Inside the Black Box of Prescription Drug Pricing

Real Clear Markets

Author: Lori Chavez-DeRemer, US Secretary of Labor

Administrations have repeatedly tried to shine a bright light into the business practices of pharmacy benefit managers (PBMs). But those efforts have not been successful – until President Trump set his sights on lowering drug costs for the American worker. Thanks to his leadership, the Department of Labor is piercing the veil of secrecy that PBMs have hidden behind to introduce transparency in prescription drug pricing.

PBMs were established in the U.S. in the 1960s to help insurers and employers manage their prescription drug benefits. The Employee Retirement Security Act (ERISA) of 1974 further accelerated PBM growth by enabling large employers to utilize their services. Now, PBMs are massive conglomerates, often vertically integrated with health plans, insurers, group purchasing organizations, retail pharmacy chains, and so on. 

ERISA will be used once again – this time to introduce unprecedented transparency into the industry it helped create.

In April 2025, President Trump instructed his Administration to end unfair price manipulation and to put hard-earned money back in the pockets of the American worker. Specifically, in an Executive Order titled, “Lowering Drug Prices by Once Again Putting Americans First,” the President made clear that we must “promote a more competitive, efficient, transparent, and resilient pharmaceutical value chain that delivers lower drug prices for Americans.”

In a new proposed PBM transparency rule, the Department has taken historic action to shine a light on PBM practices that inflate drug costs.

PBMs are the middlemen in America’s prescription drug supply chain, and they set self-serving terms along the way, blocking any meaningful counterparty negotiations. This is especially true for the three largest PBMs, who control more than 80 percent of prescription drug claims. As a result of this market consolidation, prescription drug pricing remains in a black box – right where PBMs want it.

Labor’s proposal would level-set the bargaining table, leading to greater transparency which, in turn, will increase competition. That virtuous cascade will achieve the President’s directive to lower drug prices for Americans.

Employers and other benefit plan sponsors (through fiduciaries tasked with negotiating with the PBMs) are currently flying blind. For example, they can’t see the full extent of the compensation – both direct and indirect – that flows to the PBMs’ war chest. PBMs also often withhold data on actual drug costs and manufacturer rebates from plan sponsors. This is like trying to win a game of chess against a grandmaster with only pawns on your side of the board. 

Labor’s proposed rule would end this asymmetric set-up.

PBMs would finally be required to lay their cards on the table. They would be forced to provide true disclosures to plan fiduciaries prior to entering into a contract or arrangement. In other words, they would have to negotiate in good faith.

What a concept. The U.S. tax code defines gross income as “all income from whatever source derived.” Labor’s proposed rule essentially mimics that framework. It tells PBMs to disclose direct compensation paid by the plan, payments from drug manufacturers, spread compensation (when they charge the plan higher prices for prescription drugs than they pay the pharmacy), co-pay clawbacks, plus any other compensation not specifically enumerated by the proposed rule.

PBMs are left with nowhere to hide.

In addition to this initial disclosure, the proposal calls for ongoing semi-annual disclosures. And benefit plans would have the right to audit those disclosures. This would allow the plans to look back at the prior six months and see if they actually got what they paid for, where the money went, and if they were overbilled... CONTINUE READING ON REAL CLEAR MARKETS