How Consolidation Among PBMs and Wholesalers Is Changing Contract Dynamics​

Originally developed to organize and administer drug benefits in the United States, Pharmacy Benefit Managers grew to play a vital role in negotiating price formularies. Recently, PBMs have seen a massive change due to vertical integration and consolidation, morphing drug pricing contract dynamics from a market-based competition to a closed-loop with speculation on monopolization. PBMs are considered primary the decision-makers for what drugs patients can access and at what cost, with only six PBMs having control of over 95% of the market (1). This structuring has recently caused great government intervention through several initiatives to restore pricing transparency and direct-to-consumer access in an industry valued at over $800 billion this year.

Defining PBMS

PBMs are known as the middlemen of the drug pricing economy. They currently manage prescription drug plan benefits for insurers, employers, and the government, negotiating with pharmaceutical companies and wholesalers to increase incentives and decrease prices.

A History of PBMs

PBMs were first created in the 1960s to assist insurers in managing prescription drug spending and benefits. At this time, they were mainly administrative, processing claims and providing mail-order services. In the 70s, their function was to also serve as fiscal intermediaries by adjudicating prescription drug claims (2).

The PBM role started to transition from clerical support to a more aggressive formulary management in the 1980s. They responded to a call to action when prescription drug coverage significantly grew. Concerns developed that healthcare and prescription costs were becoming unaffordable for patients and insurers. Then, the 1990s also saw a significant change to the PBM’s functions in the drug landscape, with further integration between PBMs and manufacturers (2).

As of 2026, PBM’s primary functions are to:

• Negotiate rebates and discounts with pharmaceutical manufacturers
• Manage drug formularies
• Process and adjudicate claims from pharmacies
• Design drug benefits for patients
• Conduct utilization management

Formularies: How PBMs Negotiate

This evolution resulted in the “rebate” system, where PBMs negotiate discounts. PBMs develop and control formularies, which are lists of drugs provided to a specific insurer. Drugs may be negotiated and selected for a more preferred placement on a formulary based on clinical efficacy or because the PBM receives a significant rebate from the manufacturer. There may be a large gap between a drug’s “sticker price” and the actual price paid after PBM negotiations as listed on the formulary. There is also a difference between the negotiated rebate and the cost to the patient. This has caused speculation on the true transparency of PBMs (3).

Now in 2026, this historical model of efficiency is under scrutiny as the “gross-to-net” gap between a drug’s list price and its cost after rebates has expanded even further, leading to allegations that the PBM’s original cost-saving mission has been morphed into profit-seeking through non-transparent spread pricing. While PBMs were originally developed to lower costs, the lack of transparency has created a gross-to-net bubble. While list prices of drugs are high, the net prices (after PBM rebates) are often much lower, and there is speculation that savings aren’t always passed to the patient at the pharmacy counter.

Vertical Integration & Market Consolidation

PBMs add further concern as they shift toward market consolidation. While originally third-party entities, PBMs started vertically integrating with insurance companies even in their early inceptions. Vertical integration is defined as a business strategy in which a company purchases multiple stages of a supply chain to minimize their costs and obtain further control of the market. In the pharmaceutical landscape, companies have obtained the following businesses to integrate: Insurers, PBMs, Group Purchasing Organizations (GPOs), Manufacturers, Wholesale Distributors, Specialty Pharmacies, Retail Pharmacies, and Providers. For example, an insurer acquires a PBM, which owns a specialty pharmacy. On the national level, the AMA published that in 2023 over 75% of those enrolled in commercial and Part D prescription drug plans (PDPs) had plans in which the insurer and PBM were vertically integrated (4).

Companies in the industry have also acquired competitors to monopolize the market horizontally. PBMs now own multiple stages of the supply chain and have eliminated a significant number of competitors. PBM markets are highly concentrated, with the top four combined entities controlling nearly 70% of the market (5). Currently in 2026, the top three PBMs (CVS Caremark, OptumRx, and Express Scripts) are owned by massive healthcare conglomerates that own insurance companies and pharmacies, as noted in the infographic from Federal Trade Commission below (1). The sheer lack of competition is the primary driver for federal and state-level reform.

PBMs defend their consolidation as an advantage for their customers and patients. They state that this allows them to lower healthcare costs and provide more data for transparency, as one’s insurer, distributor, and wholesaler may be the same. For example, the net prices of drugs may be made available to patients.

The “Big Three” PBMs

There are three PBMs that control most of the prescription benefits market. CVS, Express Scripts, and Optum Rx, process over 80% of all pharmacy claims (6). Lack of competition and the concentration of buying power and influence allows these organizations to negotiate on their terms, speculatively even higher prices for patients who have few competitors from which to select.

Vertical integration is not only affecting PBMs, insurers, and pharmacies, but also wholesalers. Per Adam Fein, a new trend in the 2026 market is Wholesaler Vertical Integration. The top three wholesalers, Cencora, Cardinal Health, and McKesson, have now started to move into physician practice management and specialty drug administration to retain profit margins (7).

Concerns with Vertical Integration and the Impact on Contract Dynamics

As noted,integrated PBMs state that vertical integration is a positive, stating that owning the supply chain allows for holistic care of patients, better data sharing and less costs for both patients and providers. In contrast, public and governmental concerns have arisen with vertical integration’s impact. These concerns center on several key shifts in contract pricing dynamics, including the following (3):

Spread pricing: This occurswhen a PBM charges an insurer more for a drug than it pays the pharmacy, and pockets the spread. Tracking spread pricing helps regulators understand why pharmacy costs may rise even when drug manufacturing costs don’t. However, with vertical integration, tracking spread pricing becomes difficult as they are under the same entity and can move this to a less-regulated part of the supply chain.

The “Gatekeeper” Effect: This refers to the power that PBMs hold regarding pricing and access to specific drugs on their formularies. This ability may have several effects. For one, a PBM may favor an expensive brand-name drug on a formulary in lieu of a more affordable generic drug, potentially receiving a higher rebate or fee. Alternatively, if a specific PBM has a lifesaving drug on its formulary and a patient is not a member of that insurer, the patient would either have to switch insurers or be forced to pay list price for this drug. On the inverse, if the drug is excludedfrom a PBM’s formulary, millions of patients may be forced to pay full list price or switch to a less effective alternative.

Utilization Management: These are processes used by PBMs to control drug prices and ensure patients are using the correct medications. However, as the PBM is the entity that decides if a patient needs a drug but also profits from a patient using that drug, there is public speculation on this being considered an ethical dilemma. PBMs may incorporate the following strategies in their utilization management:

Step Therapy: This isa process in which patients must first be prescribed generic or preferred brand-name medications before being considered for more expensive or brand-name alternatives.Also considered the ‘fail-first’ protocol as it forces patients to ‘fail’ on the first drug before being given access to other alternatives.These strategies may result in incorrect prescriptions, unnecessary drug spending, and delays to critical care. Research by Lilly and IBM Watson Health, conducted in 2025, has proven that patients on step-therapy plans have around 25% lower odds of treatment effectiveness (8).

Prior Authorization (PA): Originally a safety check, PA refers to a review process PBMs complete to ensure a medication meets plan criteria before insurance coverage is approved. Recently, PA has morphed into a barrier to care, used to control costs and act as a hurdle to specific medications.Doctors may spend around 20 hours each week navigating step therapy and prior authorization requirements, potentially taking time away from patient care and causing significant administrative burden (9).

Steering: There is speculation that PBMs utilize lengthy PA processes and other tactics to steer their patients to their own vertically integrated pharmacies to keep customers away from competitors. Patients also may be informed that a drug is only available at their branded pharmacies instead of local, independent pharmacies.

Contractual Squeeze: Independent pharmacies outside of the vertical supply chain may face contracts with PBMs’ large conglomerates with very low reimbursement rates, resulting in an absence of profits. Reimbursement rates may even lie below the Actual Acquisition Cost (AAC) of a drug. Unable to keep up with rates, hundreds of community pharmacies have closed creating pharmacy deserts in both urban and rural areas (10).

Pharmacy Services Administrative Organizations (PSAOs): Competitor small pharmacies must use PSAOs to negotiate the low reimbursement rates. PSAOs, however, are mostly owned by major wholesalers, another example of vertical integration in the industry. Wholesalers then can control the terms and fees for the pharmacies they supply.

These factors have led to a public breaking point regarding contract dynamics. The public has grown frustrated with high out-of-pocket costs and less access to local pharmacies. They are not allowed the liberty to control their own access to drugs, and PBMs are now accused of focusing on profit over patient affordability.

Legislative Reform

For decades, PBMs and their contract dynamics have been accepted or not fully understood. The Federal Trade Commission (FTC), responsible for protecting consumers and promoting a fair market, spearheaded an initiative to understand PBMs and the impact of vertical integration (1).This created a seismic regulatory shift. The government has shown mounting bipartisan agreement with public sentiments, mandating that the industry pivot from big business reaping benefits toward focus on patient affordability and industry transparency. Recent events of note start in 2024 with several huge legal breakthroughs happening just very recently in February 2026.

Eighteen Months of PBM Reform, from Research to Legal Action:

July 9, 2024: The FTC published “Pharmacy Benefit Managers: The Powerful Middlemen Inflating Drug Costs.” This report provided a detailed analysis of PBMs and the first federal proof that PBMs were marking up cancer drugs by at least 20 times their cost (6).

November 26, 2024: Known asthe onset of the ‘Insulin Lawsuit,’ the FTC officially filed a suit against CVS Caremark, OptumRx, Express Scripts, and others for utilizing anticompetitive rebate schemes to unnecessarily drive up the list price of insulin (11). Since then, various states and jurisdictions have developed litigation, with one distinguished multi-district litigation case developing in the United States District Court of New Jersey (12).

December 12, 2024: Senators Elizabeth Warren and Joshua Hawley introduced the Patients Before Monopolies Act. This bipartisan bill focuses primarily on stopping PBMs from owning pharmacies, directly combating vertical integration (13).

January 14, 2025: The FTC released a second interim staff report proving PBMs created significant markups on specialty generic drugs, particularly on critical treatments such as cancer and HIV (14).

April 16, 2025: Arkansas became the first state to formally prohibit vertical integration by passing Act 624, which bans PBMs from owning mail order and retail pharmacies at the state level (15).

May 12, 2025: President Trump issued an Executive Order to bypass PBM middlemen. The order states explicitly: “the Secretary of Health and Human Services (Secretary) shall facilitate direct-to-consumer purchasing programs for pharmaceutical manufacturers that sell their products to American patients at the most-favored-nation price” (16).

July 10, 2025: The PBM Reform Act was introduced by a bipartisan group of legislators. This is an aggressive and comprehensive proposal which includes “delinking” fees from drug prices (17).

January 1, 2026: Act 624 officially came into effect in Arkansas (15).

January 30, 2026: The Department of Labor proposes the PBM Fee Disclosure rule for transparency in fees and PBM compensation. This rule mandates that PBMs disclose all indirect compensation to help employers fulfill their fiduciary duties under ERISA (18).

February 3, 2026: President Trump signed the PBM Reform Act into law as part of the Consolidated Appropriations Act of 2026 (17). This bill contained a lot of mandates, including the following:

• The Delinking Mandate requires PBMs charge a flat fee for their services rather than taking a percentage of the drug’s price, thus removing the incentive to prefer expensive drugs over cheaper ones.
• Targeting the opacity of Prior Authorization, drug-level transparency reports on rebates must be sent to employers every six months or PBMs will be subject to fines of $10,000 each day for non-compliance.
• Formal ban of spread pricing in Medicaid
• 100% rebate pass-through for ERISA plans

The Consolidated Appropriations Act also formally bans spread pricing in Medicaid and aims to delink PBM profits from drug prices in Medicare Part D, huge and direct advances in government policy (17).

February 4, 2026: The FTC secured a massive landmark settlement with Express Scripts (ESI) to increase drug price transparency, lower drug costs, specifically for insulin, and provide hidden revenue to community pharmacies. The settlement detailed providing standard offerings to all plan sponsors to navigate away from rebate guarantees and spread pricing as well as anchoring patient out-of-pocket costs to Net Price rather than list price. It also required providing covered access to TrumpRx. All details of the settlement share the main goal of reverting tactical contract dynamics and reverting results of vertical integration linkages (19).

February 5, 2026: The TrumpRx.gov website officially launched, after months of preparation and agreements with manufacturers. The website serves as a national direct-to-consumer portal, offering immediate MFN pricing to bypass PBMs entirely on numerous brand-name drugs. Participating manufacturers include Pfizer, Novo Nordisk, and Eli Lilley, connecting patients to drug such as Insulin for $25/month and Wegovy ($159/pill stating savings of 78-89% as imaged from TrumpRx below) (20).

February 10, 2026: The second bipartisan legislation introduced by Senators Josh Hawley and Elizabeth Warren, the Break Up Big Medicine Act was officially introduced in the U.S. Senate, specifically addressing vertical integration and concentration of power in the pharmaceutical landscape. If passed, the bill would mandate delinking ownership among PBMs and health insurance providers, and pharmacies (21).

The PBM Response: Defense and Accountability

PBMs are responding to this massive wave of legislation in a myriad of ways. Some PBMs are making counterarguments that without their scale, individual employers would have no leverage against pharmaceutical companies’ high list prices. They also state that their specialized programs previously discussed, like prior authorization and step therapy, are beneficial and save customers and employers money: authorizing the right medicine and first utilizing less expensive but effective drugs will prevent wasteful spending. Others are taking active approaches to respond to legislation, launching transparent models (e.g., CVS CostVantage) to show they can operate without spread pricing.

PBMs and their affiliates have also directly responded with official statements and memorandums in February 2026.

The Pharmaceutical Care Management Association (PCMA) is a national trade association that represents PBMs, with notable members such as the Big Three.The PCMA released a memorandum entitled “PBM Reform is Done… Now What?” on February 3, 2026, the same date that the PBM Reform Act became law (22). Accusing this outcome on significant pharmaceutical lobbying, they claim that drug prices will be driven even higher under new legislation as PBMs have lost significant negotiation leverage. Governmental mandates will negate negotiation at the employer level. Without vertical integration and their current contract dynamic, they claim have no incentive nor ability to haggle lowering drug prices to an affordable cost for their patients.

They also have turned the lens to pharmaceutical companies and wholesalers as other organizations with significant power in the industry who may face further regulation in the future. Several additional PBMs have shifted the ‘blame’ of high pharmaceutical prices to the manufacturers. They state that the manufacturer sets the original price, and that they are being used as scapegoats in recent legislation. PCMA noted872 brand-name drug price increases in January 2026 with originations from the manufacturers and not the PBMs (23). Express Scripts and OptumRx also argued that the 1,200% increase in the list price of insulin over the last two decades was a decision made by the manufacturers Eli Lilly, Novo Nordisk, and Sanofi (24). They focus their responding arguments mainly on two tactics that pharmaceutical companies utilize to raise prices and scapegoat PBMS: patent thickets and pay-for-delay strategies.

Patent Thickets: This occurs when several overlapping and similar patents are filed on one drug, not allowing affordable generics to enter the market.Pharmaceutical companies state that this is necessary as an initial drug is constantly innovating and requires further research and development.

Pay-for-Delay Strategies: This is when a manufacturer of a brand-name drug pays manufacturers of generic drugs to keep less expensive but functional alternatives off of the market for a certain timeframe. Pharmaceutical companies have responded to this accusation by stating that settlements allow for generics to enter the market before the original patent even expires.

PBMs are also ceding certain aspects of their contract dynamic strategies. On February 4^th, 2026, Express Scripts (ESI) released a statement with an alternative message from PBMs, following their settlement with the FTC to lower drug prices. After negotiation and agreement to move their GPO back to the United States and simplify their pricing models, ESI expressed compliance and improvements to their model, focusing on transparency and self-correction. Evernorth, the health services division of Cigna that is vertically integrated with PBM Express Scripts stated the following: “Our priority is simple: lowering drug costs for Americans… our new, transparent pharmacy benefits model ensures our members get their medicines at the lowest price” (25).

Regardless of differing PBM responses, large transformation has arrived in the industry, with every aspect of the supply chain under a microscopic lens. PBMs must prove their value and respond not just on a governmental but on a public scale.

Conclusion

As shown in governmental reform in the last two years, there has been a large shift from an opaque monopoly to more long-term impact regarding transparency, accountability, and the diversification of the pharmaceutical industry. While the industry will still retrain the current vertical integrations of large organizations, contract dynamics are projected to revert even further to a direct-to-patient and transparent model through 2027. PBM success will be determined by their ability to subscribe to the expectations of providing administrative ease and clear value to their patients.

References

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