Who’s the Villain: PBMs or Pharma?

Executive Summary

The “PBMs vs. Pharma” narrative makes for compelling headlines but it obscures the truth: both play roles shaped by misaligned incentives. Manufacturers set high launch prices, supported by patent tactics and specialty expansion. PBMs then negotiate rebates and shape access; but often retain value through spread pricing and formulary design. Both benefit more from higher list prices, while patients see little relief at the point-of-sale.

This paper shifts the focus from blame to incentive structures and outlines a playbook for health plans to drive affordability: auditable pass‑through contracts, point‑of‑sale rebate strategies, biosimilar-first formularies, outcomes‑based contracting, and cross-functional governance. Plans that treat pharmacy as a lever for total cost-of-care, not a rebate spreadsheet, will win in both savings and member trust.

1. The Price Problem We Actually Have

• Manufacturers set WAC (list price) at launch and rarely lower it. Rebates and net prices can diverge sharply, obscuring true costs.
• Analysis shows a nearly 1-to-1 relationship: each $1 increase in rebates corresponded to a $1.17 rise in list price (Avalere Health).
• Plans may receive rebates 6-12 months after therapy initiation - yet members pay full list-based cost sharing at the pharmacy, undermining adherence.

2. Pharma’s Role

• Launch pricing and “evergreening” tactics, orphan drug status, and specialty designations sustain premium pricing.
• Manufacturers deploy copay cards and maximizers to maintain access but distort plan incentives by raising utilization of high-cost drugs.
• Limited distribution networks and patient support can add value but, also constrain downward competition and margin transparency.

3. PBMs’ Role

• PBMs manage formulary placement and negotiate rebates in exchange for preferred tier access.
• Many use spread pricing - paying pharmacies less than what they charge plans while capturing the difference (Mercer).
• Accumulator and maximizer programs block copay assistance from affecting plan liabilities, steering clinical and financial behavior.
• Vertical integration (e.g. OptumRx, CVS Caremark, Express Scripts) raises revenue-seeking incentives through steering to affiliated pharmacies (Avalere Health).

4. The False Choice: Not A vs. B

• The rebate escalator incentivizes both parties to raise list prices: pharma gets more room to rebate, PBMs secure bigger payments for placement.
• Plans’ economics (rebates, net cost) often diverge from member realities at the POS.
• Vignette example: Drug X has list price $5,000, net $3,000, and member OOP $500, under rebate-for-placement structures, all rise together.

5. What Plans Can Control in the Next 12 Months

A. Contracting & Transparency

• Move to auditable pass‑through arrangements with guaranteed net outcomes and maximum admin fees.
• Tie compensation to trend guarantees and outcomes, not just rebate volume.

B. Benefit Design & Member Affordability

• Convert a portion of rebates into point‑of‑sale discounts or rebates, especially for high-WAC drugs.
• Use fixed-dollar copays over coinsurance on high-cost medications to avoid variability from inflated list prices.

C. Clinical & Utilization Strategy

• Negotiate outcomes-based contracts for GLP‑1s, oncology, and other high-cost categories.
• Implement biosimilar-first formularies and auto-substitution where permissible.
• Apply site-of-care steering (home/ASC infusion) to reduce total spend.

D. Data & Governance

• Require 100% line-item transparency across retail, mail, and specialty.
• Perform quarterly net reconciliation and embed independent audits in the contract.
• Form a cross-functional Pharmacy–Medical steering committee targeting total cost-of-care.

6. Beyond Rebates: Measuring What Matters

Set monthly KPIs including:

• Member OOP at POS (average and 90th percentile) for top 50 NDCs
• Rebate‑to‑member pass‑through ratio
• Biosimilar capture rate and time to conversion after launch
• Medical offset tied to adherence (e.g. reduced hospital or ER use)
• Site-of-care steerage rate Consolidate pharmacy and medical trend into unified dashboards.

7. Category Playbooks

GLP-1s & Cardiometabolic

• Use clinical-first step edits that respect physician judgment.
• Apply POS rebate conversion to support persistence and adherence.

Oncology

• Enforce pathway adherence and precision diagnostics coverage.
• Clarify policies for white-bag/brown-bag drug handling.

Inflammatory & MS

• Prioritize biosimilars first, with switch‑back protections.
• Coordinate manufacturer bridge programs tightly to manage financial exposure.

8. Policy & Market Watch (Neutral Impact View)

• The FTC continues probing PBM practices, including antitrust oversight of dominant players over rebate systems and vertical integration (The Wall Street Journal).
• State-level and federal efforts on rebate reform and PBM transparency are increasing (Stanford Medicine).
• The current administration's recent letters to 17 pharma companies aim to enforce most-favored-nation pricing within 60 days, pushing firms like Lilly, Pfizer, Merck to match global pricing benchmarks (reuters.com).
• The new budget (July 2025) exempts certain high-cost drugs from Medicare direct negotiation, limiting savings (especially impacting oncology blockbusters like Keytruda and Darzalex) (The Wall Street Journal).

9. Conclusion & 90-Day Playbook

1. Audit current contracts for pass-through status and audit mechanisms
2. Redesign benefit cost share: fixed copays, POS rebate application
3. Implement biosimilar-first pathways and GLP-1 outcomes pilots
4. Launch monthly dashboard covering OOP, rebate pass-through, biosimilar capture, and site-of-care metrics
5. Convene pharmacy–medical leadership council to coordinate clinical cost action

The takeaway: Don’t choose a villain - choose verifiable economics and member-first design across contracts, benefits, and category strategies.

© Steve McGovern and Executive Search Insights, 2025. Unauthorized use and/or duplication of this material without express and written permission is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to McGovern Executive Search with appropriate and specific direction to the original content.