In 1968, the first PBM was founded when Pharmaceutical Card System Inc. (PCS, later AdvancePCS) invented the plastic benefit card. By the "1970s, [they] serve[d] as fiscal intermediaries by adjudicating prescription drug claims by paper and then, in the 1980s, electronically".
By the late 1980s, PBMs had become a major force "as health care and prescription costs were escalating". Diversified Pharmaceutical Services was one of the earliest examples of a PBM which came from within a national health maintenance organization UnitedHealth Group#UnitedHealthcare (now UnitedHealth Group).
In August 2002, the Wall Street Journal wrote that while PBMs had "steered doctors to cheaper drugs, especially low-cost generic copies of branded drugs from big pharmaceutical companies" from 1992 through 2002, they had "quietly moved" into marketing expensive brand name drugs.
In 2007, when CVS acquired Caremark, the function of PBMs changed "from simply processing prescription transactions to managing the pharmacy benefit for health plans", negotiating "drug discounts with pharmaceutical manufacturers", and providing "drug utilization reviews and disease management". PBMs also created a formulary to encourage or even require "health plan participants to use preferred formulary products to treat their conditions". In 2012, Express Scripts and CVS Caremark transitioned from using tiered formularies, to those that excluded drugs from their formulary.
Market and competition
As of 2013, in the United States, most of the large managed prescription drug benefit expenditures were conducted by about 60 PBMs. Few PBMs are independently owned and operated; they operate inside of integrated healthcare systems (e.g., Kaiser Permanente or Veterans Health Administration), as part of retail pharmacies, major chain drug stores (e.g., CVS Pharmacy or Rite-Aid), and as subsidiaries of managed care plans or insurance companies (e.g., UnitedHealth Group).
As of 2015, the three largest public PBMs were Express Scripts by Cigna, CVS Health (formerly CVS Caremark, by CVS Aetna) and OptumRx/Catamaran by United Health.
As of 2022, Caremark Rx, Express Scripts, OptumRx, Humana, Prime Therapeutics, and MedImpact Healthcare Systems were the six largest PBMs that control 95% of the market, while the top three controlled 80% of the market. As of 2024, the top 3 controlled a market of almost $600 billion.
The National Community Pharmacists Association reported that health insurance premiums increased by a nationwide average of 16.66% between 2015 and 2019. In states with licensing regulations, the increase in premiums was 0.3% lower than the national average, while in states without these regulations, it was 0.4% above the average.
Express Scripts In 2012, Express Scripts acquired rival Medco Health Solutions for $29.1 billion and became "a powerhouse in managing prescription drug benefits". In 2015, Express Scripts Holding Company was the largest pharmacy benefit management organization in the United States.
In October 2015, Express Scripts began reviewing pharmacy programs run by AbbVie Inc and Teva Pharmaceuticals Industries Ltd regarding the potential use of tactics that "can allow drugmakers to work around reimbursement restrictions" from Express Scripts and other insurers. These reviews resulted from investigations into "questionable practices" at Valeant Pharmaceuticals International Inc's partner pharmacy, Philidor Rx Services.
In 2018, Cigna bought Express Scripts in a deal valued at $67 billion. At the time, Express Scripts was the second-largest PBM, managing around 80 million people. This merger was contributed to a sweeping inquiry by the U.S. Federal Trade Commission (FTC) into the PBM industry in 2022.
As of 2025, Cigna's Express Scripts is the largest PBM in the United States by market share, after overtaking CVS Caremark.
CVS Health