PBMs: The Invisible Middlemen Driving Up America’s Drug Prices
Introduction – The Hidden Players in Your Pharmacy Bill
Most Americans think high prescription drug prices are set by drug manufacturers. While manufacturers are part of the problem, a lesser-known group of middlemen—Pharmacy Benefit Managers (PBMs)—quietly extract billions from the healthcare system every year. These companies decide which drugs your insurance will cover, how much you’ll pay, and how much your local pharmacy gets reimbursed. And they’re doing it with almost no transparency.
The Origins of PBMs – Good Intentions Gone Bad
PBMs started in the 1960s as administrative service providers, helping insurance companies process prescription claims. At first, they negotiated discounts from drugmakers to save insurers and patients money. But over time, PBMs merged, bought out competitors, and integrated vertically with insurers and mail-order pharmacies.
Today, three PBMs—CVS Caremark, Express Scripts, and OptumRx—control nearly 80% of the U.S. market. All three are owned by massive insurance companies: CVS Health (which owns Aetna), Cigna, and UnitedHealth Group. This consolidation has shifted PBMs from neutral negotiators into profit-driven giants with every incentive to keep drug prices high.
The PBM Playbook: How They Make Money at Your Expense
- Spread Pricing
PBMs reimburse pharmacies one amount, then charge the health plan or employer a higher amount for the same drug—pocketing the “spread” as profit. - Rebate Walls
PBMs demand big rebates from drug manufacturers in exchange for putting their drugs on the insurance formulary (the covered list). High-rebate drugs often come with higher list prices, meaning patients and plan sponsors may pay more. - Clawbacks
In some cases, patients pay more in copays than the total cost of the drug—PBMs keep the difference. - Steering and Vertical Integration
PBMs push patients toward their own mail-order or specialty pharmacies by limiting coverage or reimbursement for independent pharmacies.
Who Gets Hurt
- Patients – They face higher out-of-pocket costs and limited access to certain drugs. Sometimes a cheaper drug is available, but the PBM’s formulary won’t cover it because it doesn’t generate enough rebate revenue.
- Employers – Many employer health plans unknowingly overpay for prescriptions because of opaque PBM contracts filled with hidden fees and spread pricing.
- Independent Pharmacies – Thousands of community pharmacies have closed in the last decade, especially in rural areas, as PBM reimbursement rates drop below the cost of the drug itself.
The Transparency Problem
PBM contracts are notoriously complex, filled with clauses that make it almost impossible for employers, state governments, or even health insurers to know the real price of a drug. Because PBMs operate in a largely unregulated space, they can label nearly anything as “proprietary,” shielding their pricing strategies from oversight.
Why Reform is So Hard
PBMs spend millions on lobbying and political contributions every year to block or water down reform bills. They frame themselves as cost-saving negotiators—when in reality, their incentives often run directly counter to lowering prices for patients. The vertical integration of PBMs with insurance companies and pharmacies makes it even harder to untangle their influence.
What Reform Could Look Like
- Ban spread pricing in Medicaid and other government-funded programs.
- Require full rebate pass-through to employers and patients.
- Prohibit gag clauses that stop pharmacists from telling patients about cheaper alternatives.
- Increase transparency by mandating detailed reporting on rebates, fees, and reimbursement rates.
- Break up vertical integration to prevent PBMs from steering patients to their own pharmacies.
Conclusion – The First Step Is Awareness
PBMs operate behind the scenes, but their decisions impact every person who fills a prescription in America. Understanding the PBM problem is the first step toward building the political will for change. Without reform, drug prices will keep climbing, independent pharmacies will keep closing, and patients will keep paying the price.
If you’re insured, if you take medication, or if you simply care about fair competition, this fight affects you. PBM reform isn’t a technical policy issue, it’s a kitchen table issue, and it’s time we treated it like one.
Daniel Strause is a CPA and graduate of UW–Whitewater with a BBA in Accounting. He began his career at Arthur Andersen as an auditor, where he developed a core principle of “trust but verify.” In 2003, he founded Hometown Pharmacies of Wisconsin and served as CFO for 20 years, gaining firsthand knowledge of the challenges in retail pharmacy—an industry where prices are controlled not by providers but by powerful middlemen, Pharmacy Benefit Managers (PBMs).
Since 2016, Daniel has been deeply engaged in educating legislators about PBMs’ hidden and harmful practices. His grassroots advocacy helped build bipartisan support for PBM reform in Wisconsin, including over 100 legislative co-sponsors and a historic public hearing where patients and pharmacists spoke out against industry abuses. Although the bill was ultimately gutted, the experience revealed to him how money and lobbying often outweigh public interest in politics.
Determined to fight back with education and awareness, Daniel partnered with experts and launched a documentary project that grew into a docuseries exposing PBM profiteering and its devastating impact on patients and communities. The first episode was briefly carried by Amazon before being censored under pressure from UnitedHealthcare, a move that drew national attention—including a front-page New York Times article on corporate censorship.
Today, Daniel continues to advocate for PBM reform and health care transparency, building coalitions of patients, providers, and policymakers to challenge what he calls the “Collusion Cartel” of PBMs, insurers, and health plans.
To get involved or for more information visit Patientprotector.us or Modernmedicalmafia.com
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