By Dante Panella, Co-founder/Head of Business Development at PriceMDs

Conversations about pharmacy benefit managers (PBMs) rarely get very far.

They tend to drift into technical explanations or regulatory details that sound complicated and never quite answer the question employers are actually asking.

“Why do pharmacy costs keep rising even when reform is constant, oversight is growing, and transparency is supposedly improving?”

The issue is not that PBMs are impossible to understand. It is that the system around them is rarely described in practical terms. When you step back and look at the bigger picture of how scale and incentives work together, the behavior of the system starts to make sense. Not in a reassuring way, but in a predictable one.

And for employers trying to manage pharmacy spend, that predictability explains why so many well-intentioned changes fail to actually lower total costs.

How PBMs Were Meant to Work

PBMs were created to solve a practical problem.

Drug manufacturers needed a way to distribute medications efficiently across the system while they remained focused on research. The healthcare system was fragmented, and getting drugs from production to patients required coordination that manufacturers were not equipped to manage on their own.

PBMs became that link in the chain. They centralized administrative work and brought structure to a supply chain that had grown disjointed.

For a long time, that model added value. It reduced friction, simplified contracting, and made distribution more manageable. Yet, the challenge emerged when growth and financial incentives began to outweigh that original purpose.

When Market Control Replaces Market Pressure

Today, roughly 80 to 90 percent of prescription drug pricing flows through just three companies.

That level of concentration and control changes how the market behaves. When a small group controls formulary placement and pharmacy access, pricing pressure weakens. Competition no longer revolves around who can lower costs most effectively. Instead, it is all about who can maintain their position within the system and reap the benefits that come with it.

For self-funded employers in particular, this concentration reduces meaningful choice even when multiple PBM options appear to be on the table. It often means being forced to choose between options that operate in very similar ways. The branding changes and the contract language shifts, but the underlying mechanics stay largely the same.

Negotiation becomes limited, and leverage quietly fades.

How Shifting Costs Undermines Reform Efforts

Much of the public conversation around drug pricing assumes that savings achieved in one area will lower total spending. In practice, that assumption never holds.

Take this example. If Starbucks were told it could only charge $2 for coffee to a specific group of customers, the company would lower the price for that drink, but it would not actually have to absorb the loss across its entire business. Instead, prices elsewhere would rise to compensate for those dollars lost on that one group. Revenue would be stable, and the model would remain intact.

Pharmacy pricing follows a similar pattern. When pressure is applied to one part of the system, costs often reappear somewhere else. Employers end up absorbing those increases, even when reforms are presented as progress. Nothing has actually changed. The system just adjusted.

Why Pharmacy Prices Keep Rising

Employers and members keep asking the same thing: why do pharmacy costs rise even when reform is constant?

The deeper issue sits beneath contracts and disclosures.

Many PBM revenue structures still benefit when drug prices rise. Rebates and retained margins often grow alongside list prices. Even when reporting improves, the financial alignment rarely changes.

As long as higher prices generate higher revenue for intermediaries, inflation remains a rational result. It is not an accident, and it is not temporary. It is this dynamic that explains why employer pharmacy spend continues to rise year over year, even as transparency requirements expand.

A Necessary Distinction

It is important to know that not all PBMs operate the same way.

There are smaller organizations pushing for pass-through pricing, simpler fee structures, and fewer hidden margins. Some are genuinely working to reduce spend and simplify administration for their clients while providing transparency into the system.

But it is obviously easier said than done. Unfortunately, it is an uphill battle because the biggest challenge is structural. Many of these smaller PBMs still rely on the dominant players for access and purchasing, so they are forced to operate inside a system they did not design and cannot control.

In Simple Terms…

Employers struggle, not because the system is too complex but because it is rarely explained honestly.

Pricing structures that depend on limited visibility tend to resist simple explanations. When incentives are laid out plainly, the difference between what the system claims to reward and how it truly behaves becomes clear.

Scale and incentives gradually turned a useful solution into a bottleneck. That shift explains far more than any single policy debate ever could.

Lasting improvement will not come from additional reporting requirements alone. Costs will not fall consistently until the system rewards lower prices more than higher ones. That shift has to be structural, not cosmetic.

PBMs, manufacturers, and plans are all responding logically to the incentives in front of them. If we want different results, those incentives have to change.

That is the PBM problem most people never hear explained in plain English. It is also why progress has been slower than many expected.