Pharmacy Benefit Reform
Pharmacy benefit reform is long overdue. Employers and employees are both feeling the pressure of rising prescription drug costs, but the real issue is often the lack of transparency and misaligned incentives within the PBM system. Employers need clearer contracts, access to claims data, full rebate transparency, and pharmacy strategies built around lowest net cost instead of hidden revenue. Reform should not mean limiting access to care. It should mean creating a more transparent, affordable, and accountable pharmacy benefit model that works better for employers, employees, and families.
VP of Employee Benefits · BHC Insurance · Independent Benefits Consultant
Right now, pharmacy is one of the hardest parts of healthcare to ignore. Employers feel it at renewal. Employees feel it standing at the counter. And families feel it when a drug somebody actually needs turns into a wall of cost, delay, and paperwork that nobody can quite explain.
The problem is not that medications are expensive to develop. It is that the system built to distribute them has become one of the most opaque, misaligned, and financially conflicted structures in American healthcare. Reform is overdue — and self-funded employers are in a better position than most to demand it.
The Transparency Problem
Most employers have no idea what they actually pay for drugs. They see a net cost after rebates, but they do not see the spread their PBM captures between what the plan pays and what the pharmacy receives. They do not see the administrative fees manufacturers pay for formulary placement. They do not see the full economics of the relationship between their PBM and the specialty pharmacy the PBM owns.
This opacity is not accidental. It is structural. PBMs have built their business models around information asymmetry — the less the plan knows, the more the PBM can retain. Meaningful pharmacy benefit reform starts with demanding full transparency into every dollar that flows through the pharmacy supply chain.
The Consolidated Appropriations Act of 2021 took a step in this direction by requiring PBMs to disclose compensation to plan sponsors. But disclosure requirements are only useful if plan sponsors actually review the disclosures and act on what they find.
The Rebate System Is Broken
Rebates were originally designed as a mechanism for payers to share in the savings when manufacturers competed for formulary placement. In theory, a manufacturer offers a rebate to secure preferred formulary status, the PBM passes that rebate to the plan, and the plan's net cost is lower.
In practice, the rebate system has evolved into something quite different. Rebates are now so large — sometimes exceeding the drug's list price on a per-unit basis — that they create perverse incentives throughout the supply chain. PBMs have an incentive to favor high-rebate drugs over lower-cost alternatives. Manufacturers have an incentive to raise list prices to fund larger rebates. Patients who pay cost-sharing based on list price pay more so that the plan and PBM can capture a larger rebate.
The solution is not to eliminate rebates. It is to ensure they are fully passed through to the plan, transparently reported, and not used to obscure the true net cost of medications.
"The pharmacy benefit is the most complex, most opaque, and most manipulated component of the health plan. Employers who don't understand how it works are almost certainly paying more than they should."
Specialty Drug Spending Requires a Different Approach
Specialty medications now account for the majority of pharmacy spend for most self-funded plans, despite representing a small fraction of total prescriptions. A single specialty drug claim can cost more than an entire year of primary care for a healthy employee.
The traditional PBM model was not designed to manage specialty drug costs effectively. It was designed to process high volumes of retail prescriptions efficiently. Specialty drugs require a different approach — one that includes clinical management, prior authorization, site-of-care optimization, biosimilar substitution, manufacturer assistance programs, and in some cases international sourcing or alternative funding arrangements.
Self-funded employers who treat specialty pharmacy as just another line item in the PBM contract are leaving significant savings on the table.
What Employers Can Do Now
Pharmacy benefit reform at the federal level moves slowly. Employers do not have to wait for it.
Self-funded employers can demand pass-through pricing from their PBM today. They can require full rebate transparency and audit rights. They can carve out their specialty pharmacy benefit and contract with a vendor whose interests are aligned with the plan's. They can implement biosimilar substitution policies. They can analyze their claims data to identify the specific drugs driving the most cost and develop targeted strategies for each.
None of this requires legislation. It requires a plan sponsor who is willing to ask hard questions, a broker or advisor who knows how to answer them, and a PBM that is willing to operate transparently. The employers who are doing this are seeing real results — lower net drug costs, better clinical outcomes, and a pharmacy benefit that actually serves the people it is supposed to serve.
Pharmacy benefit reform isn't a single decision — it's an ongoing discipline. The PBM market is not designed to be transparent, and the contracts are not designed to be read. Employers who treat the pharmacy benefit as a managed line item rather than a vendor relationship tend to get dramatically better outcomes over time.
Sources & Further Reading
- FTC Report: Pharmacy Benefit Managers — Revenues and Fees (2024) — FTC study documenting the transparency problem, spread pricing, and rebate retention practices that pharmacy benefit reform targets.
- Consolidated Appropriations Act, 2023 — PBM Reform Provisions — The primary legislative vehicle for PBM reform — transparency, gag clause prohibition, and compensation disclosure requirements.
- Drug Channels Institute: The 2024 Economic Report on U.S. Pharmacies and PBMs — Annual analysis of PBM market structure, rebate economics, and the specialty drug spending trends driving reform pressure.
- KFF: Prescription Drug Spending and PBM Reform — Overview of drug spending trends and the policy levers — including PBM reform — that could affect employer plan costs.
- PBGH: Employer Action on PBM Reform — Employer coalition guidance on what employers can do now — independent of legislation — to implement PBM reform in their own plans.
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About the Author
Corry Hull, REBC®, CSFS®
VP of Employee Benefits · BHC Insurance
Corry Hull, REBC® CSFS®, is VP of Employee Benefits at BHC Insurance and the founder of Employer Benefits IQ (www.employerbenefitsiq.com). He is a Certified Health Rosetta Advisor — one of fewer than 200 nationwide — and a multi-year presenter at United Benefit Advisors (UBA) national conferences. He specializes in self-funded health plan design, PBM contract strategy, stop-loss structuring, group medical captives, and ACA/ERISA compliance for mid-market employers. His work has been recognized by Health Rosetta (Rosie Award, 2026), UBA (Producer Peak Performer, 2025–2024), and BHC Insurance (Producer of the Year, 2021–2025). His employer-education content has been referenced in BenefitsPro and cited within the Health Rosetta advisor community. All consulting and brokerage compensation is fully disclosed.