Three companies you've never chosen decide much of what your drugs cost

A pharmacy benefit manager is a company most people have never chosen, never heard of, and cannot see — and yet it helps decide which drugs your insurance covers, how much you pay at the counter, and which pharmacies you can use. Three of these firms now process nearly 80% of all prescriptions dispensed in the United States, and the Federal Trade Commission, after a lengthy investigation, concluded that the way they are structured can inflate what patients pay [s1].

What a PBM actually does

When an insurer offers drug coverage, it usually does not run the drug benefit itself. It hires a pharmacy benefit manager, or PBM, to do it. The PBM builds the formulary — the list of which drugs are covered and on what terms — negotiates rebates and discounts with drug manufacturers, sets how much pharmacies are reimbursed for filling a prescription, and processes the claim when you hand over your card. It sits at the exact center of the transaction, between the manufacturer that sets the list price, the insurer that pays most of the bill, the pharmacy that dispenses the drug, and you.

That central position is lucrative and largely invisible to patients. The PBM's revenue comes from the spread between what it collects and what it pays out, from fees, and from a share of the manufacturer rebates it negotiates. Because those arrangements are confidential, a patient generally cannot see how much of what they pay is the drug's cost and how much is the middleman's margin.

How concentrated the industry is

The Federal Trade Commission spent more than two years examining the industry and published an interim staff report in July 2024. Its central structural finding is about concentration. The three largest PBMs — Caremark, Express Scripts and OptumRx — processed nearly 80% of the approximately 6.6 billion prescriptions dispensed by US pharmacies in 2023, and the six largest processed more than 90% [s1] [s2].

Those three are not independent brokers shopping the market on a patient's behalf. Each is now part of a larger conglomerate that also owns a major health insurer and its own pharmacies — a structure the FTC calls vertical integration [s2]. The report found that pharmacies affiliated with the three largest PBMs accounted for nearly 70% of all specialty drug revenue [s2]. In other words, the same corporate families increasingly own the middleman deciding coverage, the insurer paying the claim, and the pharmacy filling it.

What the regulator says the structure does

The FTC's report is a set of findings from an ongoing study, and it states its concern bluntly: PBMs "may be profiting by inflating drug costs and squeezing Main Street pharmacies," in the agency's framing [s1]. It documented that the largest PBMs can steer patients toward their own affiliated pharmacies and can disadvantage the independent pharmacies they reimburse and compete with at once [s2]. In one example, the report found that PBM-affiliated pharmacies had marked up two specialty cancer drugs enough to retain nearly $1.6 billion in revenue above the drugs' acquisition cost on just those two products over under three years [s2].

The report also situates all of this against the pressure on patients: it noted that nearly 30% of Americans surveyed had rationed or skipped doses of their medications because of cost [s1]. The implication the FTC draws is that a concentrated, vertically integrated set of intermediaries has both the ability and the incentive to raise what flows through the system.

Two honest caveats belong here. First, this is an interim staff report, not a final adjudication or a court finding; it presents the FTC staff's analysis and the industry disputes its conclusions, arguing PBMs lower net costs by extracting manufacturer rebates. Second, the report documents structure, incentives and specific examples more than it produces a single clean estimate of how many dollars PBMs add to the average prescription — a number that the confidentiality of these contracts makes genuinely hard to pin down.

Why it matters to what you pay

The reason a patient should care about an invisible intermediary is that the PBM's decisions reach the counter directly. Whether your drug is covered, which tier it sits on, how large your copay is, whether a cheaper biosimilar or generic is favored over a higher-rebate brand, and whether your neighborhood pharmacy can afford to keep filling your prescriptions are all shaped by PBM contracts you never see. When a low-cost alternative is available but the formulary steers toward a higher-priced drug that carries a larger rebate, the patient can end up paying more so that the flow of money through the middleman stays intact — a dynamic the FTC's report describes and that independent pharmacists have long complained of [s2].

The accurate summary is this: PBMs are the least visible and among the most powerful actors in US drug pricing; the market is dominated by three vertically integrated firms; and the federal regulator that studied them concluded the structure can raise costs — while cautioning, as its own report is interim and the underlying contracts are secret, that the precise dollar effect on any given prescription remains hard to measure.