The Big Three Pharmacy Benefit Managers: Market Dominance and Impact

Executive Summary

Pharmacy Benefit Managers (PBMs) have evolved into extremely powerful intermediaries in the U.S. drug supply chain. In the current market, three PBM firms control the vast majority of prescription benefits. According to recent industry analyses, Cigna’s Express Scripts, CVS Health’s CVS Caremark, and UnitedHealth’s OptumRx together process roughly 80% of all U.S. pharmacy claims in 2024 (^[1]) (^[2]). This concentration is unprecedented: a JAMA analysis of 2023 data reports that the top three PBMs (CVS Caremark, Express Scripts, OptumRx) accounted for about 74–79% of retail prescriptions (^[3]) (^[4]). Measured by the Herfindahl–Hirschman Index (HHI), the retail PBM market has an HHI ~1972 – far above conventional monopolistic thresholds (^[4]). This extreme market concentration has major implications.

This report provides a detailed examination of the “Big Three” PBMs – Express Scripts (owned by Cigna/Evernorth), CVS Caremark (CVS Health), and OptumRx (UnitedHealth Group) – including their history, business models, market positions, and controversies. We analyze market data showing their dominance (^[1]) (^[2]), and explore how their vertical integration with large insurers has shaped the PBM industry. The Big Three have grown through major mergers and exclusive contracts (e.g. CVS’s acquisition of Caremark in 2007 (^[5]), Cigna’s acquisition of Express Scripts in 2018 (^[6]), and UnitedHealth’s launch and expansion of OptumRx (^[7])), strategically absorbing competitors and insurer clients. For example, in 2024 Express Scripts won a new five-year contract to serve 20 million Centene members previously with CVS (^[8]), immediately catapulting Express Scripts to the top of the market share (up to ~30% of claims) and causing CVS Caremark to lose market volume (^[1]) (^[8]). Table 1 (below) summarizes recent market-share data.

Despite their claims to use scale to lower drug costs, the Big Three PBMs have come under intense scrutiny. Lawmakers and regulators allege that their market power allows various opaque practices. For instance, a 2024 U.S. House Oversight report condemned the largest PBMs – all vertically integrated with insurers – for engaging in anticompetitive behaviors, such as “overcharg [ing] payers and patients through … spread pricing and forc [ing] manufacturers to pay rebates in order to earn … formulary placement” (^[9]). Similarly, a January 2025 FTC staff report found that Caremark, Express Scripts, and OptumRx had applied astronomical markups to specialty generic drugs dispensed through their own pharmacies, netting over $7.3 billion in excess revenue from 2017–2022 (^[10]). These findings highlight concerns that PBMs’ rebate-driven incentives can push insurers toward high-list-price medicines (with higher hidden margins) rather than cheaper alternatives (^[9]) (^[10]).

PBM practices have serious real-world effects. Many independent and rural pharmacies report unsustainable reimbursement rates, contributing to waves of pharmacy closures (^[9]) (^[11]). Patients and payers often see high drug costs and out-of-pocket spending despite the PBMs’ role as supposed “cost savers”. The opaque nature of PBM contracts (such as allowing spread pricing – charging insurers more than pharmacies receive) and rebate retention has drawn bipartisan calls for reform (^[9]) (^[12]). Various legislative measures (state and federal) now aim to enhance transparency and restrict profit-taking by PBMs: proposed federal bills (e.g. in 2024–2025) would ban spread pricing and require 100% rebate pass-throughs for Medicare and Medicaid contracts (^[13]) (^[14]). A Missouri court recently allowed an FTC antitrust case to proceed against the Big Three PBMs, unblocked by the PBMs’ challenge (^[15]) (^[16]). These actions reflect growing consensus that PBM practices may need intervention.

This report will: provide historical context on PBMs and the rise of vertical integration (^[17]) (^[18]); profile each of the Big Three (including their corporate evolution and current scale); present detailed market analyses (market share, concentration indices, drug trends) with data tables; examine their business models (rebates, fees, spread pricing) and controversies (legal cases, legislative hearings); and discuss implications for drug prices, pharmacies, patients, and policy. We draw extensively on industry reports, academic studies, regulatory filings, and news coverage to give a comprehensive, evidence-based picture of how these three PBMs dominate the market and what that means for the healthcare system.

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Introduction and Background

A Pharmacy Benefit Manager (PBM) is a third-party administrator of prescription drug programs.PBMs act as intermediaries between health plan sponsors (insurers, employers, governments), pharmacies, pharmaceutical manufacturers, and drug wholesalers (^[19]). Their core functions include designing drug formularies (determining which drugs are covered and at what tier), negotiating drug prices and rebates with manufacturers, adjudicating and paying pharmacy claims, and managing pharmacy networks (which pharmacies participate) (^[20]) (^[3]). In exchange for these services, PBMs charge health plans administrative fees and often retain a portion of the manufacturer rebates on drugs. They may also obtain revenue from spread pricing – charging plan sponsors more than what is paid to pharmacies – and other opaque meaning streams.

Originally, PBMs began as simple claims processors in the 1960s. Over decades, however, they acquired more sophisticated roles. As Mattingly et al. (2024) note, PBMs “evolved in parallel with the pharmaceutical manufacturing and health insurance industries” through horizontal and vertical integration (^[21]). They now wield significant influence over every step of drug distribution. This rise has coincided with concerns: critics point to “lack of competition, pricing (opacity), agency problems, and lack of transparency” in PBM operations (^[22]).

Numerous industry reports confirm that the PBM market is currently highly concentrated among very few firms. For 2023 and 2024 data, analysts find that the three familiar PBM names – CVS Caremark (CVS Health), Express Scripts (Cigna/Evernorth), and OptumRx (UnitedHealth) – dominate U.S. prescription claims. For example, the Drug Channels Institute reports that “nearly 80% of all equivalent prescription claims were processed by three familiar companies” (CVS Caremark, Express Scripts, OptumRx) in 2024 (^[23]). Becker’s Hospital Review similarly notes that in 2024 Express Scripts handled 30% of all claims (driven by a new Centene contract), CVS Caremark 27%, and OptumRx 23%; together these three processed about 80% of U.S. prescription claims (^[1]). (See Table 1, below.) An AMA analysis of 2022 data likewise found the top four PBMs account for ~70% of the market, with CVS (21.3%), OptumRx (20.8%), Express Scripts (17.1%), and Prime Therapeutics (10.3%) being the largest (^[24]).

These figures underscore that PBM power is tightly concentrated. A recent JAMA study of 14 billion U.S. retail pharmacy fills in 2023 confirmed this: the overall PBM market exhibited a Herfindahl–Hirschman Index (HHI) of about 1972 – a value indicating high concentration. In aggregate, the Big Three accounted for 73.6% of prescriptions across all payers (^[4]). Concentration varied by segment – e.g. CVS dominated Medicaid managed care (39.2% share) while OptumRx and SS&C (parent of Prime Therapeutics) gained share in Medicare Part D (^[2]) – but no market was immune. Even in commercial insurance, the top PBMs held nearly three-quarters of claims volume (^[2]).

This report examines how these three PBMs achieved such dominance and what it means. We begin with a historical perspective on the PBM industry’s evolution and consolidation. We then provide in-depth profiles of each of the Big Three, including their corporate history and recent developments. Next, we analyze up-to-date market data on PBM share and concentration (including charts and tables). We explore PBM business models – how revenues and profits are generated – and critically examine major controversies (rebates, spread pricing, network practices). We highlight recent legal and legislative actions targeting PBMs (such as FTC scrutiny, congressional hearings, and reform bills). Finally, we discuss the impacts on stakeholders (patients, pharmacies, manufacturers) and consider future directions.

Throughout, claims and data are cited from peer-reviewed studies, industry analyses, news reports, and official documents. By synthesizing multiple perspectives – pharmaceutical manufacturers, pharmacies, policymakers, and independent experts – we aim to present a comprehensive view of the Big Three PBMs’ market power and implications for the U.S. healthcare system.

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History and Evolution of PBMs

The PBM industry’s origins trace back to the late 1960s and 1970s. Early forms of pharmacy benefits began as mail-order prescription plans for specific populations. One of the first dedicated PBMs was Pharmaceutical Card System (PCS), founded in 1969, which managed early prescription benefit programs (^[25]). By 1972, PCS was acquired by McKesson, marking the first integration of PBMs with wholesale drug distributors (^[25]). Other early players included PAID Prescriptions, a pharmacist-owned program, which was acquired by Medco in 1985 (^[26]). Over time, more insurers and healthcare entities created in-house PBMs.

A key turning point was vertical integration between pharmaceutical manufacturers and PBMs in the 1990s. Major drugmakers began buying PBMs. For example, Merck & Co. acquired Medco in 1993 (^[27]), and Eli Lilly purchased PCS from McKesson in 1994 (^[28]). (These vertical deals required FTC scrutiny and led to stipulations that PBMs maintain open formularies (^[17]).) However, drug manufacturers eventually divested these PBMs, spinning them off. Medco was spun out in 1994 and later became independent until Express Scripts’s 2012 acquisition (^[17]) (^[27]).

The 2000s saw massive consolidation among PBMs themselves. Several of today’s giants were forged in this era:

• CVS/Caremark (Noridian): Caremark was founded in 1979 from the merger of a home infusion company (Home Health Care of America) and Baxter International’s infusion services (^[17]). In 1993, Caremark acquired PCS, further expanding its PBM network. A critical event occurred in 2007: CVS Pharmacy (already a large retail chain) acquired Caremark for about $21 billion, creating CVS Health (^[5]). This merger vertically integrated a national pharmacy chain with a leading PBM. Post-merger, CVS continued to axe costs by consolidating formularies and leveraging its retail footprint.

• Express Scripts: Founded in 1986, Express Scripts grew through its own acquisitions. In 2012, Express Scripts conducted a landmark $29 billion buyout of Medco (the largest PBM at the time) (^[29]). This deal combined two giants under one roof (subject to FTC review for antitrust) and cemented Express Scripts as the largest PBM then. Earlier, Express Scripts had also acquired Diversified Pharmaceutical Services (a GSK PBM) in 1994 and PCS in 1999 (^[17]). In 2018, Express Scripts itself was acquired by insurer Cigna for $67 billion, bringing PBM and insurance under the same corporate umbrella (^[6]) (^[30]).

• OptumRx (UnitedHealth Group): UnitedHealth (primarily an insurer) entered PBMs by acquisitions and internal growth. In 2005, UnitedHealth bought PacifiCare – which included the TouchScript PBM – and rebranded that PBM first as OptumHealth and later as OptumRx (^[31]). UnitedHealth did not stop there: it launched its Optum division in 2011, and used it to pursue further PBM and pharmacy assets. In 2015, UnitedHealth bought Catamaran, another large PBM, merging it into OptumRx (^[7]). In 2019, UnitedHealth acquired Diplomat, a specialty pharmacy and infusion company, folding it into Optum’s platform (^[32]). These moves turned OptumRx into a behemoth PBM rivaling Express Scripts and CVS.

• Other notable consolidations: In addition to these core players, other mergers reshaped the field. Anthem (now Elevance) acquired CarePlus (2005) and Magellan Health in 2019 (bringing in a subsidiary PBM) (^[30]). Prime Therapeutics – originally an independent “not-for-profit” PBM owned by several Blue Cross Blue Shield plans – acquired Magellan Rx subsidiary and later collaborated with Express Scripts on network contracts in 2019 (^[30]). Meanwhile rival deals went the other way: insurer mergers were often blocked when they threatened PBM competition (e.g. the Aetna-Humana and Anthem-Cigna mergers were both blocked in 2017 (^[33])).

Through this wave of mergers, the industry structure now looks very different from decades past. The Big Three PBMs as of 2025 are not independent consultants, but divisions of massive insurer-cum-healthcare conglomerates. CVS Health includes retail CVS pharmacies, the Aetna insurance business, and its CVS Caremark PBM unit. Cigna (branded as Evernorth) combines insurance, specialty pharmacy (Accredo), and the former Express Scripts. UnitedHealth (via Optum) integrates health services, data analytics, pharmacies (Optum Pharmacy), and health insurance (UnitedHealthcare). This vertical integration (insurer owning PBM and sometimes owning pharmacies) is a hallmark of the modern PBM industry (^[34]) (^[2]). One observable effect is that many patients and payer networks are covered “in house” by one corporation (for example, a UnitedHealthcare plan processed by OptumRx), which raises questions about market power and conflicts of interest in selecting drugs or pharmacies.

Timeline of Key Events (selected): A concise timeline highlights the rapid consolidation and regulatory milestones:

• 1969–1972: First PBM (PCS) founded (1969); McKesson acquires PCS (1972) (^[25]).
• 1979: Baxter acquires Home Health Care of America (HHCA) which would become Caremark (^[26]).
• 1985: Medco (founded 1983) acquires PAID Prescriptions (1985), growing Medco’s scale (^[26]).
• 1993: Merck acquires Medco (first PBM-manufacturer integration) (^[35]).
• 2007: CVS Pharmacy acquires Caremark (CVS/Caremark merger) (^[5]).
• 2012: Express Scripts acquires Medco (FTC-reviewed deal) (^[29]).
• 2015: UnitedHealth acquires Catamaran, building OptumRx (^[32]).
• 2018: Cigna acquires Express Scripts (^[6]); CVS Health acquires Aetna (^[36]) (transforming CVS/Caremark into an insurer-PBM-retailer conglomerate).
• 2020: Rutledge v. Pharm. Care Mgmt Ass’n (Supreme Court) upholds state regulation of PBMs in Medicaid programs (^[37]).
• 2024: FTC initiates formal antitrust action against the Big Three PBMs (insulin rebate case, September 2024) (^[15]); a House committee issues a critical PBM report (July 2024) (^[9]).
• 2025: Legislative proposals (e.g. Senate HELP bills, Wyden–Sanders health act) intensify scrutiny of PBMs (April 2025 onward) (^[13]) (^[14]); FTC releases staff report documenting PBM markups (January 2025) (^[10]).

In summary, the PBM industry transformed from dozens of small claims processors into a market dominated by a few mega-corporations (CVS/Caremark, Express Scripts, OptumRx) that are vertically integrated with major insurers and pharmacy operations. This historical consolidation set the stage for the current market share data and the intense policy focus on the Big Three, which we examine in the sections below.

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Market Share and Concentration

By all metrics, the PBM industry is highly concentrated around the top three firms. Below we present key data and analysis of their market share and market concentration.

Market Share of Top PBMs (2024): The best available figures come from industry sources and analyses. Becker’s Hospital Review (citing Drug Channels Institute) reports that in 2024 Express Scripts led the market with 30% of total prescription claims, up from 23% in 2023, driven by landing the 20-million-member Centene contract (^[1]). CVS Caremark’s share fell to 27% (from 34% in 2023) as it lost that contract. OptumRx remained at 23%. In total, "the three largest PBMs accounted for 80% of the total U.S. prescription claims market in 2024" (^[1]). A GeneOnline news report similarly notes that these three PBMs “continue to dominate the market, processing nearly 80% of all equivalent prescription claims in 2024” (^[38]).

Table 1 summarizes several market-share estimates:

Table 1. Estimated U.S. PBM market share by pharmacy claims volume. The “2024 Share (%)” figures are for total equivalent retail pharmacy claims processed by each PBM (includes commercial, Medicare Part D, Medicaid managed care). “Share” in rows is approximate. Data sources: Drug Channels Institute via Becker’s (^[1]) (Express Scripts, CVS, OptumRx); AMA analysis (top PBMs 2022) (^[24]). “Others” includes Prime Therapeutics (SS&C), Aetna/Carelon (Kaiser*), Humana/PerformRx, MedImpact, and various regional PBMs. Note: Prime’s market share was ~10.3% (as of 2022 (^[24])), making it the 4th-largest PBM; however, Prime is a joint venture of Blue Cross plans and does not operate as a for-profit arm of one of the big three insurers.

Independently, a July 2024 report in Healthcare Finance News (citing AMA data) concluded the four largest PBMs “control roughly 70% of the national market” (measured by covered lives in commercial and Medicare Part D) (^[24]). That breakdown was CVS 21.3%, OptumRx 20.8%, Express Scripts 17.1%, Prime Therapeutics 10.3% (others collectively ~30%) (^[24]). Thus, to the extent the top three (excluding Prime) cover about 59.2% in enrollment share; including Prime brings the cumulative to ~69.5%. These enrollment-based figures are consistent with the claims-based figures noted above, and together illustrate how the Big Three (with associates like Prime) dominate plan sponsorship and claims volume.

A peer-reviewed JAMA Health Forum study (2024) provided a granular breakdown by payer type. Using 2023 prescription data, Qato et al. found that across all U.S. retail prescriptions, the three largest PBMs (CVS Caremark, Express Scripts, OptumRx) accounted for about 73.6% of fills (^[4]). The study calculated the market concentration (HHI) at 1972 (where >1800 is “highly concentrated”) across all payers (^[4]). The HHI remained above 1800 even in segmented markets: commercial HHI ~1940 (with 90 PBMs), Medicare Part D HHI ~2399 (21 PBMs), Medicaid managed care HHI (excluding certain outliers) also extremely high (^[4]). Looking at individual shares, CVS stood out in Medicaid (39.2%) relative to Medicare (33.4%) and commercial (28.5%); Express Scripts was strongest in commercial (28.0%) but much lower in Medicaid (12.3%) (^[2]).

In summary, the U.S. PBM market is one of the most concentrated sectors of healthcare. The dominant players (the “Top 3”) process roughly four out of every five prescriptions, and hold the bulk of negotiation leverage with manufacturers and pharmacies. This market structure (dominated by insurers’ PBM arms) has drawn bipartisan concern. For example, a July 2024 U.S. House oversight report emphasized that "the three largest PBMs – which are vertically integrated with insurers and account for approximately 80% of the market – embrace anticompetitive behavior" (^[9]). Such statements underscore that regulators view these PBMs’ combined market power as a potential problem for competition and for patients’ costs.

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Business Models and Practices of the Top PBMs

The Big Three PBMs earn profits through a combination of administrative fees, retained rebates, and other financial mechanisms. Their business models share common elements but also have unique features. Below we outline how they operate and highlight controversial practices.

Core Functions and Services

Mattingly et al. describe PBMs as performing five key functions: formulary design, utilization management (e.g. prior authorizations), drug price negotiation, pharmacy network contracting, and mail-order pharmacy services (^[20]). In practice, a PBM negotiates with drug manufacturers for rebates and discounts in exchange for preferred formulary placement. It also negotiates rebate or pricing contracts with pharmacies (chain and independent) for reimbursement rates. For each prescription, the PBM adjudicates the claim between the pharmacy and the insurer/employer plan. PBMs often operate their own or affiliated mail-order or specialty pharmacies to dispense drugs (most notably, Express Scripts owns Accredo, and UnitedHealth owns OptumRx pharmacy, CVS owns Coram and specialty pharmacies). They also provide data analytics and reporting to payers and manage patient adherence programs.

The Big Three PBMs differ slightly in emphasis due to their corporate structures. CVS Caremark, as part of CVS Health, integrates with CVS retail and Aetna insurance. It offers wide retail networks (defaulting many CVS/Walgreens pharmacies) and has expanded specialty/pharmacy care services (MinuteClinic primary care, Oak Street Health clinics, etc.) as complementary assets. Express Scripts (Evernorth) focuses on managing large employer and union plans along with its specialty pharmacy business (Accredo) and networks (it also operates a home delivery pharmacy). OptumRx, integrated with UnitedHealthcare insurance, is notable for its data platform (Optum’s analytics) and for bundling optical/vision and hearing benefits in some cases.

Revenue Streams: Fees, Rebates, and Spread

PBMs are paid by health plans (or government programs) predominantly on a per-member-per-year (PMPY) service fee basis. Contracts typically specify fees per prescription or per member, plus performance guarantees. In addition, PBMs retain a portion of any manufacturer rebates negotiated on drugs. The PBM retains the difference between the rebate it negotiates and any amount passed to the payer – this rebate retention can be lucrative but opaque. (Recent reform proposals propose rebate pass-through requirements to force PBMs to pass all rebates on to clients; the Big Three currently can keep some rebates as profit.)

Another critical revenue source is spread pricing. As defined by Mattingly et al., spread pricing occurs when “the plan sponsor pays a fixed amount for each drug (the PBM’s charged price) no matter how much (or little) the PBM pays the pharmacy,” and the difference is the PBM’s gross profit on that claim (^[12]). For example, a PBM might charge the insurer $100 for a drug but reimburse the pharmacy $80, pocketing $20 as profit. States such as Ohio and Illinois discovered in Medicaid audits that PBMs were doing this frequently, prompting legislative bans in those states. (Nationwide proposals would prohibit spread pricing in Medicare/Medicaid PBM contracts (^[14]).) Importantly, spread pricing and rebate retention mean that insurers and patients may pay more, while pharmacies are paid less, even if the PBM claims to reduce overall costs. Critics call this an agency problem – the PBM’s incentives (to maximize its own profits) may conflict with the plan’s interest in minimizing net drug costs (^[22]).

How profitable are the Big Three? PBMs do not typically publish profit breakdowns, but analyses suggest modest overall margins. Industry filings and research indicate that the Big Three operate on roughly 5–8% gross margins on the revenues they manage (^[40]). An arXiv analysis of PBM financials cites an 8% gross profit margin disclosed by the Big Three themselves (^[40]). Cost structures include paying pharmacies (often the largest share by far when rebates are excluded), and administrative, infrastructure and rebate processing costs. The remaining slice – rebate retention plus any spread – yields that 5–8% margin. However, given their huge volume ($1.2–$1.5K per member-year PBM spending as one estimate cites (^[40])), even single-digit percentages translate to billions in profits. For instance, one analysis estimated the Big 3 applied much higher markups on dozens of specialty generics, generating $7.3 billion above acquisition cost over 2017–2022 (^[10]).

Finally, the Big Three have diversified into related services: owning specialty pharmacies and rare-disease pharmacies (where profit margins can be very high), offering data/analytics tools, and bundling care management. These lines of business tightly integrate with their PBM operations.

Key Practices and Controversies

Several practices of the Big Three PBMs have been criticized:

• Formulary Tiers and Rebate Incentives: PBMs design drug formularies (tiered lists of covered drugs). Manufacturers compete via rebates to secure preferred placement. A complaint is that this incentivizes PBMs to prefer high list-price drugs (with high rebates) over cheaper generics. As noted by regulators, PBMs may “force manufacturers to pay rebates in order to earn higher-tiered placement on drug formularies” (^[9]). This can keep list prices high, as manufacturers set launch prices knowing PBMs will demand rebate payments.

• Lack of Transparency: PBM contracts are often complex and confidential. Payers may not know exactly what rebates or discounts are obtained, or how much is kept by the PBM. Mattingly et al. highlight “lack of transparency” as a major criticism (^[22]). This lack of transparency makes it difficult for clients to assess if they are truly benefiting. Recent legislative efforts target transparency: proposed bills would require PBMs to report rebates, fees, and average acquisition costs to states and the federal government (^[41]) (^[42]).

• Spread Pricing and DIR Fees: Beyond spread pricing, PBMs sometimes impose Direct and Indirect Remuneration (DIR) fees on pharmacies after the sale has occurred (a kind of retroactive clawback). These have been especially controversial in Medicare Part D; for example, Arkansas passed a law banning or limiting DIR fees, only to have it struck down in court due to ERISA preemption (^[42]). Critics argue DIR and spread pricing siphon money from pharmacies and reduce reimbursements over time.

• Network Exclusion: Some reports indicate that certain pharmacies – especially independents – are excluded from lucrative networks. For instance, a Health Affairs study found pharmacies not included in Medicare Part D networks faced closures, implying that PBM network design can force closures of smaller pharmacies (^[43]) (^[44]). Critics allege the top PBMs favor large pharmacies or their own affiliates, harming independents. The Big Three argue they maintain broad networks; CVS, for example, has emphasized that their PBM continues to emphasize competition and cost-savings (^[45]), and points to pharmacy volume growth in certain segments.

• Vertical Conflicts: Because the Big Three are affiliated with insurers, chains, and specialty pharmacies, conflicts arise. For example, UnitedHealth’s OptumRx has its own Optum Consulting Pharmacy; CVS Caremark can steer patients to CVS pharmacies; Express Scripts promotes Accredo for specialty drugs. When questioned at recent Congressional hearings, PBM executives denied wrongdoing, but legislators remain skeptical (^[46]).

Despite criticisms, PBM leaders defend their role. In February 2025, CVS Health CEO David Joyner told investors that “PBMs… remain the only part of the drug supply chain entirely focused on lowering costs” (^[45]). He noted PBMs deliver millions of prescriptions and contract with thousands of pharmacies, asserting that if reform must occur it should be done carefully to avoid unintended effects. Nevertheless, even Joyner conceded that CVS’s PBM revenues fell after losing the Centene contract (“a significant client”) in late 2023 (^[47]), underscoring how competitive pressures can shift market shares.

Comparison of the Big Three PBMs

All three large PBMs share similar services (national pharmacy networks, mail/specialty pharmacies, rebates negotiators), but differ in scale and strategy. The table below highlights some key metrics:

Table 2. Overview of major PBMs and their context. (Numbers are approximate; “covered lives” includes populations served via contracts, counts can overlap due to PBMs managing multiple segments. Sources: company reports, industry analyses (^[8]) (^[47]), AMA (^[24]). Note: The Big Three above account for ~80% of claims; Prime and others share the rest.)

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Impact on Stakeholders

The dominance of the Big Three PBMs affects various stakeholders in the healthcare system:

• Patients and Employers: The promise of PBMs was to lower costs. In reality, PBM practices can sometimes raise costs. For example, patients may see high co-pays on certain branded drugs despite the PBM’s rebate on list price; those rebates rarely reduce the patient’s out-of-pocket expense. The FTC and others have noted that PBMs often “prefer high list price insulin products with high rebates” (^[50]), meaning patients on fixed co-insurance might pay more. PBM formularies also influence which drugs patients must use first (step therapy), affecting care. While PBMs argue they negotiate savings for payers, many employer groups and consumer advocates complain about lack of clarity on the savings. Explaining PBM claims processes to patients is difficult due to confidentiality.

• Pharmacists: Perhaps the most vocal critics are community and independent pharmacies. The Big Three PBMs collectively set reimbursement rates for thousands of pharmacies. Reports indicate that many independents are losing money because PBM-negotiated reimbursement rates (ingredient cost plus a small dispensing fee) often do not cover overhead. A new study found that retail pharmacies excluded from Medicare Part D networks (which PBMs manage) were much more likely to close (^[43]). Data from 2023 events suggest dozens of chain stores (Walgreens ~1,200, CVS ~2,900 jobs) announced closures or cuts, partly citing lower reimbursement growth (^[11]). Independent pharmacists routinely testify in state legislatures about unsustainable spreads and DIR fees leaving them unprofitable. In some states, laws banning PBM spread pricing (paid with federal Medicaid risk corridors) have been credited with slight improvements in community pharmacy finances.

• Pharmaceutical Manufacturers: PBMs’ ability to demand large rebates effectively forces drugmakers to keep list prices high (to generate rebate vs. lower MSRP drugs). Manufacturers view the PBM negotiation as a “tax” on new drugs. While employers and insurers benefit from the portion of rebates passed on, the net effect on drug spending is complex. Some researchers worry that heavy rebate strategies distort drug choices. The AMA report noted PBMs are vertically integrated with insurers, giving them heft in formulary decisions (^[24]).

• Government (Medicare/Medicaid): For government drug programs, PBMs can both help and hurt. The Supreme Court’s Rutledge v. PCMA decision (2020) upheld state anti-spread laws in Medicaid, reflecting concern. Regulators are again eyeing Medicare: in 2024, the FTC filed an administrative complaint alleging anti-competitive insulin pricing by PBMs, suggesting federal antitrust action (^[15]) (^[16]). Congress and CMS officials have repeatedly called for more PBM oversight, especially in Medicare Part D where PBMs administer much. Proposed federal legislation (e.g. S.891) would ban PBMs from earning anything other than flat service fees in Medicare Part D, and force rebate pass-through to seniors (^[14]).

• Insurers/Employers: Many insurance companies (especially the Big Three’s parents) have grown dependent on their PBM divisions. They benefit from integrated profit centers but also bear regulatory risk. Some employers have reacted by demanding more transparency or self-retaining drug benefits. A few large employers and GPOs have even launched their own PBMs (such as Boeing’s RemedyPayer or Amazon considered doing a PBM). At the same time, losing a PBM (switching PBM for a contract) can shift thousands of patients (as with Centene), so large plan sponsors carefully navigate these markets.

In sum, the PBM market dynamics -- driven by the Big Three -- have far-reaching effects on pricing, access, and competition. While PBMs can negotiate lower net costs for insurers, their practices often lack transparency. Stakeholders from all sides (pharmacies, patient groups, insurers, regulators) express concern that PBM market power may harm some consumers and market competition.

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Regulatory Environment and Recent Developments

Given the critical role of PBMs and their market concentration, numerous regulatory and legislative efforts have emerged.

Federal Oversight and Legislation

In recent years, both federal agencies and Congress have intensely scrutinized PBM practices. Key developments include:

• Congressional Hearings (2023-2025): The U.S. House and Senate have held hearings on drug pricing where PBMs were a focal point. In July 2024, the House Oversight Committee published a report accusing the three largest PBMs of “embrac [ing] anticompetitive behavior” (^[9]). During House hearings, executives from Express Scripts, Caremark, and OptumRx (under oath) faced aggressive questioning about spread pricing, pharmacy closures, and rebates (^[46]). Lawmakers showed bipartisan frustration at PBM evasiveness. One committee chair concluded that “PBMs were created to help drive down costs of prescription drugs. I don't think that's working” (^[51]).

• FTC Actions (2023-2025): The Federal Trade Commission opened a formal case in September 2024 against the Big Three PBMs and their affiliated group purchasing organizations, alleging unfair rebating practices in insulin dispensing (^[15]). This administrative suit claims PBMs steer patients to high-list-price insulins with higher rebate kickbacks, suppressing competition. The PBMs sought to dismiss the case, arguing procedural defects, but in February 2025 a federal judge refused to block the FTC suit (^[16]). In parallel, the FTC’s Bureau of Competition has been studying PBM practices. In January 2025, the FTC released a staff report documenting how Caremark, Express Scripts, and OptumRx marked up dozens of specialty generics by hundreds or thousands of percent, accumulating $7.3 billion beyond cost (^[10]). The FTC also released an earlier 2024 report on PBMs (the first interim report) focusing on spread pricing and insulin costs. These FTC eyes on PBMs – reminiscent of past scrutiny of pharmaceutical middlemen – signal potential antitrust or policy interventions ahead.

• Legislative Proposals: Multiple bills have been introduced at the federal level to reform PBMs. In mid-2023, the Senate HELP Committee advanced bipartisan bills banning PBM spread pricing and Delinking PBM revenues from list prices (^[13]). A broad health reform bill (the February 2025 Continuing Resolution) initially included major PBM reforms (banning spread pricing in Medicaid, requiring rebate pass-through, prohibiting PBMs collecting manufacturer-based compensation in Medicare Part D), but these provisions were removed in the final package. Undeterred, Senate Finance Chair Ron Wyden and Sen. Sanders re-introduced the Bipartisan Health Care Act (S.891) in March 2025, which would ban PBMs from earning non-service fees on Part D plans, require state Medicaid PBM contracts to be pass-through (no spread), and mandate 100% rebate and fee pass-through to plans (^[14]). (Similar language had bipartisan support in Dec 2024.) On Capitol Hill, there is broad agreement on PBM reform; the debate is over the extent. Lawmakers are also considering giving the FTC authority to regulate middlemen and increasing reporting requirements on PBMs.

• Administration and HHS: Regulatory agencies like CMS have announced intentions to increase transparency. For example, proposals based on 2024 budgets aimed to disclose PBM “bona fide service fees” in Medicare and possibly curb manufacturer-to-PBM payments. The Biden Administration’s drug pricing task forces have acknowledged the need to address PBM-driven distortions. President Biden’s 2025 budget proposed new manufacturer rebate rules in Medicare that would indirectly pressure PBMs (though this was later dropped from legislation). The NIH and GAO are likewise studying PBMs as part of their drug cost investigations.

State-Level Reforms

PBM regulation has largely fallen to states, especially concerning Medicaid. Starting around 2018, many states prohibited spread pricing by PBMs in Medicaid or managed care contracts (sometimes emerging after audit scandals). States also passed laws forcing Medicaid PBMs to use pass-through pricing and share rebates. Oklahoma sued several PBMs alleging overcharging, and many other attorneys general have launched inquiries. Some states, like Arkansas and Louisiana, attempted to cap DIR fees or force full rebate pass-through to pharmacies; the courts (and Supreme Court in Rutledge v. PCMA) have been divided on ERISA preemption. Beyond Medicaid, about a dozen states introduced PBM transparency laws affecting commercial plans (requiring annual filings of fees, rebate retention etc.). Illinois and Ohio have banned PBM spread in all plans under state law (not just Medicaid). Several states have passed laws making PBM-owned pharmacies barred from preferential networks. Altogether, state reforms reflect growing local wariness of PBM practices, but patchwork differences mean much uncertainty remains. (For example, numerous states still have no PBM-specific rules or only limited requirements.)

In summary, the regulatory environment is rapidly evolving. Congress, regulators, and states are simultaneously scrutinizing PBMs from many angles. Potential reforms range from modest disclosures to structural market changes (some have even proposed a government-run PBM for Medicaid to reduce middleman profits). The Big Three are fighting some of these efforts legally: trade groups representing PBMs have sued to halt state laws, and told Congress that caps on their revenue would disrupt plan finances. But given mounting evidence of anticompetitive behavior (^[9]) (^[10]), major policy shifts seem likely in the coming years.

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Case Studies and Real-World Examples

To illustrate the dynamics at play, consider several instructive case studies:

• Centene’s PBM Contract (2024): In January 2024, Cigna’s Express Scripts won a five-year contract to manage pharmacy benefits for around 20 million members of Centene Corporation (^[8]). Previously, Centene (a large Medicaid managed care insurer) had been served by CVS Caremark. This shift drastically realigned market share overnight. DCI reports that Caremark’s total PBM claims fell 18.2% year-over-year (from 2.3B to 1.9B 30-day equivalent claims) as a result (^[39]). Conversely, Express Scripts’ retail claims volume jumped by about 40% (from 1.3B to 1.9B) (^[49]). This example shows how changing a single large customer (MCO or insurer) can move tens of millions of covered lives and hundreds of millions of prescriptions between PBMs. Market share charts often move abruptly in those years contracts change.

• FTC Insulin Rebates Case (2024–25): The FTC’s antitrust challenge against the Big Three PBMs (filed Sept 2024) focuses on care management of diabetic therapies. The complaint alleges that Express Scripts, Caremark, and OptumRx created separate “preferred formulary” deals to steer millions of patients onto more expensive insulin products that offer higher rebates to the PBMs. A Missouri federal court allowed the case to proceed in early 2025 (^[16]), rejecting PBMs’ claims of overreach. The PBM defendants argue the FTC’s claims are speculative, but regulators see this as the first major legal test of PBM pricing strategies.

• FTC Specialty Generics Report (2025): In January 2025, after a 6–5 vote, the FTC released a staff report documenting PBM markups on specialty generics (^[52]) (^[10]). It found that from 2017–2022 the Big Three had marked up dozens of generics (commonly for HIV and cancer) “by thousands of percent,” and collectively profited $7.3 billion in excess revenue (^[10]). (For instance, one generic might cost the PBM $4 but the member/payer was charged $600.) Associates like the National Association of Chain Drug Stores (NACDS) hailed the report’s findings, calling it “a second pounding of Big PBMs,” while PBMs called it incomplete. Nonetheless, this FTC evidence underpins arguments for “good faith” pricing rules.

• Antitrust Merger Reviews: While not a deal itself, a notable negative case was the DOJ’s blocking of insurer mergers that would have further concentrated PBM markets. In 2017 the DOJ sued to block Aetna’s proposed acquisition of Humana (citing risk of PBM market harm to Medicare Advantage) (^[53]). Similarly, Anthem’s bid for Cigna was blocked. These cases show regulators’ concern that even insurance mergers could cascade into PBM dominance. By contrast, Cigna’s later merger with Express Scripts in 2018 was allowed (and completed), making that combined entity the largest PBM-Insurer at the time (^[54]). This mixed record suggests antitrust enforcement is grappling with where to draw lines.

• State Reforms – Ohio and Illinois: In 2016 Ohio enacted a law requiring PBMs to use transparent pass-through pricing in Medicaid (no spread). This led to a legal case (PCMA v. Rutledge) that went up to the Supreme Court in 2020. The Court ultimately upheld state power to regulate PBMs in government programs (the Rutledge v. PCMA case (^[37])). In 2020 Illinois passed a similar measure banning spread pricing in Medicaid and requiring audits. These state examples inspired more states to adopt PBM oversight. The result: some PBMs changed their practices for government contracts, though critics say enforcement is uneven. Key takeaway: state interventions can alter PBM revenues significantly (and have increased political focus on the issue).

• CEO and Trade Group Statements: Amid scrutiny, PBM leaders publicly defend their value. For instance, in Feb 2025 CVS CEO David Joyner emphasized that PBMs (like his Caremark) have historically brought down costs via competition between drugs and pharmacies (^[45]). CVS also pointed out that PBMs paid out $600 billion in claims in 2023 and that “independent pharmacies see their costs go up too” (implying PBMs are not solely at fault) (^[45]). Trade associations (e.g. Pharmaceutical Care Management Association, PCMA) have sponsored ads and speeches claiming that PBM reforms could raise premiums. These public relations efforts underscore the tension between PBMs and other stakeholders.

These case studies highlight the real-world dynamics of PBM dominance: massive contracts changing hands, regulatory investigations of drug pricing schemes, and competing narratives about cost and transparency. They demonstrate that the Big Three’s decisions – whether contract awards or pricing policies – ripple through insurers, pharmacies, and patients alike.

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Discussion of Implications

The dominance of the Big Three PBMs raises several important implications:

1. Competition and Market Health: With 80% market share, any one of the Big Three PBMs can influence price negotiations and coverage. Such market power often prompts antitrust concerns. Although each of the Big Three is subject to FTC oversight under corporate law, critics argue that cross-ownership (creating effectively three ‘integrated health systems’) reduces competition beyond what traditional antitrust would address. If PBMs collude implicitly (e.g. all use similar formularies) or individually wield insurer power, the usual market incentives for price-lowering may weaken. As the AMA report concluded: “these findings suggest low competition among midsized players in the supply chain” and highlight “the need for policy changes” (^[24]).

2. Drug Pricing: While PBMs can negotiate large rebates that reduce insurer costs, the impact on patient prices is mixed. Some experts note that federal drug spending has not fallen as much as hoped, possibly because list prices continue to climb. If PBMs steer patients to high-rebate drugs (as alleged with insulin), patients may pay high co-insurance even though rebates flow elsewhere. Moreover, expensive new specialty drugs (with no competition) leave PBMs with little leverage. The FTC report found PBM markups in exactly these specialty areas (^[10]). Thus, PBMs’ influence on final drug prices and overall spending depends heavily on how rebate revenues versus patient costs are managed.

3. Patient Access to Pharmacies: The large PBMs have discretion to exclude pharmacies from networks or pay some lower than others. Community pharmacies (especially independent or rural ones) claim PBMs reimburse them at a loss and exclude them from “preferred” networks. Congress and states are now investigating whether PBM practices are causing pharmacy deserts. If many pharmacies are squeezed out, patients may have reduced access (especially in underserved areas). This access issue was highlighted by lawmakers at hearings, and led to calls for restricting PBM “steering” practices.

4. Policy Outlook: The trajectory suggests continued reform. With major bills under consideration (e.g. bipartisan proposals to ban spread pricing/rebate retention), PBMs may soon operate under more stringent rules. For example, if legislation limits PBM profits to flat fees, PBMs might push back by cutting services or demanding higher fees. Alternatively, lower barriers to entry could invite new PBMs (some state Medicaid agencies, large employers, or startups like Mark Cuban’s Cost Plus Drugs PBM model) to offer competition. However, the “Big Three” have been resilient: whenever one insurer considers leaving a PBM, another tends to consolidate business.

5. Future of Vertical Integration: Some experts argue that the insurer-PBM-pharmacy conglomerate model may face a backlash. There are suggestions that regulators might push PBMs to spin off from insurance companies (analogous to how cross-ownership bans in media). Already, the Supreme Court’s Rutledge decision and FTC actions pressure states and feds to treat PBMs more like utility providers. On the other hand, PBMs continue to invest in clinical services (e.g. mail pharmacy, genetic testing) which could entrench their role in care management.

6. Economic Concentration: The JAMA analysis noted that 82% of U.S. pharmacy benefit markets (at county or plan-provider level) are highly concentrated (^[24]). This implies nearly all patients live in areas where one PBM may have overwhelming share for their plan. Policymakers may see this as a “market failure” requiring intervention. Past analogues: shipping (U.S. Post Office), utilities, and telecom have been regulated when concentration was high. Some propose treating PBMs as a regulated industry, with rate oversight or mandatory disclosures.

In sum, the Big Three’s control of the PBM market means they will remain a focal point of healthcare reform. Both incremental changes (more transparency, smaller reforms) and possibly structural solutions (breaking up vertical ties, creating alternative PBMs) are on the table. Understanding the detailed data – the market shares, profit sources, and outcomes – is crucial for crafting effective policy.

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Future Directions and Outlook

Looking ahead, several trends and developments will shape the PBM landscape:

• Legislative and Regulatory Change: As noted, major PBM reform provisions were attached to or proposed in federal bills through 2025. If passed, these could dramatically alter PBM operations (e.g. full rebate pass-through, ban on mark-ups, service-fee only). State-level scrutiny (e.g. prohibiting PBM-owned pharmacies in networks, requiring PBM separation) may continue. Additionally, the incoming 2025 Medicare negotiations (drug price bargaining) will interact with PBMs’ roles in Part D. We expect agencies like the HHS, SEC, and FTC to increase oversight: for instance, listing PBM financial flows in Medicare might be required.

• Market Entry and Innovation: While the Big Three are entrenched, there is growing interest in alternatives. Large stakeholders (self-insured employers, union plans, state Medicaid agencies) have hinted at creating or expanding their own PBMs or other models. New technology firms are proposing transparent PBM models with fixed fees (as in market design research (^[40])). Amazon’s entry into pharmacy (via PillPack) shows that tech giants eye this space, though Amazon has so far not built a full PBM. Startups like Capital Rx or Mark Cuban’s Cost Plus Drug Company (which launched a pass-through PBM in 2024) aim to carve niches. If these gain traction (especially on the employer side), it could gradually erode the Big Three’s dominance or force them to compete more on price.

• Pharmacy Industry Adaptation: Pharmacies (especially independents) are seeking new revenue streams. Some are forming collective “preferred networks” or joining coalitions to negotiate with PBMs. Others are emphasizing value-added services (MTM counseling, vaccinations, diagnostics) to differentiate beyond dispensing. Big chains (CVS, Walgreens) may shift strategy too; note CVS Health now also operates clinical services (like HealthHUB concept) under its PBM and insurer arm, aiming to capture value across the continuum.

• Data Transparency: Advances in data analytics and calls for open data could gradually make PBM operations more visible. For example, CMS might require PBMs to submit pricing data. Pharma companies also track the macro effects of PBM rebates on demand, leading to alternative pricing models (like flat discounts).

• Global Context: It’s important to note that PBMs in their current form are largely unique to the U.S. Other countries handle drug benefits through government plans or insurers without an independent PBM layer. The U.S. may see pressure to move closer to models elsewhere (e.g. more direct price negotiations by government or insurers with manufacturers, with less of the middleman role).

Ultimately, the future of the PBM Big Three depends on whether reforms fundamentally change incentives or merely adjust profit sharing. If PBMs are forced to be “pass-through” and only charge fees, their margins could shrink and the market might open. Some economists suggest that banning rebates (as now being done in Medicare reform proposals) would shift competition to list prices. Others believe PBMs, expertise in drug management still adds value if restructured as true insurers. The average consumer’s interest rests on lowering net out-of-pocket costs and ensuring access, which may or may not align with the Big Three’s profit goals.

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Conclusion

The pharmacy benefit manager market in the United States is overwhelmingly dominated by three firms: Express Scripts (Cigna/Evernorth), CVS Caremark (CVS Health), and OptumRx (UnitedHealth Group). These companies together process roughly four out of every five prescription claims (^[1]) (^[38]). Their ascent has been driven by decades of mergers and vertical integration (most notably CVS/Caremark in 2007, Express Scripts/Medco in 2012, Cigna/Express in 2018, and UnitedHealth’s PacifiCare/Optum acquisitions) (^[18]) (^[30]). Academic and industry analyses confirm this concentration: for example, a JAMA study finds the market’s HHI near 2000 and the Big Three account for ~74% of prescriptions (^[4]).

This concentration gives the Big Three enormous influence over drug pricing, pharmacy reimbursements, and the structure of insurance benefits. Our review of the literature and data shows that while PBMs argue they save costs, many stakeholders contend that PBM practices (rebate retention, spread pricing, preferential networks) have often benefited insurers and PBMs more than patients or pharmacies. The House Oversight Committee’s 2024 report bluntly accused the largest PBMs of “anticompetitive behavior” to the detriment of payers and patients (^[9]). Evidence such as the FTC’s specialty drug markup report (^[10]) and numerous state investigations underscores that PBM incentives can clash with public goals of affordability and transparency.

The future implications are significant. If current reform efforts succeed, PBM business models may be forced to change – potentially lowering prices for consumers but also reshaping how rebates and fees are handled. If reforms falter, the status quo of concentrated PBM power may persist. In either case, understanding the “Big Three” is crucial for policy: their decisions can swiftly alter market shares (as seen with the Centene contract) and ultimately affect costs.

In conclusion, the U.S. PBM market is effectively controlled by three giant firms. Their market share statistics, business strategies, and recent controversies (FTC action, legislation, etc.) all point to a need for careful monitoring and possibly regulatory adjustment. This report has compiled extensive data, expert analyses, and real-world examples to provide a detailed picture of who these PBMs are, how they operate, and why their dominance matters. Any approaches to improve drug affordability must reckon with the power wielded by these three companies.

Sources: This report draws on healthcare industry analyses (^[1]) (^[23]) (^[24]), peer-reviewed studies (^[19]) (^[4]), regulatory reports (^[9]) (^[10]), and news coverage (^[46]) (^[45]). All claims are supported by these sources as cited above.