The State of Pharmacy Benefit Managers (PBMs) [2024 Report]

Pharmacy benefit managers (PBMs) play a critical role in the pharmacy industry. For better or worse, their involvement is a hot-button issue for independent pharmacists.

RedSail Technologies surveyed pharmacy professionals to find out how pharmacy benefit managers affect them and how they expect the industry to evolve.

Read on to learn about PBMs and their impact on pharmacies.‍

What is a Pharmacy Benefit Manager?

The Commonwealth Fund defines a pharmacy benefit manager (PBM) as “[a company] that manages prescription drug benefits on behalf of health insurers, Medicare Part D drug plans, large employers, and other payers.”

In other words, PBMs act as the middleman between payers and pharmacies.

Some of the top pharmacy benefit management companies include (along with their market share):

  • CVS Health (Caremark) - 33%
  • Cigna (Evernorth/Express Scripts) - 24%
  • UnitedHealth (Optum Rx) - 22%
  • Humana Pharmacy Solutions - 8%

‍To put it in perspective, three of the biggest PBMs — CVS, Cigna, and Optum Rx — account for nearly 80% of the industry’s market share.

What Do Pharmacy Benefit Managers Do?

PBMs affect patients and pharmacies alike. In theory, PBMs are supposed to be helpful, but in practice, they can be harmful. Here’s why:

1. Inflate Drug Costs

First, many PBMs are owned by, or have business relationships with, drug manufacturers. As a result, many PBMs play a major behind-the-scenes role in determining drug prices.

Manufacturers, working with PBMs, often increase prices so they can make more profit.

Higher prices can be detrimental for patients, especially those uninsured patients. On the pharmacy’s end, higher prices also negatively affect reimbursement rate.

2. Dictate Formularies

By influencing drug prices, PBMs also shape drug formularies and dictate what medications patients can take.

Usually, this happens when pharmacy benefit managers favor drug manufacturers to get a higher cut of the formulary.

For patients, though, the wrong formulary can be disastrous.

3. Enforce Gag Clauses

In addition, PBMs can indirectly make patients pay higher prices with gag clauses.

The gag clause is a “requirement PBMs wrote into pharmacy contracts that prohibit pharmacists from disclosing to patients that a drug may be less expensive if paid for directly without using insurance.”

With gag clauses in place, patients pay more with their insurance plan when the out-of-pocket costs are less expensive — without the patients ever knowing.

A JAMA study revealed that copays were higher than the cash price for one of four drugs purchased by Medicare Part D patients in 2013.

What’s more, these patients overpaid for their medications by more than 33 percent for 12 of the 20 most prescribed drugs.

4. Collect DIR Fees

Direct and indirect remuneration (DIR) fees are fees that PBMs charge pharmacies outside of administration fees. Originally, DIR fees were created by the Center for Medicare & Medicaid Services (CMS) to account for the true cost of the drug dispensed.

However, PBMs created DIR fees of their own to impose additional fees on pharmacies, using the guise of “performance fees” based on CMS’s Star Ratings program.

Performance fees are calculated by pharmacy metrics like generic dispense rate (GDR), patient medication adherence, and net promoter score (NPS).

In other words, the pharmacy’s DIR fee depends on their performance across largely arbitrary categories.

Not only are DIR fees arbitrary — and therefore easily manipulated by PBMs — but until recently, fees often weren’t collected until long after the pharmacy dispenses the drug.

This retroactive fee collection was known as a “clawback.”

In effect, clawbacks further decrease the pharmacy’s profits. In fact, some prescriptions cost pharmacies more to dispense than they get in reimbursement — leading to a net loss on certain scripts.

And, because many PBMs are unregulated, DIR fees are only expected to increase.

In fact, from 2010 to 2020, DIR fees have increased by 107,400%, according to CMS.

Mark Cuker, Attorney at Jacobs Law Group, further explains the ins and outs of PBMs in this clip from the Catalyst Pharmacy Podcast:

The State of Pharmacy Benefit Managers [2024 Report]

Independent pharmacies deal with PBMs every day, but how much are they affected?

RedSail Technologies asked pharmacy professionals six questions about PBM impact. 235 responded. Here’s what they had to say:

1. How Familiar Are Pharmacies with PBMs? ‍

87% of respondents consider themselves to be very familiar with PBMs. 12% consider themselves somewhat familiar, and only 1% consider themselves to be unfamiliar with PBMs.

Historically, PBMs have taken measures to make their contracts difficult to understand, using “confusing, unfair, opaque, and arbitrary” language to confuse insurance companies and pharmacy professionals; and, in the process, take more profit.

In the past several years, though, many pharmacy professionals have taken it upon themselves to learn the inner workings of PBMs, share that knowledge with other professionals, and spread industry awareness about them.

2. Are Pharmacies Concerned About PBMs? ‍

All respondents are concerned about the impact PBMs have on their pharmacies.

As pharmacy professionals force PBMs out of the shadows, they draw attention to predatory PBMs practices — like gag clauses, DIR fees, and low reimbursement rates.

And, for many professionals, these practices largely go unchecked.

3. How Are Pharmacies Affected by PBMs?  

In practice, predatory PBM practices mean significant financial loss for pharmacies. To mitigate this loss, pharmacy professionals have had to take a variety of measures.

31% of pharmacies have had to cut payroll; 28% have reduced owner pay; 24% have reduced services; and 13% have taken a variety of other measures, including:

  • Cutting inventory
  • Cashing out savings
  • Taking lines of credit
  • Reducing hours of operation
  • Refusing to fill net-loss scripts
  • Reducing employee retirement contributions

And, for nearly 4% of respondents, the financial loss from PBMs meant they had to close their business altogether.  

4. How Have 2024 DIR Fee Changes Affected Pharmacies?

On January 1, 2024, CMS made an industry-shifting change to the way DIR fees work.

Essentially, CMS prohibited Medicare Part D plan sponsors and PBMs from retroactively assessing DIR fees on claims, effectively eliminating clawbacks.

While the rule eliminates retroactive DIR fees, it does not eliminate DIR fees themselves.

Instead, fees or other price concessions are included at the point of adjudication. This is a positive step in that it provides reimbursement transparency and predictability for pharmacies.

However, as pharmacies pay new negotiated rates in 2024, they are still required to pay any remaining retroactive fees from 2023. In turn, 2024 DIR fees are even more unpredictable than ever.

For some pharmacies, this unpredictability has resulted in revenue and cash flow issues.

For our survey respondents, 74% of respondents say that cash flow will be their biggest challenge with respect to the 2024 rule change.

8% are happy with the change and the transparency afforded, but 15% say that PBMs aren’t implementing transparency measures as expected.

3% of respondents cited several other challenges with the 2024 rule change, including:

  • Making it through the first quarter
  • Missing tangible performance measures
  • Seeing just how bad negative claims are
  • Continuing to see insufficient reimbursement

5. Do Pharmacies Feel PBMs Are Properly Regulated?

While the DIR fee changes mark a step in the right direction on the path to PBM transparency, many feel that they aren’t enough.

97% of survey respondents do not feel that PBMs are properly regulated, while only 3% say that they are somewhat regulated.

In effect, pharmacy professionals feel that legislators have a long way to go to in ensuring equitable PBM practices and supporting pharmacies.‍

6. Will PBMs Be Regulated Soon?

In the past few years, many legislators have introduced bills for PBM regulation, fair pharmacy audits, and better reimbursement. In 2023, important bills at the federal level included:

  • S 2973: Modernizing and Ensuring PBM Accountability Act: Unlinks PBM compensation from the cost of medications so that PBMs no longer benefit from ever-increasing list prices and rebates. Also requires PBMs to disclose criteria used to classify drugs as specialty to prevent patient steering to PBM-affiliated specialty pharmacies.

However, despite these steps, most of survey respondents feel legislation is slow-going or won’t make a difference in PBM regulation.

In fact, 77% are not confident that PBMs will be regulated soon, while only 23% are somewhat confident.

In any case, it’s clear that PBM regulation has a long way to go to make a difference for pharmacies.


Our survey results show that pharmacy professionals suffer from the predatory practices of pharmacy benefit managers, and importantly, that their confidence in government intervention remains low.

However, new legislation may mean a brighter future is on the horizon.

As new legislation suggests, PBMs should implement clear communication, transparency, and more equitable reimbursement policies for pharmacies — even if they’re forced to do it.

But with pharmacists at the forefront of this fight, we remain optimistic for PBM reform.

To keep up with the latest in PBM reform, and to participate in future surveys, subscribe to the NextWave Pharmacy Newsletter or the RedSail Blog.

Written by:
Taylor Gregory
Marketing Assistant, RedSail Technologies
Taylor Gregory

Taylor is passionate about sharing stories that shape pharmacy practice. In her three years at RedSail, she’s put hundreds of blogs under her belt, writing about everything from operations to revenue opportunities to – her favorite – RedSail pharmacy spotlights.

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