Photo by National Cancer Institute on Unsplash
America’s healthcare affordability crisis is much larger than pharmacy benefit managers (PBMs). CMS projects national healthcare spending of about $5.7 trillion in 2025, or 18.4 percent of GDP. Retail prescription drugs account for about $519 billion, roughly 9 percent of the total, while hospital care accounts for roughly one-third. PBM policy matters, but regulating one intermediary cannot solve a cost crisis rooted throughout the broader healthcare system.
PBMs emerged within a third-party payment system shaped by the tax preference for employer-sponsored insurance, Medicare, Medicaid, benefit mandates, and extensive regulation. Employers, insurers, unions, and government programs hire PBMs to negotiate drug discounts, process claims, administer formularies, and manage pharmacy networks. These functions do not disappear if government restricts PBMs. They move elsewhere in the system, potentially at higher cost.
PBMs should not get a pass. FTC staff report that the three largest PBMs processed nearly 80 percent of prescriptions dispensed by U.S. pharmacies in 2023, while the six largest processed more than 90 percent. Fraud, deception, collusion, exclusionary conduct, and proven antitrust violations should be addressed. But concentration, profitability, and vertical integration alone do not establish consumer harm. The proper standard is consumer welfare: what happens to total costs, access, quality, competition, and innovation?
Tennessee’s FAIR Rx Act illustrates the tradeoffs. Beginning in 2028, the law restricts certain common ownership arrangements involving pharmacies, health insurers, and PBMs. Supporters argue that structural separation can reduce conflicts of interest and protect independent pharmacies. Tennessee’s formal fiscal analysis, however, identifies possible higher drug-acquisition, dispensing, network, and administrative costs alongside potential savings from reducing noncompetitive practices. It concludes that the net fiscal impact cannot yet be reasonably determined. That uncertainty should matter to policymakers considering similar ownership mandates.
The better approach is to protect competition, not competitors. Policymakers should target demonstrable misconduct while avoiding structural mandates that may simply redistribute costs among pharmacies, PBMs, insurers, employers, taxpayers, and patients. Eliminating a middleman does not eliminate the work it performs, and shifting who receives a healthcare dollar does not necessarily reduce the amount patients ultimately pay.
Lasting reform should instead empower patients. The Empower Patients Initiative would restore greater patient control over healthcare decisions and dollars, expand and modernize Health Savings Accounts, allow employer healthcare contributions to follow workers, encourage direct primary care, expand telehealth and telepharmacy, reduce unnecessary licensing and certificate-of-need barriers, encourage generics and biosimilars, and improve meaningful price transparency. Policymakers should also address larger drivers of healthcare spending, including hospital-market distortions.
The test for reform should be straightforward: Does it lower total costs, expand access and competition, increase healthcare supply, and give patients greater control? America’s healthcare crisis is fundamentally an incentives problem, not simply a PBM problem. The better prescription is to empower patients, enforce the rules against proven misconduct, and let competition work across the healthcare system.
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