Pharmacy benefit managers (PBMs) often restrict patient access to cheaper medicines by controlling drug formularies and utilizing rebate systems that incentivize higher-priced medications over lower-cost alternatives. These middlemen, who manage prescription drug benefits for insurers and employers, influence which drugs are covered and the cost patients pay at the pharmacy counter, according to reports from the Federal Trade Commission (FTC).
The impact of this system is most evident in the “rebate wall,” where PBMs receive payments from manufacturers to keep more expensive drugs on a preferred list. This practice can effectively block cheaper generics or biosimilars from reaching patients, even when doctors prescribe them. The FTC’s 2024 interim report on PBMs highlights how these entities have grown in size and influence, creating a concentrated market that can stifle competition and raise prices for consumers.
For many patients, the result is a “sticker shock” at the pharmacy. While the list price of a drug may be high, the actual cost paid by the PBM is often lower due to rebates. However, those savings are not always passed to the patient. Instead, the PBM may charge a high copay based on the list price, while pocketing the difference or using the rebate to negotiate better terms with other providers.
How PBMs Control Medication Access
Pharmacy benefit managers operate as intermediaries between drug manufacturers, pharmacies, and health insurance plans. Their primary tool for control is the formulary—a list of medications covered by a health plan. According to the Federal Trade Commission, PBMs use these formularies to steer patients toward specific drugs, often those that provide the PBM with the largest financial incentive.
This steering occurs through “tiering,” where drugs are placed in different cost categories. A cheaper generic might be placed in a higher tier than a brand-name drug if the brand-name manufacturer offers a significant rebate to the PBM. Consequently, a patient might pay a $15 copay for a brand-name drug that costs the system $1,000, while paying a $50 copay for a generic that costs the system $10.
The PBM’s role extends to the pharmacy level through “contracted networks.” PBMs determine which pharmacies are “in-network.” If a pharmacy refuses to accept a PBM’s low reimbursement rates, the PBM may remove them from the network, forcing patients to use preferred pharmacies that may be further away or less equipped to handle complex medication needs.
The Mechanics of the Rebate Wall
The “rebate wall” is a strategic barrier used by pharmaceutical companies and PBMs to maintain high prices. In this arrangement, a manufacturer provides a rebate to a PBM on the condition that the PBM does not give a preferred position to a cheaper competitor, such as a biosimilar. This creates a financial disincentive for the PBM to introduce lower-cost options into the market.
This dynamic is particularly prevalent in the biologics market. Biosimilars are highly similar, lower-cost versions of original biologic drugs. While they are designed to increase competition, the FTC has noted that PBMs may exclude these cheaper alternatives from formularies to protect the rebate streams they receive from the original, more expensive manufacturer.
The result is a distorted market where the “lowest price” is not the driver of selection. Instead, the “highest rebate” becomes the priority. This means that even if a physician identifies a more affordable and equally effective medication, the insurance company—driven by the PBM’s formulary—may deny coverage, requiring the patient to undergo a “step therapy” process. Step therapy requires patients to try and fail on a more expensive, preferred drug before the insurer will cover the cheaper alternative.
Impact on Patients and Healthcare Providers
The lack of transparency in PBM contracts makes it difficult for patients and doctors to understand why a specific drug is being denied or why a cheaper version is unavailable. Physicians often report spending hours on “prior authorization” requests—paperwork required by PBMs to prove a drug is medically necessary—which diverts time from patient care.
For patients, the financial burden is direct. According to data from the Kaiser Family Foundation (KFF), a significant number of Americans report skipping doses or abandoning prescriptions due to high costs. When PBMs block cheaper alternatives, patients are forced to either pay out-of-pocket for the generic or pay high copays for the brand-name drug.
This system also affects independent pharmacies. PBMs often employ “clawbacks,” where they charge the pharmacy a fee after a prescription has been filled, sometimes resulting in the pharmacy losing money on the transaction. This has led to a decline in independent pharmacies, further concentrating the power of large pharmacy chains that have the scale to negotiate with PBMs.
Regulatory Responses and Future Outlook
Legislative efforts to curb PBM power are gaining momentum in the United States. Several states have introduced “PBM Transparency” laws, requiring these companies to disclose the rebates they receive and how those savings are passed to consumers. At the federal level, the Inflation Reduction Act of 2022 introduced measures to allow Medicare to negotiate prices for certain high-cost drugs, which may shift the leverage away from PBMs and manufacturers.
The FTC continues to investigate the competitive practices of the three largest PBMs, which together control a vast majority of the prescription drug market. The agency is examining whether these companies use their market power to engage in anticompetitive behavior that harms both pharmacies and patients.
Industry advocates for PBM reform argue that the only way to lower costs is to “delink” PBM compensation from the price of the drug. Instead of earning a percentage of the drug’s cost or a rebate, PBMs would be paid a flat fee for their administrative services, removing the incentive to prefer more expensive medications.
The next major milestone in this regulatory shift will be the ongoing implementation of Medicare price negotiations under the Inflation Reduction Act, with the first set of negotiated prices expected to take effect in 2026. These updates will likely trigger further legal challenges from pharmaceutical manufacturers and PBMs regarding the legality of government-mandated pricing.
Do you have experience with prescription drug costs or prior authorization hurdles? Share your thoughts in the comments below or share this article to raise awareness about medication access.