A simple walkthrough of how pharmacy middlemen cost your company money — and what you can do about it.
💡 FIRST — WHAT'S A PBM?
A Pharmacy Benefit Manager is a company you've probably never heard of. They sit between your insurance carrier and the pharmacy. They control the price your plan pays for drugs — and they negotiate rebates from drug manufacturers.
The problem? They're on both sides of the deal. They set the price you pay AND they collect the rebates you should get back.
🛒 THE GROCERY RUN
You ask a helper to grab your groceries. The bill comes to $80 — but he tells you it was $100 and pockets the difference. The store also hands him $30 in cash-back rewards for the purchase. He passes you $10 and keeps the rest.
You paid $90 for $80 of groceries. Your "helper" walked away with $40.
That's your pharmacy benefit. Every single fill.
Swipe to see what it's costing you →
The Money
Rebate Dollars Your Plan Generates
Plug in your numbers. Watch the math build in front of you.
enrolled in medical
PEPY — total plan cost
How the math worksAmount
🏢 Total Plan Cost$950,000
📋 Admin (~15%) carrier overhead–$142,500
🏥 Total Claims$807,500
💊 Rx Portion (~35%) of claims$282,625
🔄 Rx Rebates (~25% of Rx) from drug makers$70,656
For your 100-employee plan, you're likely losing
$59,612 / year
that flow somewhere — the question is whether it's back to you
That's not the cost of the drugs. That's the cost of the system between you and the drugs.
💉 THE GLP-1 ACCELERANT
The waste above is about to get dramatically worse — and the fastest-growing category of drugs is the reason why.
$15–25K
Per Employee / Year
Cost of a single GLP-1 prescription (Ozempic, Wegovy, Mounjaro)
49%
of Large Employers
now cover GLP-1s for weight loss — and utilization is surging
Here's the conflict: PBMs receive massive rebates from GLP-1 manufacturers in exchange for preferred formulary placement. The higher the list price of the drug, the larger the rebate the PBM earns. That means your PBM has a financial incentive to keep your employees on the most expensive version of the drug — even when cheaper alternatives exist.
The PBM profits when the drug costs more. Your plan pays the inflated price. The rebate goes to the PBM. And the cost shows up on your renewal as "pharmacy trend."
Math: Total plan cost × 85% (claims after admin) × 35% (Rx portion) × 25% (rebate capture) = Rx Rebates. Sources: KFF Employer Health Benefits Survey 2025. FTC PBM Interim Report (2024). DOL proposed rule (2026). Actual amounts vary by plan and PBM contract.
The Human Cost
This Isn't Just Company Money
The waste doesn't stay in a spreadsheet. It rolls downhill — all the way to the people on your plan.
💼
Middlemen inflate your drug costs
The PBM charges your plan more than the pharmacy gets paid. They keep rebates. Hidden fees stack up. Your pharmacy claims look bigger than they should be.
⬇
📈
Your renewal goes up — even if nothing changed
Your carrier looks at your claims to set next year's rates. Inflated Rx costs make it look like your group is expensive — so your premium goes up 8–12%, even when your people aren't using more drugs.
⬇
💰
To manage costs, you raise deductibles and copays
Most companies absorb what they can — then pass some of the increase to employees. Higher deductibles. Higher copays. Narrower networks. It's the only lever you think you have.
⬇
👤
Your employee pays more — for the same drug
$60 copay on an $8 drug
The person standing at CVS wondering why their medication costs more this year? They're subsidizing a system they don't know exists.
And some of them skip the fill because they can't afford it.
The PBM's $200 spread on that brand drug? That's the reason your employee's copay went up. And they think it's YOUR fault.
How It Works
Follow the $1,000 Drug
Now let's trace one real transaction — step by step. Same $1,000 drug, start to finish. Tap "Next" to follow the money.
Step 1 of 5
Your Employee Fills a Prescription
This is what happens when someone on your plan picks up a drug at the pharmacy. This is exactly what shows up on your claims report — simple and clean.
👀 What Your Claims Report Shows
👤
Your Employee
needs Rx
goes to
💊
Pharmacy
fills drug
bills
🏦
Carrier
(e.g. BCBS)
charges
🏢
Your Company
–$1,000
Employee Copay
$30
Your Plan Pays
$970
Total Billed
$1,000
This looks straightforward. $1,000 drug. $30 copay. Plan pays $970. But this is only what they show you.
Step 2 of 5
Where Your $1,000 Actually Went
Now let's look behind the scenes. Your plan paid $1,000 — but the pharmacy didn't get $1,000. A middleman called a PBM sat in the middle and took a cut before the pharmacy ever got paid.
🔍 The Real Money Flow
🏢
Your Plan
pays $1,000
$1,000
💼
PBM (middleman)
keeps $200
$800
💊
Pharmacy
keeps $50
$750
🏭
Drug Maker
receives
Your plan paid $1,000. The pharmacy only got $800.
The $200 gap is called "spread pricing" — the PBM charged you more than they paid the pharmacy and kept the difference. It never shows up on your claims report.
Step 3 of 5
The Rebate — Money That Should Come Back to You
After your plan bought the drug, the drug manufacturer sends a $300 rebate — like a store rebate on a big purchase. But it doesn't come back to you. Watch who takes a cut on the way.
🔄 Follow the $300 Rebate
The drug maker sends $300 back. But every middleman between the manufacturer and your company takes a piece before it reaches you.
🏭
Drug Maker
sends $300
$300
💼
PBM (middleman)
keeps $120
$180
🤝
GPO (buying group)
keeps $30
$150
🏦
Carrier (your insurance)
keeps $15
$165 taken. None of them touched the drug.
Step 4 of 5
The Final Score — What Your Company Actually Gets Back
Here's the bottom line. Out of a $300 rebate on a $1,000 drug, this is what actually makes it back to your company — if anything at all.
🎯 Your Rebate — After Everyone Took Their Cut
🏭
Rebate Sent
$300
–$165
✂️
Middlemen
took $165
$135
🏢
Your Company
gets $135
Fully Insured
$0 back
Carrier keeps the entire rebate. You paid $1,000. Period.
Self-Funded
$135 back
"Pass-through" returned 45¢ on the dollar.
On This One $1,000 Drug
It costs $750 to make. Your employee paid $30. Your company paid $970. The PBM made $320. Now multiply this by every script on your plan.
Source: FTC Interim Staff Report on PBMs (July 2024). Amounts are illustrative based on documented PBM practices. Actual amounts vary by contract.
Step 5 of 5
The Full Picture — And What's Possible
Now let's put it all together. Here's who got paid on that $1,000 drug — and what it looks like when someone's actually managing your pharmacy benefit.
💰 Who Got Paid on Your $1,000 Drug
💼
$200
PBM Spread
Charged you more than they paid the pharmacy
✂️
$120
PBM Rebate Cut
Kept 40% of the $300 rebate
🤝
$30
GPO Cut
Buying group took their share of the rebate
🏦
$15
Carrier Cut
Your insurance company kept their piece too
Total Taken by Middlemen
$365
on a single $1,000 drug — and none of them touched the medication
📈 Now Watch What Happens at Your Renewal
This is where it gets personal. Your carrier uses your claims data to calculate next year's premium. Let's look at how that $1,000 drug shows up.
What the Drug Actually Cost
$750
manufacturer cost to produce
What Shows on Your Claims
$1,000
inflated by PBM spread pricing
Your carrier looks at that $1,000 claim — not the $750 real cost — and uses it to calculate your Medical Loss Ratio. Your MLR looks worse. Your claims look higher. Your group looks more expensive than it actually is.
Meanwhile — Behind the Scenes
Rebates Received by Carrier
$300
from the drug manufacturer
Returned to Your Company
$0
on a fully-insured plan
So your carrier collected $300 in rebates on this drug. Then used the inflated $1,000 claim to tell you your plan is "running hot."
That's the basis for your 8–12% renewal increase. The same money they already got back... is now being used as the justification to charge you more.
The Question
If your carrier already got $300 back on this drug — why is it still showing up as a $1,000 claim on your renewal?
Someone is making money on both sides of this transaction. The only question is whether you can see it.
Sources: FTC Interim Staff Report on PBMs (July 2024). MLR calculations per CMS guidelines. Rebate flows based on documented PBM industry practices. Actual amounts vary by carrier and PBM contract.
The Purchase
Good News
New Rules Are Forcing Transparency
The federal government is finally forcing these middlemen to show their receipts. Here's what's changing — in plain English.
Signed Into Law — February 2026
Consolidated Appropriations Act 2026
In plain English: PBMs must pass 100% of rebates back to employer plans. They must show exactly what they're earning. Every vendor — including your broker — must disclose all compensation. If they lie, it's $100,000 per item. If they don't disclose, it's $10,000 per day.
Taking Effect — July 2026
Department of Labor PBM Disclosure Rule
In plain English: PBMs must show you the real cost of every drug on your plan — including whether it costs more at pharmacies they own. They must disclose kickbacks paid to brokers. And you get the right to audit.
🏢 WHO THESE RULES ARE TARGETING
Three companies control 80% of all prescriptions in America. They own the PBM, the pharmacy, AND the insurance company. They're on every side of every transaction.
Parent Company
PBM
They Also Own
CVS Health
Caremark
CVS Pharmacy + Aetna Insurance
UnitedHealth
OptumRx
Optum Pharmacies + UHC Insurance
Cigna
Express Scripts
Accredo Pharmacy + Cigna Insurance
The FTC found they marked up drugs at their own pharmacies by thousands of percent — generating $7.3 billion in excess revenue from 2017–2022.
Source: FTC Second Interim Staff Report on PBMs (Jan 2025). House Oversight Committee Report (July 2024). KFF (Feb 2026).
⚡
The companies who audit and restructure NOW won't be scrambling when these rules hit.
Your Next Step
3 Questions to Ask Tomorrow
You don't need to understand the whole system. You just need to ask the right questions. Here are the three that matter most.
1
"Can you show me the actual cost the pharmacy was paid for every drug on our plan — compared to what our plan was charged?"
This exposes spread pricing. If there's a gap between what your plan paid and what the pharmacy received, that's money going to the PBM — not to your employees' care. If your broker or carrier can't produce this report, that tells you something.
2
"What is the total dollar amount of manufacturer rebates generated by our plan — and exactly how much was returned to us?"
This exposes rebate retention. If you're fully insured, the answer is probably $0 returned. If you're self-funded, compare what was generated to what you received. The gap is what the middlemen kept. Under the new law, they'll soon be required to give you this number.
3
"Please provide a complete list of all direct and indirect compensation you receive in connection with our benefits program."
Under the Consolidated Appropriations Act, your broker is already legally required to disclose this. This includes PBM kickbacks, carrier overrides, vendor referral fees, and per-claim admin fees. If they haven't provided this proactively — ask why.
You don't need to fix this today.
You just need to know it exists. Most employers have never asked these questions — because nobody told them they should. Now you know. What you do with that is up to you.
The Next Question
Now that you've seen where the money goes — is there a structure that puts you in control of it?
There is. In fact, there are several. And the difference between them determines how much of your money stays with your organization — and how much leaves.