Prescription Drugs Are Expensive. Don't Weaken the Buyers Negotiating Their Prices.

Prescription drugs in America are expensive. That fact has produced unusual political agreement.

Republicans and Democrats have scrutinized pharmaceutical manufacturers, insurers and pharmacy benefit managers. Congress has passed major new transparency requirements. Federal regulators have challenged PBM business practices. States have introduced their own rules governing pharmacy networks, reimbursement and corporate ownership.

Some of that scrutiny is warranted.

But amid the rush to reform the prescription drug market, policymakers should be careful not to weaken one of the mechanisms capable of putting downward pressure on drug costs: purchasing power.

Pharmacy benefit managers, or PBMs, negotiate with drug manufacturers on behalf of health plans, employers and government programs covering millions of Americans. They develop formularies, negotiate discounts and rebates, create pharmacy networks, process claims and manage prescription drug benefits.

The largest PBMs wield enormous market power. That power deserves oversight. But it also creates negotiating leverage. And when the company selling a drug is itself a multibillion-dollar global enterprise, eliminating the scale of the buyer is not necessarily a recipe for lower prices.

The better objective is straightforward: Make purchasing power work for the consumer.

What do pharmacy benefit managers actually do?

PBMs sit between several parts of America's complicated pharmaceutical supply chain.

A health plan or employer hires a PBM to administer its prescription drug benefit. The PBM then negotiates with pharmaceutical manufacturers, contracts with pharmacies, processes prescription claims and helps determine which medications the health plan will cover and under what conditions.

One of the PBM's most important functions is negotiation. Drug manufacturers frequently offer rebates or discounts in exchange for favorable formulary placement. Those negotiated savings can reduce the overall cost of a health plan's pharmacy benefit and, in some circumstances, help reduce premiums or patient costs. KFF notes that rebates negotiated by PBMs can lower the cost of drug benefits for health plans and may translate into lower premiums or lower out-of-pocket costs.

That basic function is easy to overlook in the political debate. PBMs are called "middlemen," which makes their role sound inherently unnecessary. But intermediation itself is not evidence of waste. Amazon sits between manufacturers and consumers. Visa sits between merchants and banks. Wholesalers sit between factories and retailers. Logistics companies sit between producers and customers.

The relevant question is whether that intermediary creates more value than it captures, not if it structurally deserves to exist.

Scale matters when negotiating with large drug manufacturers

America's largest PBMs are unquestionably large.

The three biggest — CVS Caremark, Express Scripts and OptumRx — managed approximately 79% of U.S. prescription drug claims in 2023, according to data cited by KFF and the Federal Trade Commission.

That concentration creates legitimate concerns about competition. It also creates negotiating leverage.

Imagine the alternative.

An individual patient has virtually no ability to negotiate the price of a patented medication with a multinational pharmaceutical company. A small employer covering 200 workers has limited leverage. A large purchaser representing tens of millions of prescription claims has considerably more.

Scale allows a buyer to say that access to millions of covered lives depends on price, formulary terms and demonstrated value.

That does not guarantee the resulting deal is good for the consumer. But the bargaining power itself has value.

Health policy should be extremely careful about confusing market power that needs guardrails with purchasing power that consumers need.

The problem isn't negotiation. It's misaligned incentives.

Some PBM practices have created legitimate reasons for reform.

Traditional rebate structures can create incentives to favor medications with higher list prices and larger rebates rather than products with lower upfront prices. And spread pricing can allow a PBM to charge a health plan more for a prescription than it reimburses the pharmacy and retain the difference.

Those are real issues.

Federal policymakers have responded aggressively.

In February 2026, Congress enacted major PBM provisions as part of the Consolidated Appropriations Act. Among other reforms, the law requires PBMs serving covered employer health plans to pass through 100% of certain manufacturer rebates and remuneration to the plans they serve. It also creates extensive reporting requirements covering drug spending, pharmacy reimbursement, rebates and other compensation. For Medicare Part D, future rules will delink certain PBM compensation from drug prices and rebates and instead rely on bona fide service fees.

That is an important distinction.

Congress did not eliminate PBMs or change the way their businesses were structured. It changed the rules governing how they make money. That is often what good regulation should do. If an incentive produces the wrong behavior, fix the incentive. You do not need to eliminate the scale, infrastructure or negotiating capability surrounding it.

Recent FTC settlements demonstrate the same principle

The Federal Trade Commission has also challenged PBM practices involving insulin.

In February, the FTC reached a settlement with Express Scripts after alleging that rebate practices helped inflate insulin list prices and disadvantaged lower-list-price alternatives.

In July, the agency reached a separate settlement with Caremark. Both settlements require changes designed to increase transparency and reduce problematic incentives. The FTC estimates its Caremark settlement could lock in up to $8.5 billion in consumer savings over 10 years and create the possibility of additional savings through point-of-sale rebates.

Again, notice what the remedy is doing.

It is changing behavior. It is increasing transparency. It is changing compensation. It is protecting consumers. It is not based on the premise that large-scale pharmacy-benefit management itself has no value. Because, again, consumers need the negotiating power that PBMs bring to the table to keep the cost of prescription drugs down.

Texas offers an important case study

Texas' prescription drug transparency data provides another useful window into how the system operates. According to the Texas Department of Insurance, 17 PBMs reported receiving payments from pharmaceutical manufacturers in 2025. Those PBMs reported passing $5 billion to health-plan issuers. They reported $15.3 million passed directly to enrollees. And they reported retaining $11.59 million as revenue from those manufacturer payments.

The data still illustrates why policymakers need more visibility into the pharmaceutical supply chain, not less. Transparency lets employers, regulators and consumers ask the questions that actually matter.

How much was negotiated?

Where did the savings go?

How much did the PBM retain?

How much reduced plan costs?

How much reached the patient at the pharmacy counter?

Those are much more useful questions than simply asking whether a PBM is large.

States should be careful with structural bans

Some states are moving beyond transparency and compensation reform.

Arkansas enacted a first-in-the-nation law intended to prevent PBMs from owning or operating pharmacies, although enforcement has been blocked in federal court.

Tennessee adopted a similar restriction in 2026, scheduled to take effect in 2028, prompting lawsuits from major industry participants.

The concern behind these laws is understandable. When the same organization helps determine a pharmacy network and owns a pharmacy inside that network, policymakers naturally worry about self-dealing and patient steering. Those practices should be examined.

But outright structural separation comes with another question:

What efficiencies disappear when integrated operations are broken apart?

A vertically integrated pharmacy organization may be able to combine drug purchasing, specialty pharmacy services, delivery infrastructure, claims systems, clinical data and patient support across a national population.

That can create conflicts.

It can also create efficiencies.

Policy should distinguish between the two.

If a company uses integration to unfairly exclude competitors, regulate the exclusion.

If it reimburses affiliated pharmacies differently without legitimate justification, address the reimbursement practice.

If patients are being improperly steered, establish meaningful consumer protections.

If financial arrangements are hidden from the employers paying the bills, require disclosure.

But forcing a company to dismantle an integrated business model should require stronger evidence than the mere possibility that integration could be abused.

Transparency can make competition stronger

There is an appealing but mistaken assumption that regulation and large enterprise always sit on opposite sides of the table. They do not have to.

Some transparency rules can actually make markets work better. Employers cannot negotiate effectively with their PBMs if they do not understand how those PBMs are paid. Health plans cannot compare vendors intelligently without comparable pricing information. Consumers cannot choose lower-cost options when prices are opaque.

The federal reforms enacted this year move toward giving purchasers more information about rebates, compensation and prescription spending. The Department of Labor has also proposed additional disclosure requirements for PBMs serving self-insured employer plans. That is consistent with a pro-market approach.

Give the buyer better information.

Give the buyer audit rights.

Make vendors compete for the business.

Then let sophisticated purchasers use that information to demand better terms.

The Congressional Budget Office has previously assumed that greater PBM transparency could reduce prescription costs and modestly reduce group health insurance premiums because insurers and plan sponsors would have more information about how their PBMs operate. That is regulation strengthening competition rather than replacing it.

Drug affordability requires strong buyers as well as competitive sellers

Much of America's drug-pricing debate focuses on who sells medicine. That makes sense. But functioning markets also depend on who buys it. A fragmented purchasing market negotiating against highly sophisticated global drug manufacturers would very likely not produce lower prices. Large employers understand this. Large insurers understand it. Government programs understand it.

They aggregate purchasing power because scale changes the negotiation. The challenge is making sure the resulting savings flow toward the people and organizations footing the bill.

That means employers. Health plans. Taxpayers. And, most importantly, patients.

PBM reform should follow a simple principle

America does not have to choose between an unregulated PBM market and the elimination of large pharmacy-benefit organizations.

There is a better path. Require transparency. Align compensation with value rather than list prices. Give employers the information and audit rights they need to negotiate effectively. Protect independent pharmacies from demonstrably unfair conduct. Give patients meaningful pharmacy choice. Make lower-cost medicines competitive on formularies. And preserve the ability of large purchasers to negotiate aggressively with drug manufacturers.

Prescription drugs will not become more affordable simply because the buyer becomes weaker. The objective should be to make America's largest health care purchasers use their scale for the people they represent.

That is a harder policy challenge than simply attacking "middlemen." It is also far more likely to produce a health care system that is more competitive, more transparent and ultimately more affordable.