A Look at PBMs: How the World’s Largest Healthcare Companies Make Money (Part 2)

JC Telemedicine
4 min readFeb 26, 2022


As noted in our previous post, vertical integration has transformed and defined today’s PBM industry. Part 2 explores why this arguably hurts American consumers.

A Novel Consolidation Holds Promise in the Pharmacy Benefit Manager Market

Vertical integration has fully transformed and thoroughly defined the PBM industry. This concentration favors insurers, who are able to leverage negotiating power by aggregating their prescription volumes within a small number of PBMs. Five of the six largest PBMs are part of large vertically integrated organizations that combine insurers, PBMs, specialty pharmacies, and physician providers.

To understand the staunch consolidation of the pharmacy benefits market, one need not look past just the last few years. Since 2017, CVS and Aetna came together, Express Scripts and Cigna came together, and Anthem started its own PBM (IngenioRx), outsourcing many of its functions to CVS Specialty. A substantial portion of Prime Therapeutics’ commercial book of business now relies on Express Scripts through its subsidiary at Ascent Health Services. We’ve seen vertical integration and of course this has changed the scope and scale of what these companies do.

Parent company relationships are convoluted, obscuring an even more concentrated industry. A complex web of pharmacy and PBM relationships ties together many of these organizations. We can’t even look at the PBM market anymore without thinking about their larger relationships. For example, OptumRx, which is the captive PBM of United Healthcare, gets about sixty percent of its business from United Healthcare. Caremark and Express Scripts get roughly ten percent of their business from their parent organization. When Anthem formed IngenioRx, the business that had been with Express Scripts was pulled into IngenioRx.

Even more recently, CVS Specialty has taken over claims processing and prescription fulfillment for Anthem. Cigna’s Evernorth business founded Ascent Health Services and handles rebate negotiations for Express Scripts’ PBM business, a portion of Humana claims, and Prime Therapeutics pharmacy fills. As a result, there has been an enormous concentration of prescription drug volumes all owned under the same healthcare entities.

PBM gross profit reached an all-time high of $28 billion in 2019. What’s interesting is that the sources of these profits substantially changed over the recent years.

Administrative fees paid by manufacturers increased by 50 percent, to $5.7 billion. Gross profit from PBM-owned mail-order and specialty pharmacies increased almost 20 percent, to over $10 billion in 2020. Most notably, gross profit from “other sources,” including pharmacy fees, fees collected from insurers, spread pricing and other non-administrative fees, like DIR fees, accounted for almost $11 billion in profit for PBMs. Altogether, that’s nearly 40 percent of all PBM gross profit.

What does this mean for American patients?

PBMs were charged with the responsibility of keeping drug costs low when, in fact, the complete opposite has become the reality. Complex pricing and a lack of transparency prevents patients from adequately analyzing PBM decisions or drug costs. Consumers must become aware of how the PBM makes money off of individuals and should question this behavior. The average cost of healthcare in a typical four-person household has quadrupled in the last ten years and though there are many reasons for this, the main driver is the prescription drug cost increase.

In the coming years, consumers should demand that PBMs implement technologies that truly improve the patient experience and price transparency of prescription drugs prices in America.

The healthcare cost for the average American consumer is over $10,000 per year, even though the vast majority do not spend nearly that much money. Most people are generally healthy, and it leaves one wondering if they only visit the doctor one time per year, where does the $10,000 cost go? Instead of creating value for American patients, the value is being eaten up by price makers and middlemen.

When it comes to prescription drugs, PBMs have all the power. As PBMs continue to acquire pharmacies, they garner more purchasing power, possess more control over drug pricing, and restrict the freedom of choice for patients.

Today, the PBM is able to deny an insurance claim unless the patient fills at the PBMs pharmacy of choice, a PBM may not cover a specific medication that your doctor prescribed unless the drug is on their-chosen specific formulary, and the PBM sets the co-pay price for insured patients in America.

Ultimately, since the PBMs are incentivized to design the formulary, the choice is stripped away from the American consumer. This vast purchasing power affects the consumer’s ability to choose his or her own pharmacy, and many times this encroaches on the doctor/patient relationship. As a result, the PBMs have discovered methods that take advantage of the lack of transparency and oversight in order to increase their bottom line. Though the PBMs have been around for decades, their tactics have become more specialized in just the last few years, and they continue to profit now more than ever before. There must be policy changes and regulatory adjustments to bring the money back to American consumers.

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