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Hey friends, Biscuit picked up his insulin last week and the price on the receipt didn't match what Dr. Singh quoted him in the exam room. He called his insurance company. Otis picked up. "That's not us," Otis said. "That's your PBM. Ask for Rex." Biscuit had never heard of a PBM, short for pharmacy benefit manager, or Rex either. Neither had most of you, probably, until you opened this email. By the end of this issue you'll know who actually sets your drug price, what a rebate is, why three real companies (CVS Caremark, Express Scripts, and OptumRx) control 80% of that decision, and where the Federal Trade Commission's (FTC) case against them stands as of this week - Shivang & Tania

Hey there, we are Shivang & Tania. Each week, we write in plain English about how health insurance works, why claims get denied, and how patients and healthcare teams can get paid or reimbursed.

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We reference Biscuit the Corgi, Dr. Singh, Sage the front desk border collie and Otis the frenchie. If you’re wondering who they’re check out Medical billing 101

Meet Rex, and the real companies he stands for

Picture a Doberman in a charcoal suit, clipboard under one arm, standing at a gate between your doctor and your pharmacy. That's Rex, this issue's new character. He doesn't prescribe anything and he doesn't sell insurance. He decides which drugs your plan covers, what you owe at the counter, and whether Dr. Singh's prescription gets filled as written or bounced back for something else first.

That's a pharmacy benefit manager, or PBM for short. Rex is a stand-in for the role. PBMs negotiate with drug manufacturers, manage pharmacy networks, and often build or administer formularies and prior authorization rules for health plans and employers. The plan sponsor ultimately chooses its benefit design, but the PBM has enormous influence over how it works in practice.

Why PBMs exist: the short version

Rex leaned against the counter and gave Biscuit the short version, since Biscuit clearly wasn't leaving. "I didn't start out this complicated," he said.

In 1965, a company called PAID Prescriptions started doing something nobody wanted to do by hand: process prescription claims. Before that, every pharmacy bill was paper, mailed, and manually checked. PBMs began as claims processors. A real, boring, useful job.

By the 1970s they were building pharmacy networks and setting their own reimbursement rates, the leverage that comes from representing millions of members instead of one patient at a time.

Then the story took a turn nobody would invent on purpose. In 1993, Merck bought the PBM Medco Containment Services for $6 billion. The next year, Eli Lilly paid $4 billion for PCS Health Systems. A drug manufacturer owning the company that decides which drugs get covered is exactly the conflict of interest it sounds like, and the FTC caught it fast, requiring firewalls between each manufacturer and the PBM it now owned. The arrangement didn't last. Eli Lilly wrote down the value of PCS Health Systems by $2.4 billion in 1997, then sold it to Rite Aid the next year for $1.5 billion, a fraction of the $4 billion it had paid. Merck spun off Medco as its own public company in 2003.

By the 2000s, PBMs were independent companies again, and this time the negotiated discounts, called rebates, became the core of the business. "Now I own specialty pharmacies," Rex said, straightening his cuffs. "I decide formularies. I write the prior authorization rules that billing coordinators chase down every day."

What a PBM actually does today

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  • Formulary management: Decides which drugs are covered and at what tier.

  • Manufacturer negotiations: Trades formulary placement for rebates.

  • Pharmacy networks: Decides which pharmacies you can use and what they're paid.

  • Prior authorization: Requires your doctor to justify a prescription before it's filled.

  • Step therapy: Requires you to try a cheaper drug first or perform something before they pay you for the current one.

  • Specialty pharmacy: Routes expensive drugs through a pharmacy it owns. (Ironic right?)

The three giants

"Wait," Biscuit said. "Are you the only one of you?"

Not close. About 70 PBMs operate in the United States, but three of them handle roughly 80% of all prescription claims: Express Scripts at 31%, CVS Caremark at 26%, and OptumRx at 23% (Drug Channels, 2025 PBM market share report). Rex is a composite of exactly those three, and none of them stand alone. CVS Caremark belongs to CVS Health, which also owns Aetna. Express Scripts belongs to The Cigna Group. OptumRx belongs to UnitedHealth Group, which also owns UnitedHealthcare. The company deciding your drug price and the company insuring you are, more often than not, the same parent wearing two nametags.

The insulin story, in plain terms

Walk through it with Biscuit's actual bottle of insulin in four steps:

  • Step one: the sticker price: The manufacturer sets a list price of $100. That's the price printed before anyone negotiates anything, and every other number in this story gets calculated from it.

  • Step two: the quiet payment: The manufacturer wants Rex to put its insulin on the "preferred" list, the drugs a plan covers without extra hoops like step therapy. So the manufacturer offers Rex a rebate: money paid back to Rex after the sale, negotiated privately between the two of them. Nobody outside that negotiation knows the real number. Rebate contracts between manufacturers and PBMs are confidential by design, kept out of view of the pharmacy, the doctor, and the patient. So for this example, imagine a round number: a $40 rebate on that $100 bottle, invented to make the arithmetic easy to follow.

    Here's the real drug behind that example. The FTC's September 2024 complaint centers on Humalog, an insulin made by Eli Lilly. Its list price was $21 in 1999. By 2017, it was $274, an increase of more than 1,200%. The FTC's complaint attributes that increase to what it calls the PBMs' "chase-the-rebate strategy." By 2019, one out of every four insulin patients couldn't afford their medication.

  • Step three: the size contest. Here's the part that turns a normal discount into a problem. Whichever manufacturer offers the biggest rebate usually wins the better formulary spot, not whichever one charges the lowest real price. So if one insulin lists at $100 with a $40 rebate, and a competing insulin lists at $80 with a $30 rebate, the $100 insulin can still win the preferred slot, because $40 beats $30, even though the $80 insulin is cheaper to begin with. The FTC's complaint alleges manufacturers, driven by the PBMs' hunger for rebates, raised list prices to compete for formulary placement, and quotes a PBM vice president describing the strategy as continuing to "drink down the tasty rebates" on high-list-price insulin. That's the incentive to raise the sticker price in the first place, then hand back a bigger number, instead of just pricing the drug lower from the start.

  • Step four: If Biscuit has coinsurance or has not met his deductible, his out-of-pocket cost may be calculated from the full $100 list price, not the $60 net price after the rebate. The rebate may lower what the plan pays later, but it may not lower what Biscuit pays at the counter that day. It depends on the plan design; some plans do share rebates with patients at the pharmacy counter. Biscuit may be paying coinsurance based on the $100 list price even if the plan’s cost comes down later after the rebate. Rebates themselves are not illegal. Bulk discounts exist in nearly every industry, and drug manufacturers have offered them for decades. What the FTC’s September 2024 complaint argued is narrower than “rebates are bad”: favoring formulary placement based on rebate size rather than net price can reward a manufacturer for inflating its list price first, then negotiating a larger rebate off that inflated number, while some patients’ out-of-pocket costs are still tied to the higher price.

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That's the part people missed: the FTC's case targeted the incentive loop connecting list price to rebate size, the reason a company might rather raise its price and pay more back than simply charge less from the start.

Where the FTC case stands right now

Sage runs billing for a mid-size clinic, and she's been watching this news for months, because a formulary change can eventually mean a different prior auth queue. The FTC, the Federal Trade Commission, is the federal agency that sued all three PBMs over this. Here's where each of the three stands, as of this week.

  1. Express Scripts: On February 4, 2026, Express Scripts and the FTC reached a proposed consent agreement. In plain English, they agreed on terms to resolve the case, but the FTC order still needed to become final. Express Scripts neither admitted nor denied the FTC’s allegations. Under the proposed order, it agreed to give plan sponsors an option where members’ out-of-pocket costs are based on the drug’s price after rebates, rather than the higher list price. The FTC estimates those changes could save patients up to $7 billion over 10 years.

  2. CVS Caremark: On July 14, 2026, CVS Caremark and the FTC reached a proposed consent agreement. Caremark also neither admitted nor denied the allegations. Under the proposed order, Caremark agreed not to favor a higher-list-price version of a drug over an identical lower-list-price version on its standard formularies. It also agreed to offer plan sponsors an option that passes rebates to patients at the pharmacy counter. FTC estimates up to $8.5 billion in savings over 10 years, plus another $4.5 billion from point-of-sale rebates.

  3. OptumRx: OptumRx is still in the middle of the process. The FTC paused its formal case against Optum so it can consider a proposed consent agreement. No terms have been made public yet. Separately, OptumRx said it plans to pass 100% of manufacturer rebates to its clients, such as employers and health plans, by January 1, 2028. That is OptumRx’s own commitment, not part of an FTC settlement, and it does not automatically mean a patient receives the rebate at the counter. OptumRx itself announced it will pass through 100% of manufacturer rebates to clients by January 1, 2028, its own statement, not confirmed settlement language.

Why this matters, past the headlines

For patients: your copay may be calculated off a number that was never the real price.

For Dr. Singh: a denial usually means the formulary requires step therapy, a preferred brand, or a specialty pharmacy first.

For Sage and every RCM team like hers: each formulary change becomes a new prior auth queue, a new appeal, a new call. For hospital and health system executives: a fixed cost nobody budgeted for, showing up as delayed reimbursement and idle staff time.

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"Nobody was accused of breaking the law by taking a rebate. The question was whether the incentive itself was built to push prices up.

What you can actually do (patients)

  • Ask if a lower-cost alternative is covered before filling anything new: Formularies change yearly.

  • Ask your pharmacist to compare the cash price to the insurance price: Cash sometimes beats your copay, especially on generics.

  • Check for a manufacturer copay card if you have commercial insurance: These rarely apply on Medicare or Medicaid.

  • Request your plan's formulary before starting an expensive medication: It shows your tier and any step therapy ahead.

  • Appeal a denial when your doctor agrees it's medically necessary: If your doctor agrees the medication is medically necessary, ask about your plan’s appeal process

  • Ask whether a biosimilar exists: For insulin and other specialty drugs, biosimilars can be clinically equivalent and cheaper.

For providers, RCM, and executives

Providers: a denial usually means the formulary requires a different step, brand, or pharmacy first. Checking the formulary before you prescribe cuts the callback rate.

RCM and billing: track which drugs get denied most and which payers demand extra documentation. That pattern is the difference between a five-minute fix and a three-week appeal.

Practice managers: every PBM policy shift is a staffing question in disguise. More step therapy means more refill calls. Budget for it before it becomes overtime.

Executives and market access teams: treat these settlements as opening terms. More PBM reform is coming behind them. Point-of-sale rebate pass-through starting in 2028 changes formulary strategy, contract negotiation, and cost-sharing math for every payer relationship you hold. Model the effect on specialty drug spend now.

Next moves that you can do!

Pull your last pharmacy receipt. Go to GoodRx.com, free, no account needed, and search your drug's name. It'll show you the cash price, what someone pays with no insurance at all. Compare that number to what your insurance actually charged you.If the GoodRx cash price is lower than your insurance price, it does not prove a rebate caused the difference. It may reflect your deductible, coinsurance, the plan’s network price, or coupon pricing. But it is a useful prompt: ask your pharmacist or plan why the insured price is higher and whether a lower-cost covered option exists.

That's it for this issue. Hit reply. I read everything.

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