Part one of a two-part series. Part two will be published on June 5.
However, a growing body of research from regulators, policy organizations and employer coalitions has highlighted the complexity and opacity of PBM revenue models, raising concerns about whether current market incentives consistently align with the
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A concentrated PBM market
A small number of PBMs dominate the U.S. market. As of 2024, the three largest — CVS Caremark, Express Scripts (owned by Cigna Group/Evernorth) and OptumRx (part of UnitedHealth Group) — processed roughly 80% of all U.S. prescription drug claims. In 2023, the combined revenue for the "Big Three" PBMs was reported at roughly $456.3 billion.
Against this backdrop of extraordinary scale and influence, PBMs wield substantial leverage over drug pricing, formulary design and distribution channels. Their dominance makes opaque profit mechanisms — such as spread pricing, rebate retention and specialty channel margin — not just possible but structurally profitable at high volume.
Given the concentrated PBM market, plan sponsors must scrutinize their PBM arrangements carefully, select contract models intentionally and leverage independent expert oversight. Only then can they strip away the opacity, properly align incentives and transform their PBM relationship into a transparent, accountable and value-focused component of their overall benefits strategy.
With disciplined contracting, rigorous oversight and the support of experienced pharmacy benefits advisors, plan sponsors can ensure the PBM functions as a genuine partner aligned with the plan's financial and clinical objectives — rather than as a conduit for PBM profit.
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How PBMs generate profit from unsuspecting plan sponsors
The PBM business model thrives on information asymmetry. PBMs possess complete visibility into acquisition costs, rebate arrangements and pharmacy-level reimbursements, while plan sponsors typically receive only summary-level reporting that obscures the true financial dynamics of their programs. Most employers and public plans do not have the internal resources, expertise or data clarity needed to challenge PBM assertions. As a result, PBMs can structure pricing, rebate arrangements and pharmacy networks in ways that maximize their own financial return while appearing to meet contractual guarantees.
In many cases, PBMs highlight favorable statistics, such as discount rates, formulary placement or rebate guarantees, without disclosing how much profit they extracted from each claim, which drugs they favored for their own financial benefit or how much additional revenue they collected from manufacturers. A PBM can satisfy performance guarantees while still increasing its own margin through spread pricing, rebate retention and control of specialty channels. The language of "savings" and "discounts," while technically accurate, is often insufficient to reveal the PBM's true economic position.
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Understanding PBM profitability: Major revenue streams and lesser-known mechanisms
Understanding how PBMs generate revenue requires examining the structure of the modern drug supply chain. According to multiple market analyses, PBMs process more than 80% of U.S. prescription drug claims and negotiate rebates for most brand-name medications dispensed in the commercial market. Within this structure, several revenue streams have emerged that significantly influence PBM economics and plan sponsor costs. Although PBMs earn money through various mechanisms, three sources overwhelmingly drive their profitability: spread pricing, retention of manufacturer rebates and fees and specialty pharmacy margin.
Spread pricing occurs when the PBM charges a plan sponsor more for a prescription than it pays the dispensing pharmacy. The PBM keeps the difference as revenue. Because this spread is embedded within each claim, it is difficult for plan sponsors to detect without detailed, auditable data. Spread can be adjusted at will and often subsidizes aggressive guarantees offered during the contracting process.
Rebate and manufacturer revenue retention is another major profit engine. PBMs negotiate substantial rebates and fees with manufacturers in exchange for formulary placement and market share. Although plan sponsors may receive a portion of these funds, the PBM often retains a significant share. Some of this revenue is labeled as administrative or data fees rather than rebates, allowing PBMs to satisfy "100% rebate pass-through" language while keeping considerable manufacturer value. These financial arrangements can influence formulary decisions, frequently favoring higher-priced drugs that yield larger rebates for the PBM rather than lower-cost alternatives that would benefit the sponsor.
Specialty pharmacy margin is the third core revenue stream. PBMs often own or tightly control specialty pharmacies and can set prices, fees and dispensing terms that generate substantial profit. Because specialty drugs represent a disproportionate share of total spend, even slight markups or added fees can produce large financial returns. PBMs may subtly steer prescribers or members toward their preferred channels, which strengthens their ability to capture margin and limits competition.
While spread pricing, retained manufacturer rebates and specialty-channel margin continue to serve as the dominant profit engines, a series of lesser-known revenue channels further enhance PBM profitability and deepen the misalignment between PBMs and plan sponsors.
One such mechanism involves repackaged drug pricing and alternative National Drug Code (NDC) selection. PBM-affiliated re-packagers, or third parties operating within PBM networks, may assign new NDCs to existing drugs with artificially inflated Average Wholesale Prices (AWP). When reimbursement formulas are based on AWP, these inflated figures create an instant margin for the PBM. Without strict contractual controls governing acceptable NDCs, package sizes and reimbursement benchmarks, plan sponsors may unknowingly pay substantially more for the exact same drug and strength. This practice exploits the structural weaknesses of AWP-based pricing and can materially distort ingredient cost and discount performance.
Another significant but less visible revenue source derives from Maximum Allowable Cost (MAC) list manipulation. PBMs maintain proprietary MAC lists that dictate generic reimbursement levels but are rarely disclosed to plan sponsors. Because PBMs have unilateral discretion over how and when these lists are updated, they can systematically reimburse pharmacies at lower rates while charging plan sponsors higher rates for the same claims. This bidirectional pricing strategy allows PBMs to retain margin hidden within the gap between the MAC paid and the pricing guarantee charged. As these lists are adjusted frequently and without meaningful oversight, they function as a flexible profit lever, particularly in the generic drug market where pricing volatility is common.
An additional area of revenue expansion arises through fee-based income, including administrative fees, data-access fees, network-access charges, utilization management fees, clinical program fees, and a variety of manufacturer-supported payments sometimes described as "influencer" or "service" fees. PBMs often present these charges as operational necessities or clinical enhancements, yet many are priced well above their true cost and can be imposed on plan sponsors or pharmacies. Their structure allows PBMs to extract reliable, non-claims-based revenue regardless of discount performance or utilization trends.
Because such fees are frequently scattered throughout the contract or embedded in supplemental program descriptions, their cumulative financial impact often escapes scrutiny unless the sponsor conducts rigorous analysis.
Together, repackaged NDC pricing, MAC list manipulation and layered fee-based revenue illustrate the breadth of PBM monetization pathways beyond the well-recognized spread, rebate and specialty channels. Each of these lesser-known mechanisms capitalizes on information asymmetry, proprietary methodologies and contractual ambiguity. Their aggregate effect can meaningfully increase net plan cost even when headline guarantees appear competitive. For this reason, plan sponsors must insist on clear definitions, strict controls, comprehensive data rights and independent oversight to ensure that these obscure profit channels do not operate unchecked.
Part two of this series, publishing June 5, will compare traditional PBMs and pass-through models, what is reshaping the PBM market and the value of a pharmacy benefits consultant.
