# How Pharmacy Benefit Managers Get Paid: The Toll That Grows Fatter as the Drug Gets More Expensive

PBMs can bill a plan $100 for a pill, pay the pharmacy $20, and keep the $80 spread. The FTC found the Big 3 marking up specialty generics by hundreds and thousands of percent.

Author: J.A. Watte
Published: July 20, 2026
Source: https://jwatte.com/blog/how-pharmacy-benefit-managers-are-paid/

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*Thirty-third in a series on jobs whose pay system is stranger than the salary. Earlier stops looked at the [card networks](/blog/how-card-networks-are-paid/) that skim a fraction of every swipe, the [credit rating agencies](/blog/how-credit-rating-agencies-are-paid/) paid by the very bonds they grade, and the [title insurers](/blog/how-title-insurers-are-paid/) who collect a one-time premium on a risk that almost never materializes. The pharmacy benefit manager belongs in that company, but it is the strangest of them all, because it is the rare middleman that gets paid more when the product costs more. Every figure below is cited to the Federal Trade Commission, the Centers for Medicare and Medicaid Services, or a company's own SEC filing, and where a number could not be verified at a primary source I say so rather than estimating.*

Most tolls in this series are a fixed fraction. The card network takes its cut of the swipe. The distributor marks up the case. The size of the slice does not usually depend on how expensive the underlying thing is, only on how much of it flows through.

The pharmacy benefit manager broke that rule.

A PBM can bill a health plan $100 for a pill, reimburse the pharmacy that actually dispensed it $20, and keep the $80 in between. That gap has a bland industry name, the spread, and it is the purest toll in the entire series, because none of the three parties standing around the PBM can see it. The plan sees the $100 it paid. The pharmacy sees the $20 it got. The patient sees a copay pegged to a list price nobody is allowed to inspect. The one number that matters, the gap, is invisible by design. And because the toll lives inside that gap, the higher the sticker price climbs, the fatter the slice the intermediary keeps. This is a middleman whose incentive runs exactly backwards from yours.

## The three companies that stand in almost every prescription

Before the money, the choke point. You cannot toll a road nobody has to use, and the first thing to understand about PBMs is how few of them there are and how much of American medicine passes through them.

The Federal Trade Commission put the concentration on the record in July 2024. The top three PBMs processed nearly 80 percent of the approximately 6.6 billion prescriptions dispensed by United States pharmacies in 2023. The top six processed more than 90 percent. The six largest manage nearly 95 percent of all prescriptions filled in the country. That is not a competitive market with a few big players. That is a toll bridge with three lanes, and almost every prescription in America crosses one of them.

The three lanes have names, and each one is bolted to a giant you already know. Caremark Rx is part of CVS Health. Express Scripts, often written ESI, is part of Cigna. OptumRx is part of UnitedHealth Group. The FTC's phrasing is worth quoting, because it names the second toll hiding behind the first: "the largest PBMs are now also vertically integrated with the nation's largest health insurers and specialty and retail pharmacies." The same corporate family that manages the drug benefit also owns an insurer on one side and a pharmacy on the other. Pharmacies affiliated with the three largest PBMs account for nearly 70 percent of all specialty drug revenue.

Hold that structure in your head, because it is the whole trick. The PBM decides what a drug will cost, which pharmacies a patient may use, and how much each of those pharmacies gets paid. And in a growing share of cases, the pharmacy on the receiving end of that decision is owned by the same company making it.

## The spread, named and counted

Now the spread itself, out of the abstract and onto the FTC's ledger.

Spread pricing is exactly what it sounds like. The FTC's second interim report, released in January 2025, defined it in the plainest possible terms: the PBMs bill "their plan sponsor clients more than they reimburse pharmacies for drugs" and keep the difference. That is the toll. The plan pays one number, the pharmacy receives a smaller number, and the PBM pockets the gap without either side seeing the other's figure.

How big is the gap? On the specialty generic drugs the FTC actually analyzed, over the 2017 through 2022 study period, the Big 3 PBMs generated an estimated $1.4 billion of income from spread pricing alone. I want to be precise about the scope of that number. It is specific to the specialty generic drugs the FTC studied over those years. It is not a whole-market figure for spread across every drug class, and the FTC did not publish one, so I am not going to invent a bigger number to make the point louder. The point is loud enough at $1.4 billion on a narrow slice of the formulary.

## The toll booth pays more to the pharmacy it owns

Here is where the vertical integration stops being a footnote and becomes the mechanism. When the PBM sends its dispensing business to a pharmacy it owns, it can set that pharmacy's reimbursement, and the FTC found it set it high.

On the specialty generic drugs studied from 2017 to 2022, the Big 3 PBMs' affiliated pharmacies generated over $7.3 billion of dispensing revenue in excess of their estimated drug acquisition cost, measured against the National Average Drug Acquisition Cost, the benchmark known as NADAC. That is $7.3 billion collected above what the drugs actually cost the pharmacies to buy. And it was accelerating. That excess grew at a compound annual growth rate of 42 percent from 2017 to 2021. Just ten specialty generic drugs accounted for $6.2 billion of it, or 85 percent.

The FTC then said the quiet part in its own words. "The Big 3 PBMs imposed markups of hundreds and thousands of percent on numerous specialty generic drugs dispensed at their affiliated pharmacies." Not hundreds of dollars. Hundreds and thousands of percent. And the favoritism was measurable: the PBMs "also reimbursed their affiliated pharmacies at a higher rate than they paid unaffiliated pharmacies on nearly every specialty generic drug examined." The analysis covered 51 specialty generic drugs across 882 individual product codes, including the generic version of Gleevec, a leukemia drug, and the generic version of Ampyra, used in multiple sclerosis.

Read that as a single sentence. For the same drug, the PBM paid its own pharmacy more and the independent pharmacy down the street less, and it did this on nearly every drug the FTC checked. The toll booth does not just collect the toll. It routes the traffic to the lane it owns and pays that lane a premium.

The first interim report, from July 2024, had already flagged the size of the prize on the narrowest possible base. The practices "allowed pharmacies affiliated with the three largest PBMs to retain high levels of dispensing revenue in excess of their estimated drug acquisition costs, including nearly $1.6 billion in excess revenue on just two cancer drugs in under three years." Two drugs. Under three years. Nearly $1.6 billion.

One honest limit on all of these figures. The FTC reports them as Big 3 aggregates. It did not break the $1.6 billion or the $7.3 billion out by individual company, so I am not going to assign a share to Caremark versus Express Scripts versus OptumRx, because the primary source does not.

## Why this shows up in the parent company's profit

If you want to know whether a toll matters to the people collecting it, look at what it does to their bottom line. The FTC did that too.

Operating income from the Big 3 PBMs' affiliated pharmacies dispensing the analyzed specialty generic drugs accounted for 12 percent of the aggregated operating income reported by the parent healthcare conglomerates' business segments that include their PBM and pharmacy businesses, in 2021. Sit with the narrowness of that. Not all drugs. Not the whole company. A single category, specialty generics, dispensed through the affiliated pharmacies, threw off roughly an eighth of the operating income of the enormous segments that house these businesses. A tollbooth on one lane of one road is carrying that much of the profit.

You can see the scale of the road it sits on in the parent companies' own filings, with a caveat. CVS Health's Health Services segment, the one anchored by the Caremark PBM and its specialty and mail pharmacies, reported total revenues of $190,425 million in 2025, $173,605 million in 2024, and $186,843 million in 2023. I am labeling that carefully, the way the filing requires. That is CVS Health's figure for a segment that includes Caremark but also bundles in other health-services businesses. It overstates pure PBM revenue, and a clean standalone Caremark line is not broken out, so treat it as the scale of the neighborhood, not a measurement of the single tollbooth.

## The second toll: rebates, and the list price that hides them

Spread pricing is only half of how a PBM gets paid. The other half runs through the manufacturer, and it explains the single most counterintuitive fact in American drug pricing: why the sticker price of a drug keeps climbing even when a cheaper version exists.

When a drug manufacturer wants its brand on a PBM's formulary, the list of drugs a plan will cover, it pays the PBM a rebate. And here the FTC found the toll doing something worse than skimming. "PBMs and brand pharmaceutical manufacturers sometimes enter agreements to exclude lower-cost competitor drugs from the PBM's formulary in exchange for increased rebates from manufacturers." The rebates, in the FTC's words, are sometimes "expressly conditioned on limiting access to potentially lower-cost generic and biosimilar competitors." Read plainly: the manufacturer pays the middleman to keep the cheaper drug off the menu, and the middleman does it.

Where does that rebate go, and why does it push list prices up instead of down? CMS explains the machinery in its fact sheet on Direct and Indirect Remuneration, the reporting category known as DIR. "Fees, payments, or payment adjustments made after the point-of-sale that change the cost of Part D covered drugs for Part D sponsors or PBMs must be reported to CMS as Direct or Indirect Remuneration." Manufacturer rebates, CMS notes, "comprise a significant share of all DIR reported to CMS." The key phrase is after the point of sale. The rebate changes the real cost of the drug, but it does so later, off to the side, where the patient at the counter never sees it.

And that timing is not neutral. It costs the patient money. CMS spells out the arithmetic: "The cost of rebates and other price concessions received after the point-of-sale is built into the list price charged at the point-of-sale," and "higher point-of-sale prices generally result in higher beneficiary cost-sharing obligations as cost-sharing is often assessed as a percentage of the list price." Ten percent coinsurance is $10 on a $100 list drug and $5 on a $50 drug. The rebate that would have justified a lower price arrives too late to help the patient, because, as CMS puts it, "rebates and other price concessions received after the point-of-sale do not mitigate these impacts." The list price is inflated to make room for a rebate the patient never sees, and then the patient's copay is charged against the inflated number. The toll is collected twice: once as the rebate the PBM keeps, and once as the higher copay the patient pays on a price puffed up to hide it.

A few things about rebates I could not pin to a clean primary figure, so I will not assert them. The total industry-wide dollar value of manufacturer rebates PBMs retain, and the exact share of each rebate a PBM keeps versus passes back to the plan, are not numbers I could source at a primary document. CMS confirms rebates are a significant share of DIR. It does not hand over a single clean retention figure, and I will not manufacture one. Separately, a widely circulated statistic that pharmacy DIR fees grew by roughly 107,400 percent between 2010 and 2020 is one I could not confirm at its CMS source in this session, so treat it as secondary and unverified rather than fact.

## Who pays the toll without seeing it

Every entry in this series ends up at the same question: who is paying the toll and does not know it. Here the answer is unusually grim, because the FTC put the human cost on the record alongside the dollars.

The plan sponsors, the employers and government programs that hire PBMs, are paying and cannot see the spread. In 2021, plan sponsors paid $4.8 billion for the specialty generic drugs the FTC studied. Patient cost sharing on those same drugs totaled $297 million. Between 2017 and 2021, plan-sponsor and patient payments each rose at a compound annual growth rate of 21 percent on commercial claims and 14 to 15 percent on Medicare Part D claims. The bill went up steadily on both the plan and the patient, in exactly the years the PBMs' affiliated-pharmacy margins were compounding at 42 percent.

The patients are paying too, and some of them are paying with their health. The FTC cited survey data showing "nearly 30 percent of Americans surveyed reporting rationing or even skipping doses of their prescribed medicines due to high costs." And it named the source of the squeeze without hedging: the largest PBMs "often exercise significant control over what drugs are available and at what price, and which pharmacies patients can use." The party that decides what your drug costs, where you can fill it, and whether the cheaper version even appears on the list is the same party keeping the spread. Nearly a third of the country is rationing medicine while a toll is being skimmed inside a price they are not allowed to inspect.

## The investigation, and the resistance to it

The reason any of this is quotable rather than rumored is that a federal regulator forced it into the open, and even the regulator hit a wall.

The FTC launched the inquiry in 2022 using Section 6(b) special orders, a compulsory tool that requires companies to hand over internal data. It went to the six largest PBMs, Caremark Rx, Express Scripts, OptumRx, Humana Pharmacy Solutions, Prime Therapeutics, and MedImpact, and in 2023 the orders were extended to three rebate-aggregating group purchasing organizations, Zinc Health Services, Ascent Health Services, and Emisar Pharma Services, entities that sit between the manufacturers and the PBMs and add yet another layer to the rebate machine. The two reports the FTC has released bear titles that read like conclusions: "Pharmacy Benefit Managers: The Powerful Middlemen Inflating Drug Costs and Squeezing Main Street Pharmacies," in July 2024, and "Specialty Generic Drugs: A Growing Profit Center for Vertically Integrated Pharmacy Benefit Managers," in January 2025.

Two details about the process tell you how contested this ground is. The first report issued on a 4 to 1 vote, with Commissioner Holyoak dissenting; the second issued 5 to 0. And the FTC noted on the record that several PBMs "have not been forthcoming and timely in their responses" to its compulsory orders. When a regulator armed with subpoena-grade authority says the companies are dragging their feet, that is itself a data point about how much sunlight the toll can survive. Both reports are labeled interim. The inquiry is ongoing.

One more reform I want to flag rather than assert. CMS finalized a rule, effective January 1, 2024, requiring Part D plans to reflect pharmacy price concessions at the point of sale, which is aimed squarely at the after-the-sale timing described above. The mechanic is real, but I could not open the specific CMS final-rule fact sheet to quote it in this session, so I am noting the change exists without putting words in the agency's mouth.

## What a salaried reader should take from this

**The most dangerous toll is the one indexed to the price, not the volume.** Most middlemen in this series take a fixed cut of a flow. The PBM takes a cut of a gap, and the gap widens as the sticker price rises. That single design choice flips the intermediary's incentive against everyone it serves. Whenever you find a party whose pay goes up when the thing you buy gets more expensive, you have found an actor with a reason to want the price high, and you should assume it is using that reason. The [card network's](/blog/how-card-networks-are-paid/) percentage at least gives it a mild interest in cheaper transactions moving faster. The spread gives the PBM the opposite.

**Vertical integration turns a referee into a player.** The same corporate family owns the insurer, the PBM that sets reimbursement, and the pharmacy that collects it. So the party deciding how much a pharmacy gets paid is, more and more often, paying itself, and the FTC found it paying itself more than it paid the independent pharmacy for the identical drug. Any time the entity that sets a price also owns one side of the transaction, the price stops being a market signal and becomes an internal transfer dressed up as one. This is the same lesson the [credit rating agencies](/blog/how-credit-rating-agencies-are-paid/) teach from the other direction: when the scorekeeper has a stake in the score, read the score as an interested document.

**Opacity is not a side effect. It is the product.** The plan cannot see what the pharmacy was paid. The pharmacy cannot see what the plan was billed. The patient's copay is charged against a list price inflated on purpose to hide a rebate the patient will never see. Every one of those blind spots is load-bearing, because the toll lives precisely in what nobody is allowed to inspect. When an intermediary's price is deliberately hard to see, the difficulty is doing work, the same way the [title insurer's](/blog/how-title-insurers-are-paid/) premium hides a loss ratio you would flinch at if it were printed on the closing sheet.

**A toll can hurt you in your body, not just your wallet.** Most tolls in this series are extracted quietly and cost you money you can afford to lose. This one sits on top of cancer drugs and multiple sclerosis drugs, and the FTC put on the record that nearly 30 percent of Americans report rationing or skipping doses over cost while the spread is collected inside the price. When the flow being tolled is medicine, the gap the middleman keeps is measured in filled and unfilled prescriptions. That raises the stakes on transparency from a consumer-protection nicety to something closer to a matter of health.

## Related reading

- [How card networks are paid](/blog/how-card-networks-are-paid/): a fraction of every swipe, collected by a party neither the shopper nor often the merchant can negotiate with.
- [How credit rating agencies are paid](/blog/how-credit-rating-agencies-are-paid/): the scorekeeper paid by the teams it scores, another middleman whose incentive points the wrong way.
- [How title insurers are paid](/blog/how-title-insurers-are-paid/): a premium on a risk that almost never pays out, baked invisibly into a closing.
- [How mortgage bond sellers are paid](/blog/how-mortgage-bond-sellers-are-paid/): a stack of intermediaries each skimming a slice of one loan, most of it hidden inside a single headline rate.
- [How alcohol distributors are paid](/blog/how-alcohol-distributors-are-paid/): a state-enforced middleman that every case must pass through, the toll-on-a-flow pattern in its plainest form.

## Fact-check notes and sources

The concentration figures, the spread-pricing and markup findings, the rebate mechanics, and the patient-harm framing come from the Federal Trade Commission's two interim staff reports. The definition of DIR and the list-price cost-sharing arithmetic come from CMS. The company revenue scale comes from an SEC filing. Where a figure is secondary, out of scope, or could not be verified at a primary source, it is flagged in the text and here.

- **The market concentration** (the top three PBMs processing nearly 80 percent of the approximately 6.6 billion prescriptions dispensed in 2023, the top six more than 90 percent, the six largest managing nearly 95 percent), **the identity and vertical integration of the Big 3** (Caremark Rx / CVS Health, Express Scripts / Cigna, OptumRx / UnitedHealth Group, with affiliated pharmacies accounting for nearly 70 percent of all specialty drug revenue), **the rebate-for-exclusion agreements**, **the nearly $1.6 billion in excess revenue on just two cancer drugs in under three years**, and **the patient-harm framing** (nearly 30 percent rationing or skipping doses; PBMs controlling what drugs are available, at what price, and which pharmacies patients may use) are from the FTC, ["FTC Releases Interim Staff Report on Prescription Drug Middlemen," first interim staff report, July 9, 2024](https://www.ftc.gov/news-events/news/press-releases/2024/07/ftc-releases-interim-staff-report-prescription-drug-middlemen). The report's full title is "Pharmacy Benefit Managers: The Powerful Middlemen Inflating Drug Costs and Squeezing Main Street Pharmacies."
- **The spread-pricing definition and the $1.4 billion of spread income on the analyzed specialty generic drugs (2017 to 2022)**, **the over $7.3 billion of dispensing revenue in excess of NADAC acquisition cost** (growing at a 42 percent compound annual rate from 2017 to 2021, with the top 10 specialty generics accounting for $6.2 billion, or 85 percent), **the markups of hundreds and thousands of percent at affiliated pharmacies and the higher reimbursement of affiliated versus unaffiliated pharmacies** (across 51 specialty generic drugs and 882 product codes, including generic Gleevec and generic Ampyra), **the 12 percent of parent-segment operating income** in 2021, and **the plan and patient spending figures** ($4.8 billion in plan-sponsor payments and $297 million in patient cost sharing on the studied drugs in 2021; each rising at a 21 percent compound annual rate on commercial claims and 14 to 15 percent on Medicare Part D claims from 2017 to 2021) are from the FTC, ["FTC Releases Second Interim Staff Report on Prescription Drug Middlemen," January 14, 2025](https://www.ftc.gov/news-events/news/press-releases/2025/01/ftc-releases-second-interim-staff-report-prescription-drug-middlemen). The report's full title is "Specialty Generic Drugs: A Growing Profit Center for Vertically Integrated Pharmacy Benefit Managers." **The FTC reports the $1.6 billion, $7.3 billion, and related figures as Big 3 aggregates; they are not broken out by individual PBM, so no per-company share is asserted. The $1.4 billion spread figure is specific to the analyzed specialty generic drugs over 2017 to 2022 and is not a whole-market number.**
- **The Section 6(b) inquiry mechanics** (compulsory orders to the six largest PBMs, Caremark Rx, Express Scripts, OptumRx, Humana Pharmacy Solutions, Prime Therapeutics, and MedImpact, extended in 2023 to the group purchasing organizations Zinc Health Services, Ascent Health Services, and Emisar Pharma Services; the July 2024 report issued 4 to 1 with Commissioner Holyoak dissenting, the January 2025 report 5 to 0; and the note that several PBMs "have not been forthcoming and timely in their responses") are drawn from the two FTC press releases above.
- **The definition of Direct and Indirect Remuneration (DIR)**, the statement that manufacturer rebates "comprise a significant share of all DIR reported to CMS," and **the list-price / cost-sharing arithmetic** (rebates built into the point-of-sale list price, cost sharing assessed as a percentage of list price, the 10 percent coinsurance example of $10 on a $100 drug versus $5 on a $50 drug, and post-sale rebates not mitigating these impacts) are from the [CMS Fact Sheet, "Medicare Part D: Direct and Indirect Remuneration (DIR)"](https://www.cms.gov/newsroom/fact-sheets/medicare-part-d-direct-indirect-remuneration-dir), a primary source. **This is the older CMS explainer; it does not describe the CMS rule effective January 1, 2024 requiring point-of-sale reflection of pharmacy price concessions. That later rule is real but its specific fact sheet could not be opened in this session and is therefore described but not quoted.**
- **CVS Health's Health Services segment revenues** ($190,425 million in 2025, $173,605 million in 2024, $186,843 million in 2023) are from the [CVS Health Corporation Form 10-K for fiscal year 2025, filed February 10, 2026, Segment Reporting reconciliation, via SEC EDGAR](https://www.sec.gov/Archives/edgar/data/64803/000006480326000010/cvs-20251231.htm), a primary source. **This segment is anchored by the Caremark PBM but also bundles other health-services businesses; it overstates pure PBM revenue, and a clean standalone Caremark revenue line is not isolated in the filing. It is presented as CVS Health's segment figure, not a PBM-industry total.**
- **Not asserted, and why:** the frequently cited statistic that pharmacy DIR fees grew roughly 107,400 percent between 2010 and 2020 (could not be confirmed at the CMS source in this session; treated as secondary and unverified); the total industry-wide dollar value of manufacturer rebates PBMs retain and the exact per-rebate retention share (CMS confirms rebates are "a significant share" of DIR but no clean primary dollar figure or percentage was obtained); any per-company split of the $1.6 billion or $7.3 billion aggregates; any spread-pricing dollar total across all drug classes beyond the analyzed specialty generics; and any portion of CVS Health's Health Services segment revenue attributable to Caremark alone.

*This post is informational and journalistic, not medical, legal, or financial advice, and nothing here is a recommendation about any drug, plan, or company. It describes two FTC interim staff reports, a CMS fact sheet, and a company SEC filing. Findings, figures, and rules change, and the FTC reports are interim and its inquiry is ongoing, so verify current status before relying on any of them. Mentions of specific companies, agencies, and drugs are drawn from the public record and are nominative fair use, and no affiliation is implied.*


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