Skip to main content
DrugPrice

Pharmacy Benefit Manager (PBM)

A company that acts as a middleman between drug manufacturers, insurers, and pharmacies, negotiating drug prices, managing formularies, and processing claims.

How It Works

Three PBMs dominate the U.S. market and together process approximately 80% of all prescriptions: CVS Caremark (owned by CVS Health, integrated with Aetna insurance and CVS retail pharmacies), Express Scripts (owned by Cigna Evernorth), and OptumRx (owned by UnitedHealth Group, integrated with UnitedHealthcare and OptumHealth). All three are vertically integrated with insurers, specialty pharmacies, mail-order operations, and in some cases retail pharmacy chains. Revenue comes from multiple streams: manufacturer rebate retention (typically 5-25% of negotiated rebates), pharmacy network spread (spread pricing), DIR fees (pharmacy direct and indirect remuneration, largely reformed out of Medicare as of 2024), mail-order and specialty pharmacy margins, and administrative fees from plan sponsors. The FTC's 2024 interim staff report "Pharmacy Benefit Managers: The Powerful Middlemen Inflating Drug Costs and Squeezing Main Street Pharmacies" documented concentration, conflicts of interest, and substantial spread retention on specialty generics. Federal PBM reform legislation has been introduced in every Congress since 2019, most notably the bipartisan Pharmacy Benefit Manager Transparency Act (S. 127 / H.R. 2816). The IRA does not directly regulate PBMs but indirectly reduces their rebate-steering economics through Part D redesign and negotiated drug pricing. State PBM regulation has accelerated: as of 2024, more than 45 states regulate PBM licensure, audit procedures, or contracting transparency.

Related Terms

  • Formulary, A list of prescription drugs covered by an insurance plan, organized into tiers that determine how much the patient pays for each drug.
  • Manufacturer Rebate, A post-sale discount paid by a drug manufacturer to a PBM or insurer in exchange for favorable formulary placement, reducing the effective net price below the list price.
  • PBM Spread Pricing, A PBM business practice of charging a health plan more for a drug than the PBM reimburses the pharmacy, retaining the difference as profit.
  • Wholesale Acquisition Cost (WAC), The manufacturer's list price for a drug sold to wholesalers, often called the "sticker price" before any rebates or discounts.

Explore Drug Data

Most Expensive DrugsGeneric Drug WatchSearch All Drugs

About This Definition

This definition is part of the DrugPrice Drug Pricing Glossary, 49 terms explaining how prescription drug pricing works in the United States. All definitions are written in plain language for patients, caregivers, journalists, and healthcare professionals.

this entity is one of the U.S. Medicare prescription-drug pricing concepts that recurs across this site. The definition above is the technical answer; the paragraphs below add the practical context for how the concept connects to the CMS Medicare Part D Drug Spending data data behind every per-entity page on the site.

In the CMS Medicare Part D Drug Spending data data, this concept shapes one or more of the fields that drive the per-entity grades and rankings on this site. The methodology page describes which fields feed into which output; this glossary entry documents the underlying term.

Source: CMS Medicare Part D Spending, 2026.