The American prescription drug pricing system is not a market in the conventional sense. It is a layered structure of institutional actors — manufacturers, intermediaries, trade associations, and allied organizations — each with documented financial interests in its continuation. Understanding who benefits from the current structure, and what steps those actors have taken to preserve it, is necessary context for any serious policy deliberation. This article does not attempt to assign motive or establish bad faith. It names the actors, describes their documented positions, and traces the lobbying and organizational activity that is part of the public record.
Pharmaceutical Manufacturers: Patents, Pricing, and Lobbying
The Pharmaceutical Research and Manufacturers of America (PhRMA) is the primary trade association representing branded drug manufacturers in the United States. In 2023, PhRMA reported total revenues of more than $467.3 million, according to its tax filing as analyzed by Sludge. That revenue funds an advocacy apparatus that ranked first among all health sector lobbying organizations in 2024, when PhRMA spent $31 million on federal lobbying. In Q1 2024 alone, PhRMA’s lobbying expenditure reached $9.6 million — a 20 percent increase over the same quarter in 2023, according to Politico.
Beyond direct lobbying, PhRMA’s 2023 tax filing shows a pattern of routing funds through organizations that do not publicly disclose their donors. PhRMA contributed $3.5 million to the American Action Network (AAN) in 2023, one of the year’s largest single grants. Since the Citizens United decision, PhRMA’s total giving to AAN has reached $38 million, as tallied by Issue One and reported by Sludge. The AAN is a conservative dark money advocacy group whose affiliate, the Congressional Leadership Fund, spent heavily on campaign expenditures targeting House Democratic candidates in the 2024 election cycle. PhRMA also gave more than $6.3 million — its largest single grant — to We Work For Health, a group that describes itself as a “grassroots initiative” but was created by PhRMA and its member companies, and does not disclose that funding relationship on its website.
The lobbying surges among individual manufacturers track closely with moments of legislative threat. When Congress began considering insulin-specific pricing reforms, Eli Lilly spent $7 million on lobbying in 2021 — a 29 percent increase over 2020 — while Novo Nordisk spent $3.2 million, a 24 percent increase over the same period, according to STAT News. The three major insulin manufacturers — Eli Lilly, Novo Nordisk, and Sanofi — collectively dominate a global insulin market estimated at roughly $27 billion, and raised sticker prices for their products by more than 150 percent over a five-year period, even as the underlying drug formulations remained substantially unchanged.
Patent strategy is a distinct but related lever. Pharmaceutical manufacturers use a practice known as “evergreening” — filing successive rounds of new patents on incremental modifications to existing drugs in order to extend exclusivity and delay generic or biosimilar competition. Sanofi, for example, filed 74 patents on a single insulin product. This practice does not require lobbying; it operates through the existing legal framework of intellectual property law. But its effect is to insulate manufacturers from the competitive pressure that would otherwise push prices toward production cost.
Pharmacy Benefit Managers: The Intermediary Layer
Pharmacy benefit managers occupy the middle of the drug supply chain. Employers, insurers, and government health programs hire PBMs to negotiate drug prices with manufacturers, design prescription drug formularies, and process pharmacy claims. In theory, PBMs function as a counterweight to manufacturer pricing power. In practice, their business model creates incentives that have attracted sustained congressional scrutiny.
The three largest PBMs — CVS Caremark, Express Scripts (owned by Cigna), and OptumRx (owned by UnitedHealth Group) — collectively manage approximately 80 percent of the prescription drug market. Their trade association, the Pharmaceutical Care Management Association (PCMA), spent $18 million on federal lobbying in 2024, up from $15 million in 2023 and $9 million in 2022 — a doubling of spending in two years, according to an Axios analysis reported by Drug Topics. The scale of PCMA’s lobbying increase coincides directly with a sustained period of bipartisan congressional attention to PBM practices.
The House Committee on Oversight and Accountability spent three years investigating the Big Three PBMs, obtaining more than 140,000 documents. Its July 2024 report found 300 documented instances in which the three largest PBMs placed medications costing at least $500 more per claim in preferred formulary positions over lower-cost alternatives they excluded. The committee identified more than 1,000 examples where excluded medications would have been less expensive for patients under Medicare Part D data, according to the report.
The mechanism driving this pattern is the rebate system. Rebates are retrospective payments from manufacturers to PBMs, calculated as a percentage of a drug’s list price. Because rebate size scales with list price, PBMs have a structural financial incentive to favor higher-list-price drugs on their formularies — even when lower-cost alternatives exist. The House Oversight report documents this dynamic in detail, finding that PBMs regularly preferred medications with larger rebates over clinically comparable but lower-priced options. A 2020 University of Southern California study found that every one-dollar increase in rebates correlated with a $1.17 increase in a drug’s list price, as cited in the committee’s report.
A second revenue stream for PBMs is spread pricing. In this model, a PBM charges a health plan more for a drug than it reimburses the dispensing pharmacy, keeping the difference — often without disclosure to the plan sponsor. Ohio’s 2018 Medicaid audit found that spread pricing cost the state program nearly $225 million. A District of Columbia HHS Inspector General audit found $23.3 million in improperly retained spread pricing from DC Medicaid between 2016 and 2019. The Congressional Budget Office estimated that banning spread pricing in Medicaid managed care would save $1.1 billion over ten years, according to the House Oversight report.
Patients, meanwhile, frequently pay out-of-pocket costs based on the list price of a drug, not the net price after rebates — a structure that has been the subject of class action litigation and federal regulatory attention.
The Manufacturer-PBM Dynamic
The relationship between pharmaceutical manufacturers and PBMs is defined by mutual financial dependence and mutual public blame-shifting. Both patterns are well-documented.
The financial dependence is structural. Manufacturers raise list prices in part to create room for larger rebates, which PBMs use to secure formulary placement for their products. PBMs, in turn, favor higher-list-price drugs because rebates are calculated as a percentage of list price. The Senate Finance Committee’s investigation into insulin pricing, conducted by Senators Grassley and Wyden and published prior to the 2023 HELP Committee hearing, found that insulin manufacturers increased their Wholesale Acquisition Cost in part to offer larger rebates to PBMs — and, critically, that at least one manufacturer’s board voted down a proposed price decrease in part because executives feared PBM retaliation: reduced formulary access if rebate revenue to the PBM shrank.
In May 2023, the Senate Health, Education, Labor, and Pensions (HELP) Committee convened a joint hearing with the CEOs of Eli Lilly, Novo Nordisk, and Sanofi alongside the presidents of CVS Caremark, Express Scripts, and OptumRx. The exchange, widely described by STAT News as “familiar finger-pointing” and as nearly verbatim repetition of a House subcommittee hearing held four years earlier, produced little clarity. Eli Lilly CEO David Ricks testified that higher list prices enable larger rebates that benefit employers, insurers, and individuals who do not use the medications — a statement that, while accurate as a structural description, does not explain why the savings are not passed to patients at the pharmacy counter. OptumRx CEO Heather Cianfrocco testified that drug manufacturers alone set list prices, and that PBMs function as a “counterweight” to manufacturer market power. Reuters and FierceHealthcare both documented the hearing as a blame game, with each set of executives attributing high patient costs to the other’s practices.
The Finance Committee’s earlier investigation suggests that both characterizations contain elements of documented reality. Manufacturers do set list prices unilaterally. PBMs do negotiate contracts that reward higher list prices with preferred formulary access. The two dynamics reinforce one another in a system where the patient’s out-of-pocket exposure is often calculated at the list price level.
What These Actors Have in Common
The pharmaceutical manufacturers and the pharmacy benefit managers occupy different positions in the supply chain and have conflicting interests in some respects — as their public dispute at the 2023 HELP Committee hearing illustrates. But they share a structural feature: both derive revenue from a pricing system organized around high list prices, complex rebate negotiations, and limited price transparency to end users.
Each has responded to legislative pressure not only with public testimony but with documented increases in lobbying expenditure. PhRMA’s $31 million in 2024 lobbying represents the largest lobbying spend among health organizations in the country. PCMA’s doubling of lobbying expenditure between 2022 and 2024 is the steepest proportional increase among major health sector trade associations. In both cases, the increases coincide with periods of active congressional deliberation over reforms targeting their respective business models.
Each has also engaged in organizational activity that extends beyond direct lobbying. PhRMA’s funding of We Work For Health — an organization that presents itself as grassroots advocacy but was created by and financially sustained by PhRMA and its members, without public disclosure — is documented in its own tax filings. Its $38 million in cumulative contributions to the American Action Network since Citizens United represents a significant investment in political infrastructure that operates outside the disclosure requirements that apply to direct lobbying.
The House Oversight Committee’s 2024 report, based on 140,000 internal documents from the three largest PBMs, documents practices — formulary preferences tied to rebate maximization, spread pricing, and patient steering toward PBM-owned pharmacies — that have been defended by PBMs before Congress and simultaneously investigated by federal and state regulators. Several states have settled with PBMs over spread pricing overcharges totaling more than $1 billion across settlements with Centene and other entities.
None of this constitutes proof of coordination or bad faith in the legal sense. What it documents is that each set of institutional actors has deployed available tools — lobbying, organizational infrastructure, legal strategy, and market structure — to preserve the financial arrangements from which they benefit. That is not an unusual thing for large institutions to do. It is, however, necessary context for evaluating what kinds of policy changes are politically possible and what the barriers to those changes consist of.
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