Matt dives into a specific healthcare topic to help those in the industry, and those outside of it, better understand the market drivers causing today’s healthcare challenges.

I've spent two decades in healthcare access. I've read the contracts. I've lived as the patient denied care. And I've watched an entire industry build its value proposition on numbers no one can verify.

The Pharmacy Benefit Manager industry claims it saves patients $1,154 per person annually—more than $333 billion in total system savings. They say their services deliver $145 billion in economic value.

These figures appear in legislative testimony. They shape policy debates. Employers reference them when negotiating contracts.

But here's what I learned early in my career as a sales representative: these numbers measure a hypothetical that doesn't exist.

The Biosimilar Lesson

The system revealed itself when biosimilars hit the market.

Biosimilars can best be thought of as the generic copies of a biologic medication. It took years for the first adalimumab biosimilar to launch in 2016 - Humira being the branded medication from AbbVie. Pharma companies held it up in court. When it finally arrived with discounts as high as 85%, I watched what happened next.

Manufacturers increased rebates on the branded drug to block the cheaper product. This is a legal kickback for formulary placement. PBMs chose the higher-priced drug because they received higher kickbacks for doing so.

Despite launching at steep discounts, adalimumab biosimilars gained only 3% market share through 2023. The vast majority of PBMs and payers preferred rebates over discounts.

Some PBMs didn't move to biosimilars until they created their own "manufacturing" arms to buy and white-label the products. Then they set their own pricing and preferred their own biosimilar over the branded generic.

This has never been about cost savings. It's always been about maximizing PBM revenue.

The entire savings claim relies on the spread between list price and negotiated price.

But nobody actually pays list price.

List price is a hypothetical anchor. The rebates are not passed on to patients. PBMs pocket them. They claim this is the price of doing business and insist they're still saving employers money compared to list price.

Everyone knows nobody pays list price. It's a price that doesn't matter.

Yet the $1,154 savings figure measures exactly that—the delta between a fictional number and actual cost. Without transparency into how money flows between PBMs, insurers, and pharmaceutical companies, you can make up whatever number you want.

Research from USC Schaeffer confirms the problem: a $1 increase in rebates associates with a $1.17 increase in list price. The mechanism promoted as generating savings simultaneously drives list price inflation.

I've read these contracts. The opacity doesn't happen by accident. Lawyers engineer it.

Here are the specific provisions that block visibility into how money moves:

Confidentiality and Nondisclosure Clauses

PBM agreements classify rebate terms, manufacturer payments, and performance guarantees as proprietary trade secrets. Contracts restrict employers from sharing data with consultants unless they sign separate NDAs.

Pharmacists cannot see reimbursement logic because the methodology sits behind proprietary formulas shielded by confidentiality language. Patients see nothing because the plan sponsor itself lacks the data.

Rebate Ownership and Offset Language

Contracts state that PBMs retain a portion of manufacturer rebates or apply them as "administrative fees." The definition of rebate often excludes price concessions labeled as data fees, market share incentives, or service fees.

That drafting choice alone hides millions. Employers think they receive 100 percent of rebates. The contract defines rebate narrowly enough to make that statement technically true while excluding large revenue streams.

Spread Pricing Authorization

Some contracts explicitly permit PBMs to reimburse pharmacies at one rate while charging plan sponsors a higher rate. The agreement may reference a maximum allowable cost list that the PBM controls and updates unilaterally.

No disclosure obligation requires the PBM to show the delta between what it paid the pharmacy and what it billed the employer. Pharmacists see underpayment. Employers see aggregated claim costs. No one sees the spread.

Audit Limitations

Many agreements include strict audit windows—often 12 months or less. They cap audit frequency, require advance notice, and limit scope to specific line items. Some contracts restrict access to manufacturer agreements altogether.

If you cannot review upstream contracts, you cannot trace the flow of funds. An audit right that excludes rebate contracts or affiliate entities gives the illusion of oversight without the substance.

Affiliated Entity Pass-Through Language

Large PBMs operate through related entities. Contracts allow revenue to flow through subsidiaries classified as group purchasing organizations or specialty pharmacies. The agreement often disclaims responsibility for transparency across affiliates.

That structure fragments the money trail. Employers contract with one entity. Revenue moves through three others.

Data Ownership Provisions

Contracts state that claims data and analytics tools remain PBM property. Employers receive reports but not raw data in usable formats. Without raw data, independent actuarial validation becomes difficult.

Data control equals narrative control.

The result? Employers negotiate in the dark. Pharmacists operate on take-it-or-leave-it terms. Patients see only their copay and assume the number reflects cost.

Money follows language. If the language protects opacity, opacity wins.

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For years I read contracts that authorized spread pricing, narrow rebate definitions, affiliate carve-outs, and restricted audit rights. On paper, the structure allowed margin extraction. I knew the design enabled it.

But the contracts rarely showed the scale. They showed the mechanism. Not the magnitude.

When the FTC published evidence in January 2025, the conversation shifted from theory to proof.

The Big 3 PBMs, CVS Caremark (owned by the CVS/Aetna Conglomerate - CVS Health), Express Scripts (a part of the Cigna Group), and OptumRx (one of the over 2000 subsidiaries of UnitedHealth Group), marked up specialty generic drugs by thousands of percent at affiliated pharmacies. They generated more than $7.3 billion in excess revenue from 2017-2022.

Specific examples demonstrate the magnitude:

The FTC data quantified the delta between what PBMs paid pharmacies and what they billed plan sponsors for high-cost generics. It showed sustained spreads on drugs where acquisition costs had dropped sharply.

That confirmed two things.

First, the contractual latitude was not incidental. PBMs used it systematically. The markups did not appear as one-off anomalies. They appeared as structural margin strategies.

Second, the impact concentrated in specialty categories. Specialty generics sit in a gray zone. They lack brand rebates that attract scrutiny, yet they carry high unit prices. That makes them fertile ground for spread capture.

From my vantage point, the contracts predicted the outcome. The FTC report confirmed the execution.

Money followed the language exactly as written.

PBMs and the insurance companies that own them have continued building their businesses in preparation for federal legislation that would otherwise shut them down. They've created their own GPOs and "manufacturing" businesses.

These are opportunities to pivot and evade new laws.

If you genuinely believe you create $145 billion in system value, you defend the core model. You open the books. You quantify the delta between list and net. You invite scrutiny because transparency proves your case.

Instead, they build adjacent entities. They stand up GPOs owned by the same parent companies. They create rebating shells. They move functions across subsidiaries.

That behavior signals regulatory arbitrage, not confidence.

The three largest PBMs control roughly 80% of the market. They also control major insurers and specialty pharmacies. When pressure rises on spread pricing or rebate retention, they shift revenue capture upstream or downstream inside the same corporate family.

That strategy preserves margin without defending the original economic claim.

Follow behavior, not talking points.

As a patient, I didn't fight a clinical decision. I fought a financial architecture that no one would explain.

My physician wrote for a therapy that had already worked. The PBM required prior authorization. Then step therapy. Then a formulary exclusion tied to a rebate arrangement I couldn't see.

Every denial cited "plan design." No one could point to a clinical rationale grounded in my chart.

When I asked what standard I failed to meet, they redirected me to the employer. When the employer asked for detail, the PBM cited proprietary rebate contracts. When the physician appealed, the reviewer quoted internal coverage criteria that referenced cost thresholds tied to net pricing arrangements.

That is contractual opacity in motion.

The harm came in three ways:

Delay. Every appeal cycle extended weeks. In chronic disease, delay compounds inflammation, progression, and mental strain.

Distortion. Coverage criteria aligned with rebate tiers rather than therapeutic nuance. The drug with the higher list price but larger rebate received preferred placement. The lower list price competitor with thinner rebate economics faced hurdles.

Exhaustion. The administrative burden shifted to me. I made calls. I gathered documentation. I navigated peer-to-peer reviews where the clinical conversation masked an economic subtext.

From the inside, after reading contracts, I recognized the architecture. Rebate guarantees. Performance corridors. Spread mechanisms. Specialty carve-outs. GPO aggregation clauses.

Each clause influenced formulary positioning and utilization management intensity.

As a patient, I experienced the downstream effect without access to the upstream logic.

No one ever said, "We prefer this product because it protects our rebate guarantees." They said, "Your plan requires this pathway."

That phrase carries contractual weight. It hides the economics driving the pathway.

Opacity didn't just frustrate me. It shaped the sequence of care. It dictated timing. It altered options.

That is direct harm.

The contract lived far from my bedside. Its consequences did not.

When employers, policymakers, or healthcare leaders hear the $1,154 and $145 billion figures, they accept them without demanding independent validation.

This isn't ignorance. It's incentive alignment.

Everyone at the table understands the math. They protect it because the math feeds them.

PBMs benefit first and most directly. They anchor their value proposition to "we generate savings." They circulate massive, self-reported rebate totals and aggregate "system value" figures that no independent party audits at the claim level. Those numbers justify spread pricing, rebate retention, and administrative fees tied to list price.

Large plan sponsors and consultants benefit next. Consultants sell cost containment expertise. They negotiate rebate guarantees. They benchmark one opaque contract against another opaque contract. Their compensation often ties to savings percentages built on those same undisclosed flows.

Manufacturers also play the game. They complain publicly about rebates while designing pricing strategies around them. They inflate list prices to fund competitive rebate positions. They secure formulary access. They protect market share.

Then legislators and regulators enter the picture. PBMs and their parent insurers rank among the largest healthcare lobbying spenders in Washington. When an industry deploys that level of capital into influence, oversight moves slowly. Regulators rely on industry data to understand the market. The industry controls the data.

That is regulatory capture.

Not a conspiracy. A structural alignment where financial incentives and policy inertia reinforce each other. The guardrails begin to protect incumbents rather than patients.

And patients pay the price. At the pharmacy counter. In denied therapies. In rising premiums tied to rebate-driven list prices.

When unverified numbers circulate long enough, they harden into policy assumptions. Lawmakers cite them. Trade groups amplify them. Media outlets repeat them.

Repetition becomes legitimacy.

The current PBM model relies on information asymmetry. It relies on spread pricing, rebate retention, formulary steering, and contractual language that only a handful of attorneys fully decode.

When federal pressure intensifies and states mandate disclosure, that asymmetry shrinks. And when asymmetry shrinks, margin compresses.

Three paths emerge:

Margin compression and restructuring. If regulators force claim-level transparency and fiduciary duty, rebate retention becomes harder to justify. Spread pricing becomes harder to defend. EBITDA drops. Public markets punish the parent insurers. The model gets rebuilt around pass-through pricing, flat administrative fees, and disclosed service margins.

Strategic repositioning. You already see it. Vertical integration with insurers. Specialty pharmacy expansion. Group purchasing organizations. Data analytics subsidiaries. They diversify revenue so transparency in one lane doesn't wipe out the whole balance sheet.

Regulatory dilution. They litigate. They slow-roll implementation. They negotiate "transparency" that still aggregates data in ways that prevent meaningful comparison. Disclosure without standardization equals noise. Noise preserves leverage.

Can PBMs survive actual transparency?

Yes. But not in their current form.

A transparent PBM looks like a logistics and claims administration company paid a clear, fixed fee. It competes on operational efficiency, formulary clinical rigor, network management, and technology. It earns trust through auditable economics.

What collapses under real transparency is the arbitrage layer.

The ability to extract spread between what the plan pays and what the pharmacy receives. The ability to retain a portion of manufacturer rebates without full disclosure. The ability to use rebate size as the primary lever in formulary positioning while marketing it as savings.

The real risk for PBMs lies elsewhere. If transparency exposes that net savings claims overstated value for years, trust erodes. Employers reconsider direct contracting. States expand public PBM models. Alternative pass-through vendors gain share.

Once trust breaks, market share follows.

We didn't launch We the Patients to write another white paper.

We launched it because patients sit outside the incentive loop. Patients have no rebate percentage. No spread. No formulary leverage. Patients carry the cost when the math breaks.

We built We the Patients to challenge the narrative with lived experience and contractual literacy. To move the conversation from abstract "system value" to claim-level harm. To force sunlight into a model that thrives on shadow.

If the industry wants credibility, it can open the books.

Until then, patients will.

I want employers to call their PBM and request a full, claim-level reconciliation. Not a summary. Not a rebate guarantee slide. A line-by-line accounting of what the plan paid, what the pharmacy received, what the manufacturer rebated, what the PBM retained, and how fees were calculated.

If a vendor resists that request, that resistance tells you more than any white paper ever will.

I want policymakers to shift the frame from "How big are the savings?" to "Show me the math at the claim level." Mandate standardized reporting. Mandate fiduciary alignment. Require that every dollar flow gets categorized and auditable.

Stop legislating off industry-provided aggregates. Build policy off verified data.

And I want patients to stop internalizing blame when they face high out-of-pocket costs or denials. When a drug lists at $1,000 and a rebate narrative claims systemic savings, someone profits from that spread.

Patients need to ask their employer and elected officials who keeps the difference.

For years, the system relied on complexity to mute scrutiny. If employers demand audits, if lawmakers demand standardized disclosure, and if patients demand transparency in plain language, the narrative shifts from "trust us" to "prove it."

The morning after this analysis circulates, I want phone calls made. I want contract clauses reviewed. I want hearings framed around claim-level economics. I want patients to realize they hold moral leverage when they ask direct questions in public forums.

Because once you force the math into the open, the conversation changes fast.