The Pharmacy Middlemen Profiting Off America’s Prescription Prices

Behind the mounting complaints about high prescription drug costs lies a complex financial system where intermediaries, not manufacturers, capture substantial margins. Federal reports and academic studies shed light on how pharmacy benefit managers (PBMs) and hospitals leverage opaque pricing and discount structures to retain billions, raising urgent questions about the incentives embedded in the U.S. health care infrastructure.

According to data from the Centers for Medicare & Medicaid Services, Americans spent an estimated $603 billion on prescription drugs in 2021, but the distribution of that spending is less transparent than public attention to manufacturer list prices often suggests. Federal analyses indicate that a substantial share of spending on branded medicines is retained or redistributed by intermediaries operating between drug manufacturers and patients. Findings from the Federal Trade Commission and independent researchers point to expanding margins within the prescription drug supply chain, shaped by consolidation and pricing structures that are largely invisible at the point of sale.

One focal point of recent scrutiny is the role of pharmacy benefit managers (PBMs). In a January 2025 interim staff report, the FTC examined specialty generic drugs used to treat conditions such as cancer, HIV, and cardiovascular disease. The analysis, detailed in the FTC's January 2025 interim staff report, found that the three largest PBMs—Caremark Rx, Express Scripts, and OptumRx—applied large markups when dispensing certain drugs through pharmacies they own or are affiliated with. In some cases, reimbursement rates exceeded acquisition costs by several hundred percent or more, particularly for low-cost generics where small dollar differences translate into high percentage spreads.

Across the five-year period from 2017 through 2022, the FTC estimated that PBM-affiliated pharmacies generated more than $7.3 billion in revenue above drug acquisition costs, with the report documenting consistent year-over-year growth. FTC Chair Lina M. Khan said in a statement accompanying the report, 'The FTC staff's second interim report finds that the three major pharmacy benefit managers hiked costs for a wide range of lifesaving drugs, including medications to treat heart disease and cancer.'

PBMs maintain that their business model lowers overall drug spending by negotiating rebates from manufacturers and using those concessions to reduce insurance premiums, though evidence from FTC reports suggests steering prescriptions to affiliated pharmacies may inflate costs. However, a 2024 report by the House Oversight Committee found that rebate-based incentives can influence formulary design in ways that favor higher-priced drugs over lower-cost generics or biosimilars. The committee concluded that manufacturers seeking preferred placement often pay substantial rebates to PBMs, while competing products with lower list prices face barriers to inclusion. Committee Chair James Comer said in the report, 'Instead of prioritizing the health of Americans across the country, evidence obtained by the House Oversight Committee shows how the three largest pharmacy benefit managers colluded to line their own pockets.'

Pricing spreads are not limited to PBMs. Hospitals participating in the federal 340B Drug Pricing Program operate under a different set of incentives that also affect how drug spending is distributed. The program allows eligible hospitals and clinics to purchase outpatient drugs at steeply discounted prices, while reimbursement from commercial insurers and Medicare is typically based on standard market rates rather than acquisition costs.

A study published in the New England Journal of Medicine analyzed insurer spending on physician-administered infused drugs and found significant differences in how revenue is retained across care settings. Hospitals eligible for 340B discounts retained 64.3 percent of insurer drug expenditures after acquisition costs, compared with 44.8 percent for non-eligible hospitals and 19.1 percent for independent physician practices. The authors wrote that hospitals imposed large markups on infused medications and retained a substantial share of total insurer drug spending, with the effects most pronounced among facilities eligible for 340B discounts.

Federal data compiled by the Health Resources and Services Administration show that the 340B program has expanded substantially over the past two decades, growing from roughly 8,000 covered entities in 2000 to more than 53,000 by 2024. The number of covered entities and affiliated dispensing sites grew from roughly 8,000 in 2000 to more than 53,000 by 2024, a figure that includes contract pharmacies authorized to dispense discounted drugs. Policy analysts and oversight bodies have questioned whether the financial benefits generated by this growth consistently translate into expanded charity care or improved access for low-income patients. Hospital systems counter that the margins help offset uncompensated care and support services that are otherwise underfunded.

Taken together, these arrangements illustrate how financial flows embedded in health care infrastructure can concentrate pricing power among intermediaries that control access, reimbursement, and distribution. Regulatory attention from the FTC and congressional committees reflects broader uncertainty about how accountability operates in markets where key pricing decisions occur outside public view. FTC Bureau of Competition Director Hannah Garden-Monheit said during public discussion of the agency’s PBM work that the trends identified in recent reports are accelerating, increasing pressure on policymakers to assess whether existing oversight tools are sufficient.

What happens next remains unsettled. State-level PBM regulations, federal transparency initiatives, and alternative purchasing models have been proposed or implemented with the aim of narrowing pricing spreads, but their impact on total drug spending and patient out-of-pocket costs is still emerging. For patients navigating the prescription drug system, final prices continue to reflect institutional arrangements that are only partially observable, even as scrutiny of the intermediaries shaping those outcomes intensifies.