The pharmaceutical supply chain is a sector infamous for glacially slow adjustments, lackluster reform, lack of transparency and massive anti-competitive conglomerates.
Years of dominance by the three major vertically integrated pharmacy benefit managers that control the bulk of the market have placed great strain on the healthcare industry. However, a recent confluence of events marks the first time in decades that I’ve seen any indication of real, meaningful change to the system.
Signs of progress became impossible to ignore in 2024. The Big Three PBMs came under intense scrutiny over the past year. Major news outlets reported on their monopolistic practices. The Federal Trade Commission (FTC) launched investigations into their operations and later brought legal actions against them seeking to stop the PBMs from blocking fair competition on drug prices and favoring drugs that generate higher profits. Lawsuits reflected years of frustration with harm to consumers, highlighting PBMs’ notoriously opaque business practices – practices riddled with misaligned incentives that further inflate drug costs without providing much value.
But beneath the surface of this public scrutiny lies the biggest threat to the traditional PBM structure, one that signals a quiet shift in the market: changing demands from employers, unions, and health plans, all driven by a desire for more transparency and value. All of these stakeholders are increasingly seeking alternatives to the Big Three. This is the market trend that will have the greatest opportunity to influence pharmacy benefits in 2025 and beyond.
Interest in transparency is at an all-time high
This past year saw a wave of mid-sized employers, unions, and health plans exploring alternatives to the Big Three, a trend that will only continue to gain momentum in 2025. In fact, a recent report found that 52% of employers are considering changing their PBM in the next 1-3 years. While 72% of employers still primarily contract with a Big Three PBM, 12% have already embraced a transparent PBM.
This is a significant shift in the way employers view pharmacy benefits, and it reflects what many mid-market PBMs are experiencing behind the scenes. SmithRx, Liviniti, and Capital Rx, three midsized transparent PBMs, have seen exponential growth over the last three years with some of these organizations serving over a million individuals and responding to a record number of proposals from the market—as high as 700 per year! This spike in requests for proposals demonstrates heightening interest from employers in contracting differently.
And while non-Big Three PBMs were very rarely considered finalists for large companies, this past year has seen big-name employers like Tyson Foods jump to transparent mid-market PBMs. Unlike the Big Three, these PBMs prioritize transparency in contracting and pricing and pass value directly on to employers. A handful of marquee companies have taken this plunge, meaning it’s no longer a matter of whether or not these models will be included in their RFPs. Rather, it’s about who’s going to make the cut. We should expect more blue-chip employers to follow suit with big changes in 2025.
Employers are no longer willing to tolerate the hidden markups and limited value associated with the Big Three. As more employers make the switch, pressure will mount on these conglomerates to either reform or lose market share.
The writing is on the wall. The traditional PBM model is doomed to be a shell of itself within the next five years.
The road ahead
In this environment, more novel PBM models are bound to emerge, offering employers and health plans greater flexibility in managing drug benefits and cost control. These new models offer real hope to employers who are tired of wading through the murky waters of traditional PBM arrangements.
But transformation is hard. It’s going to take a lot of work and persistence. The unbundling of vertically integrated conglomerates could lead to both positive and negative consequences for employers, health plans, and patients. Given how interconnected the pharmacy supply chain is, every step to dismantle Big Three operations has a real impact. For employers or health plans that use a vertically integrated PBM to manage every aspect of pharmacy care—from mail service and retail networks to rebates and specialty pharmacy—the slightest change can create big economic disruptions.
For example, if an employer wants to carve out their specialty pharmacy dispensing operations to an alternative outside their PBM “owned” specialty pharmacy, their PBM will try to renegotiate the rates on all the remaining drugs plus their rebate guarantees and perhaps even their base administrative fee to manage the program.
However, the fallout from these disruptions can be mitigated with the right models—and, in the long run, the transition will be worth it. Progress isn’t easy, but it is necessary. Patients deserve a system that is incentivized to be aligned with their best interests—one that is affordable and ensures they receive the most safe and effective medications possible. The longer-term benefits of greater transparency, lower costs, and a more patient-centered approach to care will ultimately outweigh the hurdles that come with evolving away from entrenched business models.
Behind the unraveling, policy changes loom
These shifts in the PBM market are happening against the backdrop of landmark changes in drug pricing policy. While the first wave of Medicare-negotiated prices will go into effect on January 1, 2026, this coming year will mark the selection of 15 additional drugs for negotiation.
We should expect significant price drops for specific high-cost drugs in the coming years—and for the implications of the negotiated Medicare prices to inevitably influence the commercial market. The commercial sector’s response to Medicare pricing changes—whether they’ll align with Medicare pricing or not—will be a key area to watch.
Meanwhile, the pressure on traditional PBMs to adapt will only increase. The industry can expect the cracks in the Big Three PBM model to widen, leaving little room for these entities to hide—and plenty of space for newer, more affordable models to reimagine pharmacy care.
Matthew Gibbs is senior vice president and chief pharmacy officer at Blue Shield of California.