Beyond transparent pricing: decoding the strategies of major PBMs

The three largest pharmacy benefit managers (PBMs) in the United States—Express Scripts, OptumRx and CVS Caremark—control more than 80% of the market share (per Clarivate data, as of January 2024). This market dominance, coupled with other concerns, particularly around pricing opacity, has made PBMs a target of regulators and politicians.

Express Scripts pioneered a transparent model with ClearCareRx in April, 2023. OptumRx soon followed with its Cost Made Clear initiative, launching Cost Clarity and Cost Advantage models the same month, and then introduced the value-based Trend Guarantee Model in May 2024. Express Scripts added ClearNetwork in late 2023, while CVS Caremark introduced CostVantage and TrueCost in early 2024, mirroring the strategies of ESI and OptumRx. These moves mark a strategic shift towards greater transparency and predictability, driven by regulatory pressures and rising competition from market disruptors.

PBMs’ pricing models

Source: Evernorth, CVS, and Optum official press releases; articles from drug channels institute

Are drug pricing transparency models the new frontier for big PBMs?

Large PBMs historically have used a traditional spread pricing contracting model in which they earn a spread, or margin, from the drugs they buy from pharmacies and are then reimbursed by plan sponsors.

Ongoing Federal Trade Commission investigations into PBM businesses and their GPOs, together with bipartisan legislative efforts, aim to reform PBM practices. States are also actively targeting PBM tactics like spread pricing for Medicaid. For Medicare, CMS intends to begin directly negotiating prices with drug manufacturers for ten highest-cost drugs starting in 2026, with plans to expand further, subtly impacting the role of these . This could sideline PBMs, slashing their influence and profitability in drug price negotiation with manufacturers for government-sponsored plans.  Amid heightened scrutiny from the FTC and Congress, these PBMs are facing pressure to adapt to a changing landscape where transparency and predictability in drug pricing models are more lucrative to payers. For instance, BlueShield of California, one of the largest payers in the state, decided to end its exclusive contract with CVS as its PBM. Instead, they forged partnerships with Amazon Pharmacy, Mark Cuban’s Cost Plus Drug Co., Abarca, and Prime Therapeutics alongside CVS Caremark to manage their pharmacy benefits (impacting CVS’ revenue). This strategic shift had a notable impact on CVS’s market value per share, particularly following major contract losses such as those with the Blue plan and Centene.

Small PBMs like Navitus and retail disruptors including Mark Cuban’s Cost Plus Drug Company and Amazon have pioneered transparent models, including 100% pass-through (where rebates go entirely to plan sponsors) and cost-plus pricing (where a fixed markup is added to the drug’s actual cost).  Transparency-Rx emerged in September, 2023 as a nonprofit coalition comprised of seven small PBMs: Navitus, SmithRx, Liviniti, AffirmedRx, RxPreferred, Pharmacy Benefit Dimensions, Salvus, and MedOne. Their primary objective is to advocate for drug pricing transparency. With bipartisan support, Transparency-Rx could challenge established PBMs by promoting fairer pricing practices and advocating for greater transparency in the complex drug supply chain.

These developments underscore a shifting landscape in the PBM industry, highlighting the growing difficulty for traditional PBMs relying on spread pricing models to maintain competitiveness and relevance. Recognizing the importance of payer demand for transparent and predictable drug pricing, these big PBMs have responded by introducing what they label transparent pricing models. These innovative pricing models not only could shield PBMs from ongoing scrutiny and potential regulatory changes but also bolster client retention, preventing them from shifting to newer competitors like those led by Mark Cuban or payers developing their own pharmacy benefit solutions.

Radical transparency or mere lip service?

All these pricing strategies claim to enhance transparency and address cost concerns, but there remains skepticism about the true effectiveness of these models. While offering detailed insights into pricing structures, critics have charged that they fall short of revealing the full picture of PBM revenue streams, such as administrative fees and non-passed-through rebates, leaving room for potential conflicts of interest and hidden profits.

This partial transparency might not be as revealing as it seems.  And while lower drug prices are the ultimate goal, there is no guarantee that savings will trickle down to consumers, leaving it unclear if these models will really make drugs more affordable. In addition, the PBM-led GPOs functioning as large-scale rebate aggregators adds another layer of complexity, potentially undermining the goal of true transparency by PBMs.

While the shift to transparent pricing models is promising, the real test lies in their implementation. It remains to be seen whether these claims will lead to tangible cost reductions or are simply strategic responses to market and regulatory pressures. Despite facing increased federal scrutiny, PBMs have managed to evade significant consequences thus far.  In conjunction with regulatory and bipartisan governmental support, the next few years will be pivotal in determining the future of transparency in drug pricing and PBM practices. Tighter scrutiny and regulatory oversight could ensure they stay true to their promises.

This article was written by Roshni Patel, Healthcare Research & Data Analyst, and Nema Pathania, Associate Healthcare Research & Data Analyst. Learn more about how Clarivate helps biopharma companies navigate market access across global markets.

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