What Is a PBM? How Pharmacy Benefit Managers Affect Prices
By BetterBuyRx Editorial Team
Written for cost and savings education only — not medical advice, and not medically reviewed. Always confirm details with your doctor or pharmacist. See our methodology.
Last updated
A pharmacy benefit manager, or PBM, is a company that manages prescription drug benefits on behalf of insurers, employers, and government health programs. PBMs negotiate rebates with drug manufacturers, build formularies, and decide how much pharmacies get reimbursed for dispensing a drug (FTC). Because PBMs sit between manufacturers, insurers, and pharmacies, their decisions directly shape what you pay at the counter. Comparing prescription prices is one way to see how much PBM-negotiated prices can vary from pharmacy to pharmacy.
What a PBM does, in plain terms
A PBM is essentially a middleman in the prescription drug supply chain. On behalf of a health plan, a PBM typically:
- Negotiates rebates and discounts with drug manufacturers in exchange for favorable formulary placement.
- Builds and manages the formulary, the list of covered drugs and their cost-sharing tiers.
- Processes and pays pharmacy claims when you fill a prescription.
- Sets pharmacy reimbursement rates, meaning how much a pharmacy gets paid for dispensing your medication.
- Designs utilization management rules, including prior authorization and step therapy requirements.
The Federal Trade Commission describes PBMs as central players that "negotiate rebates and fees with drug manufacturers, create drug formularies... and reimburse pharmacies for the medications that patients pick up at the pharmacy counter" (FTC).
Why PBMs matter for what you pay
Because PBMs negotiate the prices insurers pay for drugs and the rates pharmacies get reimbursed, their decisions ripple through to your copay, your plan's formulary tiers, and even which pharmacies are considered "in network" for your plan. A few ways this shows up:
- Rebate-driven formulary placement. A drug with a larger manufacturer rebate may get better tier placement, even if a competing drug is priced lower before rebates.
- Spread pricing. Some PBMs charge insurers more for a drug than they reimburse the pharmacy, keeping the difference, though transparency rules and state laws have increasingly limited this practice.
- Preferred pharmacy networks. PBMs often negotiate lower copays at specific pharmacies, including their own affiliated mail-order or specialty pharmacies.
What federal regulators found
The FTC released a staff report in 2024 examining the role of the largest pharmacy benefit managers, describing them as "powerful middlemen inflating drug costs and squeezing Main Street pharmacies" (FTC). The FTC followed up with a second interim staff report in January 2025 that continued to examine PBM practices and their effects on drug pricing (FTC). Separately, KFF has tracked ongoing federal legislative efforts to regulate PBM practices, including proposals to delink PBM compensation from a drug's price or rebate amount and instead base it on a flat service fee (KFF).
The three biggest PBMs dominate the market
A small number of PBMs handle the large majority of prescription claims in the United States, and most are now vertically integrated with a major health insurer, a specialty pharmacy, or both. This concentration is part of why regulators have scrutinized the industry: a PBM that is owned by the same parent company as an insurer and a mail-order pharmacy has an incentive structure that can be hard for outside pharmacies, and patients, to fully see into.
| PBM role | Who it affects | Example impact on you |
|---|---|---|
| Formulary design | All plan members | Determines which drugs are covered and at what tier |
| Rebate negotiation | Drug manufacturers, ultimately plan costs | Can influence formulary placement independent of list price |
| Pharmacy reimbursement | Pharmacies, especially independents | Can affect which pharmacies stay in-network or stay open |
| Preferred pharmacy networks | Plan members | Can make one pharmacy cheaper than another for the same drug |
| Utilization management | Plan members | Sets prior authorization and step therapy rules |
How this connects to comparing prices
Since PBM-negotiated rates vary by plan and by pharmacy network, the same medication can have very different costs depending on where you fill it and which PBM manages your benefit. This is one reason it is worth checking BetterBuyRx's pharmacy price comparison tool even if you have insurance. Sometimes a cash price or discount card price beats your PBM-negotiated copay, especially for lower-cost generics. Understanding your plan's formulary tiers, which the PBM typically designs, can also help you anticipate costs before you get to the counter.
Search your medication on BetterBuyRx to see how prices differ across pharmacies, independent of what your PBM has negotiated for your specific plan.
What you can actually control
You cannot change which PBM your employer or insurer uses. But you can:
- Compare cash prices against your insurance copay, since PBM-negotiated rates are not always the cheapest option.
- Ask your pharmacist whether a different, clinically similar drug might be cheaper under your plan's formulary.
- Watch for preferred pharmacy discounts, which your plan or PBM may offer at specific chains or mail-order options.
- Stay informed on policy changes. PBM regulation is an active area of federal and state policy, and rule changes can affect your costs over time.
Compare prescription prices on BetterBuyRx before assuming your PBM-negotiated copay is the lowest price available.
Frequently asked questions
What does a PBM actually do?
A pharmacy benefit manager negotiates drug prices and rebates with manufacturers, builds and manages formularies, processes pharmacy claims, and reimburses pharmacies on behalf of insurers, employer health plans, and government programs like Medicare Part D.
Do PBMs set the price I pay at the pharmacy counter?
PBMs heavily influence it. They negotiate the rates pharmacies get reimbursed and set formulary tiers that determine your copay. Your final price also depends on your specific plan design, deductible status, and the pharmacy's own pricing.
Why did the FTC investigate PBMs?
The FTC's 2024 interim staff report found that the largest PBMs, which are vertically integrated with insurers and pharmacies, may be increasing drug costs and squeezing independent pharmacies through practices like unfair reimbursement and steering patients to their own affiliated pharmacies.
Are PBMs the same as my insurance company?
Not exactly, though they are often closely linked. Many large PBMs are owned by or affiliated with major health insurers, while others operate as independent companies contracted by insurers, employers, and government programs to manage the drug benefit.
Can I choose which PBM manages my prescription benefit?
Usually not directly. Your employer or health plan selects the PBM as part of your insurance benefit design. You can, however, shop cash prices independently of your PBM's negotiated rates if that turns out to be cheaper.
Sources
Compare prices & find savings
This guide is for cost and savings education only. It is not medical advice. Talk to your doctor or pharmacist before making any changes to your medications. Prices vary by pharmacy, location, quantity, and eligibility, and they change over time.
Related guides
- Drug Formulary Tiers: Why Your Copay Depends on the Tier
See how drug formulary tiers set your copay, why some generics cost more than others, and how to check your plan's tier list before you fill.
- Why Prescriptions Cost More Before You Meet Your Deductible
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- Same Drug, Different Price: How Pharmacies Set Cash Prices
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