With nearly one in four U.S. adults struggling to afford their prescriptions, policymakers are zeroing in on a critical question: Are pharmacy benefit managers (PBMs) truly delivering on cost savings? Amid the mounting pressure, employers are questioning whether their current PBMs are providing the best value—or if it’s time to explore smaller or more transparent alternatives.
Why Employers Are Rethinking Pharmacy Benefit Managers (PBMs)
Health spending has skyrocketed over the last decade, and many businesses are not seeing an end in sight. Large employers predict a 7.8% hike in health costs in 2025, mostly due to pharmacy costs. With more employers increasingly unhappy with the amount they’re spending on prescription drugs, many are reevaluating their PBM options.
The Concern Over Transparency and Rising Drug Costs
Pharmacy benefit managers are primarily responsible for negotiating drug prices, creating formularies, processing pharmacy claims, and establishing pharmacy networks to control health spending and give patients fair access to appropriate medications.
However, PBMs have recently come under fire for opaque pricing models and hidden rebate practices. The media has also revealed stories in which patients have found that they can purchase a drug for less outside of their healthcare plan.
The Legal and Financial Pressures Businesses Face
In September 2024, the Federal Trade Commission (FTC) brought action against three of the largest PBMs in America: OptumRx, Express Scripts (ESI), and Caremark Rx. The complaint alleges that the PBMs and their respective group purchasing organizations (GPOs) artificially inflated insulin drug prices to boost profits, all at the risk of vulnerable patients.
With growing legal and financial pressures, many employers seek alternative options to demonstrate responsible healthcare spending.
What Employers Want From PBM Partnerships
Employers desire a trusted PBM partner to help them manage pharmacy benefit costs. To address rising costs, employers are demanding greater accountability from PBMs and health plans.
They want a partnership that delivers cost-effective prescription drug benefits by managing formularies, negotiating drug prices, and providing utilization management tools while offering price transparency and flexibility to personalize plans to employee needs.
The Push for Transparent Contracts and Rebate Definitions
A recent survey of 188 companies polled in September and October 2024 shows that 88% of employers consider requiring a thorough definition of “rebate” in their contracts. In addition, 80% are currently using value-based formalities instead of rebate-driven formularies or are considering using them in the next one to three years.
Value-Based Formularies vs. Rebate-Driven Models
The shift from rebate-driven formularies to value-based approaches represents a significant strategy to optimize drug costs and improve patient outcomes. This prioritizes medications based on their clinical effectiveness and overall value rather than on the size of the manufacturer rebates received by the payer.
In addition, switching to a value-based pricing system would promote pharmaceutical innovation in a world where health needs are majorly unmet.
The Market Impact of PBM Scrutiny
Scrutiny toward pharmacy benefit managers significantly impacts the market, leading to increased regulatory pressure, potential price adjustments, and an overall shift in industry dynamics.
There is also increased competition within the industry, putting more pressure on PBMs to lower drug prices and forcing them to pass more savings onto patients and insurers.
Rising Competition Among PBMs Looking to Retain Clients
New research shows that the four largest pharmacy benefit managers in the U.S. currently control about 70% of the national market. CVS represents the largest PBM, with a 21.3% market share, followed by OptumRx at 20.8%, Express Scripts at 17.1%, and Prime Therapeutics at 10.3%.
With more employers dissatisfied with their current arrangement, many want to switch PBMs. These big players must innovate and improve plans to maintain market share.
How Smaller or Transparent PBMs Are Gaining Traction
Growing scrutiny on large PBMs opens the door for smaller or more transparent PBMs. These smaller players offer clearer pricing and data-sharing agreements, making them viable alternatives to traditional PBMs.
Unlike larger PBMs, which may retain a portion of the profit, many smaller and transparent PBMs pass along the full amount of rebates received from drug manufacturers, making this arrangement more appealing to employers and plan sponsors who want greater control over drug costs.
Navigating PBM Relationships With New City
Pharmacy benefit managers are essential partners in managing prescription drug benefits. However, scrutiny of larger PBMs forces many employers to seek relationships with smaller or transparent PBMs.
At New City Insurance, we are dedicated to providing trustworthy employee benefits consulting services and insurance solutions to help modern businesses maximize their cost savings while improving their benefit offerings. Contact us today at 888.210.2765 to get started.