FEB. 4, 2026: Rep. Buddy Carter, R-Ga., participates in a news conference in the U.S. Capitol on 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
Last month, a bipartisan group of legislators reintroduced the Patients Before Monopolies Act, which aims to prevent healthcare firms that own pharmacy benefit managers (PBMs) from also owning retail pharmacies. If enacted, these companies would have a year to divest their pharmacy assets. This legislation poses a significant challenge to the health insurance sector’s profitability compared to the current PBM reforms.
Companies like Cigna, CVS Health, and UnitedHealth are vertically integrated conglomerates that control various parts of the prescription drug supply chain, including pharmacies, health insurers, and the major PBMs: Express Scripts, CVS Caremark, and OptumRx.
PBMs have historically found ways to adapt to reduced revenue sources and create new ones. This trend is expected to continue, as recent reform measures have left these entities largely unchanged. However, the proposed bill could dismantle these vertically integrated organizations and focus on retail pharmacies, including specialty units, which are major profit centers. Specialty pharmacies dispense and manage high-cost, complex medications for serious or rare health conditions, providing substantial revenue.
PBM Reforms Thus Far
Recent PBM reforms, including the Consolidated Appropriations Act, a Federal Trade Commission settlement, and a Department of Labor proposed rule, have been the focus of media attention. These developments occurred last winter. PBMs function as intermediaries between health insurers, drug manufacturers, and pharmacies, handling prescription drug benefits, negotiating prices, processing claims, and maintaining formularies.
Federal regulations aim to make PBMs more transparent, eliminate hidden fees, and require the pass-through of drug manufacturer rebates to employers and health plans. The Consolidated Appropriations Act seeks to enhance visibility into prescription drug pricing by standardizing PBM reporting on rebates, fees, and spread pricing.
A key policy discussion point is the role of rebates in potentially increasing list prices and patient cost-sharing, which is calculated as a percentage of list prices. Rebates are payments from drug manufacturers to PBMs for promoting products with preferred formulary positions. When a patient fills a prescription for a drug with a rebate, the manufacturer pays the PBM, which then passes some of the rebate to the patient’s plan sponsor, retaining a portion as profit. The percentage passed through varies based on agreements between PBMs and contractors.
The Consolidated Appropriations Act mandates that PBMs pass through 100% of rebates, fees, alternative discounts, and other remuneration received from manufacturers, applicable in both commercial and Medicare markets. This delinks PBM compensation from drug list prices, removing incentives to favor high-priced drugs with high rebates. PBMs will be paid in flat-dollar service fees instead.
The legislation is set to take effect in 2029, with the Department of Labor’s proposed rule requiring self-funded plan sponsors to disclose PBM compensation arrangements starting this year. The FTC settlement requires PBMs to offer plan sponsors a standard option passing rebates and discounts directly to patients at the pharmacy counter, eliminating spread pricing. However, the settlement allows employer plan sponsors to opt out and maintain existing arrangements without rebate pass-through or spread pricing.
Despite the law’s enactment being pending, market shifts from rebate-oriented to net pricing contracts have been observed for some time.
Possible Break-Up
Independently of federal actions, there has been a significant change in PBMs’ primary revenue and profit sources since 2012, shifting from rebates and spread pricing to specialty pharmacy and fees imposed on drug manufacturers, pharmacies, and employer-sponsored plans. Rebates accounted for nearly 50% of revenue in 2012 but dropped to under 15% by 2023, while administrative fees rose from 5% to 22% and specialty pharmacy from 16% to 35%. This revenue mix is likely to have continued changing since 2023.
The forthcoming regulations will further disrupt the rebate system, aligning with ongoing market trends rather than initiating them. However, federal actions are expected to expand their impact.
PBMs have traditionally found ways to add or offset revenue sources, and with current reforms leaving conglomerates intact, they can continue to diversify their revenue streams.
However, separating retail and specialty pharmacies from healthcare companies could significantly impact profitability. State-level efforts to prevent PBM ownership of specialty pharmacies have been made, but federal legislation would have a more extensive effect.
Although bipartisan sponsors support the legislation, its passage is not guaranteed. Nonetheless, a mandated sale of specialty pharmacies would affect PBM profitability. PBMs have increased revenue and profit margins through specialty pharmacies by steering patients to their vertically integrated mail-order and specialty pharmacies, and even manufacturer subsidiaries in the case of biosimilars.
By controlling pharmacies that dispense costly specialty medications, like biologic oncology drugs, vertically integrated PBMs can inflate dispensing margins, restrict provider networks, and under-reimburse independent pharmacies.
Overall, federal actions indicate a shift towards greater scrutiny of PBMs and their opaque operational systems. While recent PBM reforms will drive further industry changes, the anti-trust legislation could have the most substantial impact.
