What a pharmacy benefit manager does

In 2023, three companies processed nearly 80 percent of the roughly 6.6 billion prescriptions filled in the United States. They are pharmacy benefit managers, or PBMs, and the figure comes from a July 2024 interim staff report by the Federal Trade Commission¹. Add the next three largest and the share reaches nearly 95 percent, the FTC staff found.

Most people never deal with a PBM directly. Its name may appear on the back of an insurance card, or not at all. Yet a PBM usually decides which pharmacies are in network, which generics sit on the cheapest tier, and how much the pharmacy is paid when it hands over a bottle of atorvastatin.

Those arrangements are now changing by statute. On Feb. 3, 2026, the President signed the Consolidated Appropriations Act, 2026⁵, which carries the first broad federal rules for PBMs in Medicare Part D and in employer health plans. This explainer covers what PBMs do, how money moves through them, what federal investigators have reported about the market, and what the new law changes and when.

The jobs a PBM does for a health plan

A PBM is a contractor. Insurers, employers, unions, Medicare drug plans and state Medicaid programs hire PBMs to run the prescription drug part of their coverage. In Medicare Part D, plan sponsors used PBMs for 74 percent of drug benefit management services in 2016, the Government Accountability Office reported in 2019³. The plan sponsor pays the bills and carries the risk. The PBM does most of the daily work.

Each of those jobs has a separate GxRadar explainer: tiered formularies, prior authorization and step therapy, mail-order pharmacies and how pharmacies get paid.

How the money moves

A PBM earns money in several ways at once, and the mix is what policymakers have argued over.

Rebates come first. Brand manufacturers pay rebates to win a better formulary position, and the PBM passes some or all of them to the plan. In Medicare Part D, rebates and other price concessions rose 66 percent from 2014 to 2016, to $29 billion, equal to 20 percent of gross drug spending, GAO found³. For that year, the same report³ found that PBMs "retained less than 1 percent of these rebates" and passed the rest to plan sponsors.

A second source is the gap between what the PBM bills the plan for a prescription and what it pays the pharmacy. That practice is called spread pricing. FTC staff described it in their January 2025 report² as PBMs "retaining the difference between the amount they bill their plan sponsor clients" and what they pay pharmacies. In Medicaid managed care, CMS told states in a May 2019 bulletin⁶ that a PBM must count as incurred claims only the amounts actually paid to the retail or mail-order pharmacy, net of rebates, when plans calculate their medical loss ratios.

Pharmacy payment itself is a third. For generics, the PBM typically pays the pharmacy an ingredient amount capped by a maximum allowable cost list, plus a dispensing fee. Those lists are proprietary and differ by payer. Our comparison of drug price benchmarks sets MAC beside NADAC and the other common reference prices.

Then there are the PBM's own pharmacies. When an affiliated mail-order or specialty pharmacy fills the prescription, the corporate family earns the dispensing margin as well as any administrative fee.

What federal investigators reported

FTC staff's study began in 2022, when the agency sent orders to six of the largest PBMs, and three rebate aggregators were added in 2023, according to the agency's July 2024 announcement¹. Two interim staff reports have followed, and GxRadar's piece on the FTC study goes through both in more detail.

In the first report, staff found that pharmacies affiliated with the three largest PBMs accounted for nearly 70 percent of all specialty drug revenue, and said PBMs¹ "may be steering patients to their affiliated pharmacies and away from smaller, independent pharmacies." It also described rebate deals that were "expressly conditioned on limiting access to potentially lower-cost generic and biosimilar competitors."

A second report, in January 2025, focused on generics. FTC staff examined 51 specialty generic drugs covering 882 National Drug Codes and measured what pharmacies affiliated with the three largest PBMs were paid against NADAC, the federal survey of pharmacy acquisition cost. On commercial claims from 2020 to 2022, 63 percent of those drugs were reimbursed at more than 100 percent above NADAC, and 22 percent at more than 1,000 percent above it, the report said².

That $7.3 billion compares dispensing revenue with what the drugs cost at NADAC rates⁸, so it is revenue above acquisition cost, before the pharmacies' own operating expenses. Staff attributed $5.9 billion of it, or 81 percent, to commercial claims, according to the report². GxRadar's NADAC explainer covers what the benchmark captures.

What the 2026 law changes, and when

Congress put the PBM changes, summarized alongside earlier state laws in our piece on PBM reform legislation, in the appropriations law, Public Law 119-75⁴, with staggered start dates. None of the PBM provisions below takes effect before 2027.

Thirty months from Feb. 3, 2026, falls in August 2028. For a calendar-year plan that points to the 2029 plan year, and the rules attach to contracts signed, renewed or extended after the effective date. The text of each section is in the enrolled public law on GovInfo⁴. One earlier federal rule already reaches PBMs at the counter. Since 2018, the Patient Right to Know Drug Prices Act⁷ has barred plans from letting a PBM stop a pharmacy from telling a customer when paying cash would cost less, a point we cover in how to ask for the cash price.

For a patient, the practical questions are about the plan, not the PBM: which pharmacies are in network, which tier a generic sits on, and whether a 90-day or mail-order fill is required. Those are questions for the plan's member services line or a pharmacist. More on the pharmacy side is on our pharmacy counter desk.

The next date on the calendar is April 1, 2027, the statutory deadline⁴ for HHS to issue a request for information on Part D pharmacy contract terms, including whether reimbursement and dispensing fees cover pharmacies' ingredient and operating costs.