House lawmakers recently passed a health care bill that grabbed headlines for what it excluded: a solution to the looming expiration of enhanced Affordable Care Act tax credits. But largely overlooked inside the bill was a provision that did make it through, a long-requested provision toward creating stronger federal legislation directly targeting pharmacy benefit managers (PBMs), the middlemen who increasingly determine what Americans pay for their medications. These rules would require PBMs to disclose what health plans pay for drugs, what pharmacies receive in reimbursements, and how rebates shape a drug’s final price.
On the surface, that sounds like progress. Employers would finally get a clearer view of what they are buying. Yet for patients, the impact is likely to be modest at best. Transparency can shine a light on how PBMs operate; it cannot, on its own, change the incentives that allow them to profit from high list prices in the first place. And without addressing those incentives, any rules of disclosure risk simply becoming a spotlight with no brakes attached.
The rebate incentive structure
PBMs sit at the center of the drug supply chain, negotiating with manufacturers, insurers, and pharmacies and determining which drugs make it onto a plan’s formulary. These negotiations hinge on rebates manufacturers pay PBMs in exchange for favorable placement. Because those rebates are calculated as a percentage of a drug’s list price, PBMs earn more when the list price is higher.
A prime example of this is the pricing of insulin, a life-saving drug for diabetes patients. Despite the availability of lower-cost options, plans often gravitate toward higher list-price versions of insulin due to larger rebates, benefiting PBMs but not necessarily patients. The math is simple: Higher list prices mean larger rebates, and larger rebates mean larger PBM revenue. And rebates are only one part of the story.
These pricing incentives are amplified by structural changes in the market. Over the past decade, vertical integration has tied the largest PBMs to major insurers and pharmacy chains. With influence at multiple points in the drug supply chain, PBMs can steer prescriptions to their affiliated pharmacies while reducing reimbursements for competitors. These arrangements can create efficiencies, but they also concentrate market power in ways that patients or independent pharmacies cannot easily see, let alone challenge. Forced disclosures may require PBMs to talk more openly about these practices; talking, however, is not the same as changing them.
The gap between list price and net price
Supporters of the current model often point to the net price, the discounted amounts PBMs negotiate after rebates, as proof that the system, at the end of the day, saves money. But patients rarely see those savings. Cost-sharing is typically based on an inflated list price, not the secret net price negotiated behind closed doors. To be sure, the economics are messy, and experts can and do debate how changes to rebate-driven pricing would affect long-run premiums. Still, for a patient at the pharmacy counter today, the short-run reality is clear: They pay the sticker price, not the secret price.
Fixing these incentives has been a tough policy challenge, partly because the economics are complex and partly because lobbying is strong. Even in states with PBM transparency laws, disclosures have regularly brought about more paperwork instead of lower prices. That pattern mirrors research in other markets, suggesting transparency, on its own, tends to only reveal economic behaviors rather than substantially altering the system that drives them.
Another issue exists in what researchers call “strategic compliance.” Companies can meet the letter of transparency rules while keeping up the same business practices that those rules were meant to rein in. And like many static regulations, its impact will fade over time. PBMs will adapt, reshaping their contracting and rebate structures to whatever rules Congress writes. If policy doesn’t adjust with them, the incentives driving high prices will merely reappear in new forms.
Moving beyond disclosure to reform
If lawmakers want PBM reform to truly lower drug costs, they must do more than require disclosure. They should make sure that negotiated rebates directly benefit patients by passing the savings to them at the point of sale. Some states have already taken more direct action, banning other controversial PBM practices, such as spread pricing, altogether and requiring PBMs to use pass-through pricing, where they must bill plans the same amount they reimburse pharmacies.
Congress could also base cost-sharing on a drug’s net price rather than its higher list price, a shift that would help reduce out-of-pocket expenses. And meaningful reform should include setting real fiduciary standards for PBMs, a legal duty to act in the best interest of the patients and payers they serve. Like fiduciary rules in financial services, these standards could set specific guidelines for how rebates are allocated, ensuring savings support patients rather than disappearing into the system.
Medicare Part D is already taking steps in this direction. Last week, as the House moved forward with its transparency bill, the Centers for Medicare and Medicaid Services announced two pilot programs, GUARD and GLOBE. These programs would link patient out-of-pocket costs to international price benchmarks rather than U.S. sticker prices, aiming to close the gap between what PBMs negotiate and what patients actually pay.
Congress is right to scrutinize PBMs. And even if this bill doesn’t make it out of this year, the pressure is long overdue. But transparency by itself will not help the patients who are already splitting pills, skipping refills, or giving up on treatment altogether. PBMs sit at the center of that reality, managing the medications millions of Americans depend on. Congress should treat that power with the seriousness it deserves and hold them to a higher standard. Real reform means fixing the incentives that contribute to making lifesaving drugs unaffordable, not just documenting the problem while it continues.
Armin Pazooki is a medical student.
