Reforming PBM Payment Structures Could Significantly Reduce Prescription Drug Costs

A recent analysis from the USC Schaeffer Center for Health Policy & Economics highlights that separating pharmacy benefit manager (PBM) compensation from drug list prices could lead to substantial savings in the United States' drug spending. Currently, PBMs negotiate drug benefits on behalf of insurers and employers and are generally paid a percentage of the drug's list price, before rebates and discounts. This structure has been criticized for incentivizing PBMs to steer patients toward higher-priced medications to boost profits, even when lower-cost alternatives exist.

The study suggests that shifting to a transparent, fixed payment model for PBMs and intermediaries in the drug supply chain could cut nearly 15% of annual drug expenses, equating to approximately $95.4 billion in savings without harming pharmaceutical innovation. The total U.S. expenditure on prescription drugs in 2023 was around $650 billion, with about one-third ($215 billion) going to those middlemen. Replacing current complex pricing with a simplified, fair compensation system could reduce intermediary costs to about $119.6 billion.

Under this new model, PBMs would receive a fixed administrative fee of $4 per claim, translating to about $27.6 billion annually. Wholesale drug distributors, typically adding around 3% markup on drugs, could operate with revenues closer to $19.5 billion, a significant reduction from previous figures. Pharmacies might transition to a $10.50 dispensing fee per prescription, similar to rates used by Medicaid and companies like Mark Cuban's Cost Plus Drug.

Policymakers have shown ongoing interest in reforming PBM practices, recognizing that industry consolidation and opaque pricing contribute to inflated drug costs. However, previous legislative efforts to delink PBM payments from list prices have fallen short, as PBMs adapt quickly to regulatory pressures. Experts like Geoffrey Joyce from USC emphasize that establishing a direct link between PBM payments and drug prices is the most straightforward and effective approach to realigning incentives, reducing costs, and maintaining innovation.

This approach aims to address the misaligned incentives within the drug supply chain, ultimately leading to more accessible and affordable medication for consumers. Continued policy discussions and reforms are critical to implementing these changes and achieving sustainable healthcare cost reductions.

source: https://medicalxpress.com/news/2025-07-delinking-pharmacy-benefit-compensation-drug.html