Pharmacy benefit managers in the U.S.: roles, rebates, and cost flows

I didn’t set out to learn about pharmacy benefit managers. I just wanted to understand why my copay changed from one month to the next even though the bottle and dose were the same. That tiny puzzle sent me down a rabbit hole about how money and decisions move in the U.S. drug supply chain. Along the way I found that PBMs are everywhere and yet strangely invisible, shaping formularies, negotiating rebates, and routing payments people rarely see. I’m writing this like a journal entry to keep it plain: what PBMs really do, how rebates work in practice, where the dollars go, and which rules recently shifted the math for patients, pharmacies, and health plans.

The receipt that didn’t add up

My turning point was a pharmacy receipt that listed a “price before insurance,” a “plan paid” amount, and a copay that felt out of proportion. I knew manufacturers set a list price, but I didn’t realize how many middle steps came after that first sticker. When I later read the FTC’s interim staff report on PBMs (2024), a line clicked: market concentration and vertically integrated companies can tilt incentives in complicated ways. That doesn’t mean PBMs are “good” or “bad.” It means their design choices—rebate strategies, formulary placement, and pharmacy networks—can ripple to our wallets. My early, high-value takeaway was simple: the price you see at the counter is often calculated on a number higher than the net price your insurer or plan ultimately pays after rebates.

  • List prices are not the same as net prices; rebates and fees are settled later.
  • Coinsurance is often a percentage of the pre-rebate price, so patient costs can track the higher number even when plans later recover discounts.
  • State rules and federal changes (for example, Part D reforms effective 2024) keep reshaping how these flows show up for pharmacies and patients; see the CMS Part D Final Rule.

What PBMs actually do day to day

Under the hood, PBMs work for health plans and self-insured employers to administer pharmacy benefits. They:

  • Build and manage formularies—tiered lists of covered drugs with prior authorization or step-therapy rules.
  • Negotiate rebates and discounts with drug manufacturers, often leveraging volume and preferred formulary placement.
  • Operate or contract specialty and mail pharmacies, and build pharmacy networks with reimbursement terms.
  • Process claims, apply clinical edits, and run adherence or fraud programs.

Many PBMs are now part of “verticals” that include health plans and specialty pharmacies. The FTC interim staff report (2024 PDF) describes this consolidation and the emergence of rebate-aggregating entities known as GPOs (e.g., Ascent, Zinc, Emisar) that negotiate on behalf of PBMs at scale. This makes negotiations more efficient on paper, but it can also make incentives harder to parse.

Follow the dollar from sticker to your copay

Here’s the “money map” I wish someone had drawn for me during that confusing checkout:

  • List price (WAC) is set by the manufacturer.
  • Plan/PBM rate at the counter is the negotiated pharmacy rate; in Medicare Part D, a 2024 rule pushes pharmacy price concessions to point of sale, changing how “DIR” shows up at the counter—see CMS 2024 Part D Final Rule.
  • Patient pays a copay or coinsurance based on the plan’s terms—often calculated on a price before rebates are settled.
  • After the fill, manufacturers pay rebates to the PBM or its GPO; contractual terms govern how much is passed through to the plan sponsor.
  • Plan’s net cost becomes the pharmacy reimbursement minus patient cost sharing, minus rebates/fees received later.

The tug-of-war is obvious: manufacturers may prefer higher list prices with larger rebates to secure formulary placement, while plans prefer lower net costs and predictable premiums. Patients feel the design choice because coinsurance and deductibles often reference the higher pre-rebate number. The HHS ASPE 2024 analysis highlights how gross (list) and net prices have diverged over time.

Rebates without the spin

Rebates are post-sale payments from manufacturers to PBMs (or their GPOs) tied to placement and utilization. To make this less abstract, I pictured a sliding scale: better formulary position can mean better rebate terms. Since the rebate arrives weeks or months later, the person at the counter doesn’t see it. Plans argue that rebates help fund lower premiums; patient advocates argue the discount should count toward the patient at the point of sale. Both things can be true depending on plan design. The CBO’s 2024 review surveys policy options for shifting incentives without overpromising what any single tweak can deliver.

  • Pass-through contracts aim to flow negotiated rebates to the plan sponsor with PBM fees separated and explicit.
  • Spread pricing means the plan is billed more than the PBM pays the pharmacy; some states now restrict or require reporting on this (see GAO 2024).
  • Point-of-sale rebate application credits a portion of expected rebates to patients when they pay, tempering the list-vs-net gap.

Why 2024–2025 felt like a pivot

Two developments stood out to me. First, Medicare Part D’s 2024 rule effectively moved many pharmacy price concessions into the price you see at the counter, reducing retroactive “DIR” clawbacks and making pharmacy payments more predictable. The CMS fact sheet is a good plain-English entry point. Second, federal scrutiny expanded: the FTC’s 2024 interim report raised concerns about market power, vertical integration, and the role of PBM-affiliated GPOs. Even if you disagree with the tone, the data appendices are useful for understanding how rebate channels are structured.

How I now read my pharmacy benefit card

Once I mapped the money flow, I started to treat my benefit card like a mini-contract. These are the things I check, then ask HR or the plan’s help line about:

  • Coinsurance vs. copay: percentage of an underlying price vs. a flat amount. It changes how much list prices matter to me.
  • Deductible sequence: whether pharmacy spending hits a separate drug deductible and in what order.
  • Out-of-pocket maximum: the safety net that caps my total for the year—crucial if I take high-cost meds.
  • Formulary tiering: where my drug sits today and what utilization rules apply (prior auth, step edits).
  • Specialty channel rules: do I have to use a designated specialty or mail pharmacy?

These aren’t glamorous details, but they tell me whether a plan is leaning on rebates and coinsurance or favoring predictable copays and point-of-sale discounting. When I want objective context, I pull up ASPE’s trend work (HHS ASPE 2024) and the CBO’s policy review (2024).

Spread pricing in plain English

If “spread” sounds cryptic, here’s the everyday version: the PBM pays a pharmacy one amount for dispensing your medication and charges the plan a higher amount for that same claim, keeping the difference. Is spread inherently harmful? It depends on whether the total package (admin fees plus spread) is more cost-effective than a transparent pass-through contract—and on whether the spread skews network design. A number of states have restricted spread pricing or required disclosure; the GAO’s 2024 survey summarizes these state approaches without overreaching.

  • Ask your plan whether it uses spread pricing or pass-through contracts.
  • For employers: request a simple “follow-the-dollar” exhibit showing pharmacy reimbursement, plan paid, and PBM margin sources.
  • For patients: if you have coinsurance, ask whether point-of-sale rebate application is available for certain tiers.

Rebate GPOs and vertical integration

Another new-to-me layer: several large PBMs channel manufacturer negotiations through affiliated group purchasing organizations. The FTC’s 2024 write-up names examples and describes how rebates can be aggregated upstream, creating bargaining power but also moving dollars to entities few people have heard of. That structure doesn’t automatically raise your price, but it can make it harder to see where value is created and who keeps what. If you’re an employer purchaser, it’s fair to ask how those arrangements are priced and audited.

What helps me choose between plan options

Open enrollment used to feel like flipping a coin. Now I jot down a quick framework and compare:

  • Step 1 Notice the drugs I actually take and check their tiers, prior auth requirements, and whether coinsurance applies.
  • Step 2 Compare projected annual costs under each plan (premiums + average monthly out-of-pocket + worst-case if I hit the max).
  • Step 3 Confirm how rebates are handled at the point of sale and whether specialty distribution is mandatory.

For background reading while I do this, I keep two tabs open: ASPE’s 2024 pricing trends and the CBO 2024 options review. They’re not shopping guides, but they keep my expectations realistic.

Signals that tell me to slow down and ask for clarity

When I’m unsure, I treat it like a yellow light instead of red sirens. These are my pause-and-clarify cues:

  • Sudden copay jumps with no change in dose or pharmacy: could be a tier change or deductible reset—ask the plan to walk through the claim math.
  • Coinsurance surprises on expensive meds: request an estimate using point-of-sale rebate credits if your plan offers them.
  • Pharmacy clawback confusion: in Medicare, 2024 rules reduce retroactive DIR variability; if your pharmacy flags an issue, ask for the negotiated price line from the claim.

Regulators won’t fix every frustration, but understanding the moving parts makes conversations with your plan or HR more productive. The CMS 2024 Part D rule summary is worth bookmarking for Medicare households, and the GAO’s 2024 state survey helps decode local rules.

What I’m keeping and what I’m letting go

I can’t control list prices, and I don’t sit at a rebate table. But three principles stuck with me:

  • Price transparency starts with the formula: find out whether your cost share keys off list price or something closer to net.
  • Design beats slogans: a “low premium” plan can still be expensive if it leans on coinsurance for high-cost drugs.
  • Ask for a map: employers and plans that show a simple dollar flow (pharmacy reimbursement → patient cost → plan net after rebates) are more likely to have aligned incentives.

If you want to go deeper without getting lost, I’d start with the FTC interim report (PDF) for structure, then skim ASPE’s trend tables for context, and keep the CBO options nearby to sanity-check policy claims you’ll hear in the news.

FAQ

1) Are PBMs raising or lowering my costs?
Answer: It depends on your plan design. PBMs can lower a plan’s net costs via rebates and network rates, but your out-of-pocket may still reflect a higher pre-rebate price if you have coinsurance or a deductible. The CBO (2024) explains how different policy choices change this balance.

2) What changed with Medicare Part D in 2024?
Answer: Pharmacy price concessions that used to be taken back later (often called DIR) are now reflected more at the point of sale, improving predictability for pharmacies and visibility for patients. See the CMS 2024 Part D fact sheet for the specifics.

3) Why do manufacturers offer big rebates instead of lower list prices?
Answer: Rebates can secure favorable formulary placement in competitive classes and protect brand share. Over time, gross (list) and net prices can diverge; ASPE’s 2024 report documents these trends.

4) What is spread pricing and why do states care?
Answer: Spread pricing occurs when a PBM bills a plan more than it pays the pharmacy for the same claim. States worry about hidden margins and misaligned incentives. The GAO’s 2024 survey summarizes how states regulate or report on spreads.

5) How can I evaluate my employer plan during open enrollment?
Answer: Make a short list of your actual drugs, check their tiers and utilization rules, model coinsurance vs. copays, and ask whether expected rebates are applied at point of sale. For context on tradeoffs, the CBO (2024) frames the pros and cons of common policy levers.

Sources & References

This blog is a personal journal and for general information only. It is not a substitute for professional medical advice, diagnosis, or treatment, and it does not create a doctor–patient relationship. Always seek the advice of a licensed clinician for questions about your health. If you may be experiencing an emergency, call your local emergency number immediately (e.g., 911 [US], 119).