For their work, PBMs are typically paid an administrative fee. But a PBM’s compensation doesn’t include administrative fees alone. Instead, opportunities for PBMs to profit are built into every node of the pharmaceutical supply chain. The most egregious example is a galling practice known as spread pricing.

After you’ve paid your copay to pick up a prescription, the pharmacy isn’t reimbursed directly by your insurance company for their share of the cost. Instead, this transaction is handled by a PBM as the intermediary. And if the PBM engages in spread pricing, it essentially goes like this: The pharmacy tells the PBM that Drug A will cost the insurer $40, the PBM tells the insurer that Drug A will cost the insurer $70, the insurer hands over the $70, the PBM pays the pharmacy $40, and the PBM skims an easy $30 off the top.

Spread pricing doesn’t only impact prescription costs. It can also mean higher tax burdens for working people. A 2018 Ohio state audit found that PBMs like CVS Caremark and OptumRx had charged the state’s Medicaid program an excess of $224 million through spread pricing. From April 2017 through March 2018, PBMs had extracted a 31 percent spread on generics and a 9 percent spread across all drugs — meaning that extra 31 percent and 9 percent was retained by PBMs and subsidized by taxpayers.

Why would payers put up with a system designed to rip them off? Well, spread pricing schemes are not always written into contracts, meaning the payer might not know what PBMs are actually costing them. Delayed claims reporting and aggregated quarterly pricing summaries typically show only what was billed to the PBM — not what the pharmacy was actually reimbursed, and they offer little to no line-item transparency into individual claims transactions. This creates a situation in which the true cost of spread pricing can be buried in cryptic, belated reporting.

But before you feel too bad for the payers, remember that many of these entities are still insurance companies integrated into the same profit machine as PBMs. They play ball because PBMs promise to help them extract as much profit as they can by sustaining an infuriating tangle of policies that create needless friction and opacity between you and your health care.

Another lucrative carve out for PBMs is rebates. Leveraging access to their formulary — and thereby access to patients and their money — PBMs can incentivize drug manufacturers to offer them favorable rebate deals. Rebates are often calculated as a percentage of a drug’s list price, so higher-list-price drugs can generate larger rebates for PBMs.

For a manufacturer, ensuring there’s something in it for PBMs can mean top billing on a formulary and fewer barriers, such as high copays and prior authorization requirements.

Conversely, PBMs can use their leverage to spurn manufacturers who weren’t able or willing to lavish them with high-dollar rebates and extras by excluding their drugs from formularies or installing as many obstacles as possible — such as, again, prior authorization requirements and high copays.

So when your insurance suddenly drops coverage of your medication in favor of a generic or different name brand without prior authorization requirements, it might be because your PBM was made an offer they couldn’t refuse, causing you to switch your medication.

“We’re told all the time that markets are going to solve themselves. But when you end up having oligopolies, which PBMs exist to protect, you end up getting deep and profound inefficiencies — and they show up in our pocketbooks,” said El-Sayed. “We pay more for the medications we have to buy, and they show up in a system that is consolidating power to a very few . . . corporations.”

Independent pharmacies in particular feel the squeeze of vertical integration. PBMs can steer patients toward preferred pharmacies — often ones they own — making it difficult for independent pharmacies to compete. Even when they’re able to participate in PBM networks, they often face opaque reimbursement practices like DIR (direct and indirection renumeration) fees and clawbacks, creating significant financial uncertainty.

Clawbacks are essentially what they sound like. A pharmacy is reimbursed for a prescription only for the PBM to “claw back” a portion of that reimbursement months later based on opaque performance metrics or fees. So the pharmacy believed it earned $50 on a prescription only to learn months later that it was actually $30. Meanwhile, pharmacies affiliated with the PBM are more likely to receive favorable treatment and can better absorb losses because they operate within a larger, vertically integrated corporate structure.

Pharmacy owners don’t shoulder the costs alone. Independent pharmacy closures, especially in rural communities, reduce local access to care and increasingly push patients toward mail-order and chain pharmacies owned by these same health care conglomerates.

Legislators have started to take notice. In 2022, Lina Khan’s Federal Trade Commission (FTC) began an ongoing investigation into PBMs. In 2024, the FTC filed a lawsuit against the Big Three alleging they had created “a perverse drug rebate system that prioritizes high rebates from drug manufacturers, leading to artificially inflated insulin list prices.” The FTC concluded that drug manufacturers competed for prime placement on formularies by artificially increasing insulin list prices, thereby increasing the rebates they could pay to PBMs.

As practices like spread pricing and rebate schemes have invited more public scrutiny, PBMs have shifted their profiteering to elsewhere in the system.

And as always, it was patients who lost the most. As insulin list prices rose and PBMs collected ballooning rebates, those higher rebates should have lowered patients’ costs. Instead, many patients — especially those with deductibles or coinsurance — continued to pay the higher list price before rebates were applied, rather than the lower net price, with some paying more out of pocket than the total cost to the payer.

According to the lawsuit, PBMs knew that excluding lower-list-price insulin from formularies increased costs for vulnerable patients, yet they continued to pursue rebate terms that shifted costs onto patients. As one PBM vice president crudely put it, this “perverse” system allowed these PBMs to continue to “drink down the tasty . . . rebates.”

In February 2026, Express Scripts reached a settlement with the FTC that included reforms to its operations, while the cases against CVS Caremark and OptumRx are ongoing.

After Ohio’s 2018 audit, the state mandated the termination of all contracts with PBMs engaged in spread pricing. Going forward, PBMs contracted by the state would be required to practice pass-through pricing, ensuring they simply pay out claims to pharmacies on behalf of payers without profiting from the transaction.

Thirteen other states, such as New York, Louisiana, Kentucky, and Texas, have since followed Ohio’s lead by either requiring pass-through pricing or adopting some variant of spread pricing reforms. As have many self-insured employers who now require pass-through pricing.

Earlier this year, Congress passed PBM reforms at the federal level as part of the 2026 spending bill. This legislation aims to delink compensation from drug prices in Medicare prescription benefits, require 100 percent pass through of rebates for employer health plans, increase transparency regarding PBM compensation, and create federal standards for pharmacy contracts.

The spending bill does not address vertical integration. It also does not include the broad Medicaid managed-care PBM reforms — such as nationwide spread pricing bans and pass-through reimbursement requirements — proposed in other legislation.

And being that these changes don’t take effect until 2028–29, there’s still plenty of time for the pharmaceutical industry and its profiteers to mount legal challenges, neuter reforms, or devise alternative means of profit.

As practices like spread pricing and rebate schemes have invited more public scrutiny, PBMs have shifted their profiteering to elsewhere in the system. In the case of rebates, PBMs have turned their attention to a cornucopia of other incentives, like administrative fees, data fees, market-share incentives, formulary access fees, volume discounts, GPO fees, conversion incentives, and performance guarantees that can be tacked onto rebate agreements. This dizzying profit structure has turned reform attempts into a grim game of Whac-A-Mole.

“Every dollar that comes through the health care system ultimately comes from one of our pockets,” said El-Sayed. “They are getting extraordinarily rich providing no actual service that cannot be offered better by the government.” In his campaign for Senate, El-Sayed is proposing a different strategy to fight back against these powerful intermediaries: banning them outright.

El-Sayed’s proposed “Ban the Middleman Act” would phase out PBMs and shift their functions to more transparent public and independent systems, including expanded federal drug price negotiation and independent boards to guide coverage and pharmacy access — with the goal of reducing drug costs for patients by cutting out profit-seeking middlemen.

“We need guaranteed health insurance from the federal government, from cradle to grave, without copays, premiums or deductibles,” said El-Sayed. “And the advent of PBMs exists because of the inefficiency of the private health insurance on its own terms. So even as we move toward Medicare for All, we can clip off this wasteful, borderline fraudulent system that just skims money off the top of every transaction.”

The argument PBMs make in their own defense is that the incentive structure they’ve created still ultimately lowers costs for patients. But in practice this hasn’t panned out. Over the last quarter century, nearly every measure of prescription drug costs shouldered by patients has increased dramatically, while premiums have risen and plans have moved toward higher copays, deductibles, coinsurance, and specialty-drug tiers.

As long as we remain locked into this predatory health care system, which privileges profits over all else, it will continue to be working people who pay the price.