Pharmacy Benefit Managers (PBMs): A brief for legislators
Pharmacy Benefit Managers (PBMs) are powerful intermediaries between drug manufacturers, pharmacies, insurers, and patients. They negotiate rebates and manage prescription benefits for nearly all Americans with drug coverage. While PBMs were created to streamline claims and control costs, concerns have grown about opaque pricing, market concentration, and their impact on patients and independent pharmacies.
Key Findings
1. What PBMs do
PBMs manage prescription drug coverage on behalf of insurers, employers, and government programs like Medicare and Medicaid. Their core functions include designing formularies, negotiating manufacturer rebates, processing claims, and managing pharmacy networks. Three companies—CVS Caremark, Express Scripts, and OptumRx—control about 80% of the PBM market, giving them outsized influence on drug pricing and access.
2. Drug pricing and transparency
PBMs leverage their market power to negotiate rebates from drug manufacturers in exchange for favorable formulary placement. However, because rebate details are confidential, it’s unclear how much of the savings reach patients or health plans. Critics say this system encourages higher list prices and “spread pricing,” where PBMs charge insurers more than they reimburse pharmacies, keeping the difference as profit.
3. Effects on patients and pharmacies
PBMs argue they save money by promoting cost-effective medication use through prior authorization and step therapy. Critics, including the American Medical Association and community pharmacists, say PBM policies can delay treatment, limit drug access, and threaten small pharmacy viability. Independent pharmacies often face lower reimbursements and fees, while vertically integrated PBMs increasingly steer patients to their own pharmacy chains.
4. Michigan’s legislative action
In 2022, Michigan passed reforms requiring PBMs to obtain state licenses, report pricing and rebate data, prohibit “gag clauses,” and ban retroactive payment reductions to pharmacies. These laws position Michigan as a leader in PBM oversight. In 2025, the Attorney General also filed an antitrust lawsuit against two major PBMs, alleging price-fixing and anti-competitive conduct that harmed consumers and local pharmacies.
5. Policy opportunities
Reform efforts at both state and federal levels focus on increasing transparency, licensing oversight, and consumer protections.
Pharmacy Benefit Managers play a central but controversial role in the U.S. drug supply chain. Their practices significantly shape drug prices, pharmacy stability, and patient access to medicines. As Michigan strengthens regulation and oversight, continued reforms—centered on transparency and fair pricing—will be crucial to ensure that PBM operations serve patients, not profits.