States Are Fighting to Lower Your Drug Prices by Targeting the Hidden Middlemen

Pharmacy benefit managers, or PBMs, are powerful companies that sit between drug manufacturers and your insurance plan, negotiating prices and deciding which drugs get covered. In 2026, at least 12 states have passed new laws targeting these middlemen, arguing that their opaque pricing practices drive up what patients pay at the pharmacy counter. The push reflects a growing bipartisan frustration with a system that leaves millions of Americans unable to afford the medications they need.

What Are Pharmacy Benefit Managers and How Do They Work?

Pharmacy benefit managers are companies hired by health insurance plans, employers, and government programs to manage prescription drug benefits. They act as brokers between drug manufacturers and the people who ultimately pay for and use medications.

Here is how the process works in practice:

• A drug manufacturer sets a list price for a medication
• The PBM negotiates a rebate or discount with the manufacturer in exchange for placing that drug on the insurance plan’s “formulary” (the approved drug list)
• The PBM then reimburses pharmacies for dispensing the drug, often at a rate it sets unilaterally
• The PBM keeps a portion of the difference between what it collects and what it pays out

The problem is that this system lacks transparency. Patients, employers, and even insurers often cannot see exactly how much the PBM is collecting in rebates or how much it is paying pharmacies. That gap is where critics say profits are hidden and costs get inflated.

Why Are Drug Prices So High in the United States?

The U.S. pays more for prescription drugs than any other wealthy nation, and the reasons are layered. Unlike most countries, the federal government has historically been restricted from directly negotiating drug prices on a large scale. Drug manufacturers set their own list prices with few legal limits.

PBMs add another layer of complexity. Because they negotiate in secret and keep rebate details confidential, there is no public check on whether those savings actually reach patients. In many cases, the rebate system incentivizes manufacturers to set higher list prices so they can offer larger rebates, which makes the PBM look effective while the patient’s out-of-pocket cost, often calculated on the list price, stays high.

About 60% of U.S. adults say they are worried about affording their prescriptions, and roughly 40% report skipping doses or not filling prescriptions because of cost [1]. In upstate New York and across the Mohawk Valley, that is not an abstract statistic. It is a neighbor choosing between insulin and groceries.

How Do PBMs Negotiate Drug Prices With Pharmaceutical Companies?

PBMs negotiate rebates, discounts, and “formulary placement” with drug manufacturers. In plain terms, a manufacturer pays the PBM to ensure its drug gets preferred status on the insurance plan’s drug list.

The negotiation is largely invisible to consumers. The PBM might secure a 30% rebate from a manufacturer on a $500-per-month drug. But if the patient’s copay is calculated based on the $500 list price, the patient sees none of that savings. The PBM and sometimes the insurer pocket the difference.

Common complaint: PBMs sometimes favor higher-priced brand drugs with large rebates over cheaper generics, because the rebate revenue is more valuable to them than the savings would be to the patient.

Which Companies Are the Largest Pharmacy Benefit Managers?

Three companies dominate the PBM industry:

Together, these three manage roughly 80% of all U.S. prescription drug claims. Notably, each is now owned by or affiliated with a major insurer or pharmacy chain, which raises serious conflict-of-interest questions that state regulators are beginning to address [1].

What Are the Common Complaints About Pharmacy Benefit Managers?

The complaints fall into several consistent categories:

• Spread pricing: PBMs charge insurers more for a drug than they reimburse the pharmacy, pocketing the difference
• Low reimbursement rates: Independent pharmacies are paid so little per prescription that many lose money on each fill. One Kansas pharmacist reported losing money on 86% of prescriptions in a single year [1]
• Clawbacks: PBMs sometimes require pharmacies to return money after a prescription is already filled, with little notice or explanation
• Gag clauses: Until recently, PBMs could prohibit pharmacists from telling patients that paying cash was cheaper than using insurance
• Vertical integration: When a PBM owns a pharmacy chain, it can steer patients toward its own stores and away from independent competitors

These are not fringe concerns. They are documented in state legislative hearings, federal investigations, and court filings across the country.

Which States Are Trying to Regulate Pharmacy Benefit Managers?

State-level action is accelerating fast. All 50 states have passed at least one PBM regulation since 2016, totaling more than 220 laws [3]. But 2026 marks a new level of intensity.

At least 12 states passed significant new PBM laws in 2026, targeting compensation limits, transparency mandates, and minimum pharmacy reimbursement rates [1]. Here is a snapshot of notable state actions:

• Tennessee: Enacted a law prohibiting PBMs from owning retail pharmacies, effective July 1, 2028. CVS Health, which operates 136 pharmacies in the state, has filed a federal lawsuit challenging the law [1]
• Kansas: Requires PBMs to pay a mandatory dispensing fee of $10.50 per prescription to independent pharmacies [1]
• Louisiana: Set a mandatory dispensing fee of $11.81 per prescription [1]
• Florida: The Prescription Drug Reform Act, signed in 2023, requires PBMs to be fully regulated as Insurance Administrators [4]
• Michigan: As of January 1, 2024, PBMs must obtain a state license to operate [5]
• New York: Since June 1, 2022, all PBMs serving New York residents must register with the state superintendent and pay an annual fee [6]
• Georgia: Has implemented licensing and oversight regulations to promote financial accountability [7]

What Laws Are States Passing to Lower Drug Prices?

States are taking three main approaches to PBM reform:

1. Transparency requirements
Forcing PBMs to disclose rebate amounts, spread pricing practices, and formulary decision-making processes. The goal is to let employers and insurers see exactly where the money goes.

2. Minimum reimbursement rates
Setting a floor on what PBMs must pay pharmacies per prescription, preventing the kind of below-cost reimbursements that are closing independent pharmacies across rural America.

3. Ownership separation
Tennessee’s new law is the most aggressive example: prohibiting PBMs from owning the pharmacies they reimburse, to eliminate the conflict of interest at the heart of vertical integration.

At the federal level, the U.S. Supreme Court declined to block Medicare’s drug price negotiation program, allowing the federal government to continue negotiating prices for high-cost drugs under Medicare [2]. That decision adds momentum to state-level efforts.

How Much Do PBMs Mark Up Drug Prices?

The exact markup is hard to pin down because PBMs are not required to disclose their financials in detail. But spread pricing offers one window into the practice.

In documented cases reviewed by state auditors, PBMs have charged Medicaid programs significantly more than they paid pharmacies for the same drug, sometimes by hundreds of dollars per prescription. A 2018 Ohio state audit found that PBMs charged the state’s Medicaid program $224 million more than they paid pharmacies in a single year, according to reporting at the time.

The lack of mandatory disclosure is exactly why transparency laws matter. Without them, neither the employer paying for the health plan nor the patient paying the copay can verify whether they are getting a fair deal.

Are PBMs Required to Disclose Their Pricing Practices?

At the federal level, disclosure requirements remain limited. States have moved faster. New York, Michigan, Florida, and others now require varying degrees of financial reporting, licensing, and transparency from PBMs operating within their borders [4][5][6].

The PBM industry argues that confidential negotiations are necessary to secure the best deals. Critics counter that secrecy is what allows the industry to profit at patients’ expense.

Choose transparency laws if: You want to know whether your employer’s health plan is actually passing drug rebates back to employees or keeping them as profit.

What Is the Difference Between PBMs and Health Insurance Companies?

Health insurers pay your medical and hospital bills. PBMs specifically manage the prescription drug benefit, which is often carved out as a separate contract.

Here is the key distinction: your insurer sets your premium and covers your doctor visits. The PBM decides which drugs are covered, what your copay will be, and how much your pharmacy gets paid. The two roles are separate, though they are increasingly owned by the same parent companies, which is a major source of conflict-of-interest concerns.

What Happens If States Successfully Regulate PBMs?

If state regulations hold up in court and spread nationally, the likely effects include:

• Independent pharmacies in rural areas stay financially viable, preserving access for communities far from big-box chains
• Employers and insurers gain visibility into where drug spending actually goes
• Patients may see lower out-of-pocket costs if rebates are required to flow through to them
• PBM profit margins compress, potentially reducing consolidation incentives

The caveat is real: CVS Health’s lawsuit against Tennessee shows the industry will fight back hard [1]. Federal courts could strike down state laws that conflict with federal insurance regulations, particularly for employer-sponsored plans governed by ERISA.

Do Pharmacy Benefit Manager Regulations Actually Lower Drug Prices?

The honest answer is: it depends on the regulation and how it is enforced.

Transparency laws alone do not lower prices; they just reveal where the money goes. Minimum reimbursement laws help pharmacies survive but do not directly reduce what patients pay. Ownership separation rules address conflicts of interest but are still new enough that outcomes are unclear.

What the evidence does show is that states with stronger PBM oversight tend to have more independent pharmacies still operating, which matters enormously for rural and low-income communities with limited pharmacy access [3].

The PBM industry’s own defense is telling. CVS Health’s president of pharmacy and PBM operations has said, “Blaming PBMs for high drug prices is like blaming umbrellas for the rain” [1]. But that framing ignores the documented evidence of spread pricing, low reimbursements, and rebate opacity that state legislators across the political spectrum have found credible enough to act on.

Will PBM Regulation Increase or Decrease My Prescription Costs?

For most patients, well-designed PBM regulation should hold costs steady or lower them over time. Here is the realistic breakdown:

• If rebate pass-through laws pass: Patients could see lower copays because rebates would be credited at the point of sale rather than kept by the PBM
• If transparency laws pass: Employers may choose PBMs that offer better value, creating competitive pressure to lower costs
• If minimum reimbursement laws pass: Your local independent pharmacy stays open, giving you more options and potentially better service

The risk of poorly designed regulation is that it could raise administrative costs for PBMs, which might be passed on to insurers and ultimately to premiums. This is a legitimate concern worth watching.

How Can Patients Find Out What Their Insurance PBM Charges?

Start by calling the member services number on your insurance card and asking which PBM manages your prescription benefit. Then ask:

1. What is the formulary for my plan, and how do I access it?
2. Does my plan use spread pricing, and if so, what is the policy on disclosures?
3. Are manufacturer rebates passed through to members at the point of sale?

You can also use tools like GoodRx or Cost Plus Drugs to compare what you would pay in cash versus through insurance. Sometimes the cash price is lower, especially for generic medications.

FAQ: Pharmacy Benefit Managers and Drug Price Regulation

What is a pharmacy benefit manager in simple terms?
A PBM is a company that manages prescription drug coverage for your health plan. It decides which drugs are covered, negotiates prices with manufacturers, and pays pharmacies when you fill a prescription.

Why do PBMs exist?
They were created to help insurers manage the complexity of drug coverage. In theory, their scale allows them to negotiate better prices than individual insurers could on their own.

Are PBMs legal?
Yes, PBMs are legal and operate in every state. The debate is about how they should be regulated, not whether they should exist.

Can a state ban PBMs entirely?
No state has attempted an outright ban. The regulatory push is focused on transparency, reimbursement fairness, and ownership separation, not elimination.

Why is Tennessee’s law significant?
Tennessee’s ban on PBM-owned pharmacies is one of the most aggressive structural reforms attempted by any state. If it survives CVS Health’s legal challenge, it could become a model for other states [1].

Does New York regulate PBMs?
Yes. Since June 1, 2022, all PBMs operating in New York must register with the state superintendent and pay an annual fee to ensure compliance with state regulations [6].

What can Mohawk Valley residents do about high drug prices?
Contact your state legislators and ask where they stand on PBM transparency and reimbursement reform. Support independent pharmacies in Utica and the surrounding region when possible. Ask your employer’s HR department whether your health plan passes drug rebates back to employees.

Will federal action replace state action on PBMs?
Federal action is moving slowly. States are filling the gap. The Supreme Court’s decision allowing Medicare drug price negotiations to continue signals federal momentum, but state laws remain the most active front right now [2].

What is spread pricing?
Spread pricing is when a PBM charges an insurer more for a drug than it pays the pharmacy, keeping the difference as profit. It is one of the most criticized practices in the industry.

Are generic drugs affected by PBM practices?
Yes. PBMs sometimes steer patients toward brand-name drugs with large rebates instead of cheaper generics, because the rebate income benefits the PBM more than the savings would benefit the patient.

Conclusion: What This Means for You and What You Can Do

The fight over pharmacy benefit managers is not a wonky policy debate happening somewhere far away. It is about whether you can afford your blood pressure medication, your child’s asthma inhaler, or your parent’s diabetes treatment. It is about whether the independent pharmacy on your corner in Utica stays open or closes because a corporate middleman pays them less than the drug costs to dispense.

The good news is that state governments are acting, and in 2026 the pace is accelerating. Twelve states passed new PBM laws this year alone [1]. New York already requires PBM registration [6]. The pressure is building from both sides of the aisle because this is not a partisan issue. Paying too much for medicine hurts everyone.

Here is what you can do right now:

• Call your New York state legislators and ask them to support stronger PBM transparency and reimbursement laws
• Ask your employer’s HR department whether your health plan passes drug rebates through to employees
• Support your local independent pharmacy in the Mohawk Valley whenever possible
• Compare drug prices using tools like GoodRx before filling a prescription
• Share this information with neighbors, family members, and coworkers who are struggling with prescription costs

Civic participation starts with understanding who controls the systems that affect your daily life. Now you know who the middlemen are. The next step is making sure your elected representatives know you are watching.

References

[1] E44ae3a9f19fe55811fcb64f2849abf6 – https://apnews.com/article/e44ae3a9f19fe55811fcb64f2849abf6?utm_source=openai

[2] 1b67dff5ab8c13865e2b33860b0978ce – https://apnews.com/article/1b67dff5ab8c13865e2b33860b0978ce?utm_source=openai

[3] State Action On Pharmacy Benefits Managers Pbms To Address Prescription Drug Pricing – https://nashp.org/state-action-on-pharmacy-benefits-managers-pbms-to-address-prescription-drug-pricing/?utm_source=openai

[4] floir.gov – https://floir.gov/life-health/pbm?utm_source=openai

[5] michigan.gov – https://www.michigan.gov/difs/pbm?utm_source=openai

[6] law.justia – https://law.justia.com/codes/new-york/isc/article-29/2903/?utm_source=openai

[7] 120 2 97 – https://rules.sos.ga.gov/gac/120-2-97?utm_source=openai