Building on part I of “The Great Repricing” series, this article examines the state of the commercial insurance channel –and more specifically, the pharmacy benefit managers (PBMs) that sit at its center. On the surface, PBMs remain extraordinarily powerful. They manage formularies for the majority of commercially insured Americans and face little immediate risk of mass customer defection from their plan sponsor clients.

Yet when viewed through the lens of economic durability rather than market share, the commercial PBM model is increasingly under strain. The system appears stable, but the underlying economics that sustain it are weakening. In that sense, the barbarians may indeed be at the gate.

At the core of this pressure is not regulation, but misalignment, particularly around the pass-through rebate model, formulary construction, and the mechanisms used to steer prescribers, patients, and pharmacies toward preferred products.

The commercial PBM model and its incentives

Excluding HMOs and government lives, commercial insurers influence approximately 155 million lives out of the roughly 340 million people in the United States, based on the most recent Census Bureau data. PBMs, which originated as digital tools to adjudicate and track pharmacy spend, have evolved into vertically-integrated formulary and rebate aggregation platforms whose economics are increasingly opaque.

The PBM value proposition is directed primarily at plan sponsors seeking to offer prescription drug coverage to employees and their families. In practice, however, the model prioritizes economic outcomes over clinical optimization. When multiple therapeutic alternatives exist, formulary preference frequently flows to the product that generates the highest aggregate rebate dollars rather than the lowest net system cost.

This behavior is reinforced by the pass-through rebate model, which governs approximately 70% of commercial lives. Under this construct, the difference between a drug’s list price and the PBM’s negotiated net price is passed back to the plan sponsor. Benefit consultants then benchmark sponsors against peer groups based on rebate yield and net cost relative to list price.

The result is a structurally distorted system that rewards higher list prices and larger rebates, not lower underlying drug costs. While legal and widely accepted, this dynamic effectively rigs the commercial market in favor of high list / high rebate economics.

Why PBM reform is not the catalyst

Despite growing political scrutiny, PBM reform is unlikely to be the force that materially reshapes the commercial channel. Until plan sponsors—the PBMs’ actual customers—demand structural change, regulatory transparency initiatives and process controls will have limited impact.

Importantly, viable alternatives already exist. Transparent PBMs, direct-to-employer (DTE) models, and cash or self-pay prescription strategies are gaining traction. These models introduce real economic choice into a system long defined by bundled opacity.

Within the context of “The Great Repricing,” this distinction matters. The pressure on the commercial channel is not coming from policy reform; it is emerging organically as new pricing and access models expose the fragility of the high list /high rebate framework.

Patent cliffs and MFN: The structural inflection point

Looking ahead through the remainder of the decade, the commercial channel faces an unprecedented convergence of general medicine and specialty patent cliffs, layered atop policies such as the Inflation Reduction Act’s most-favored pricing provisions and renewed most-favored nation (MFN) concepts.

Together, these forces place sustained downward pressure on list prices—a direct challenge to a system whose economics depend on list price inflation. As list prices fall, rebate pools shrink, and the commercial PBM model begins to lose its primary source of economic gravity.

This inflection becomes clearer when viewed through real-world manufacturer experience.

When insurance suppresses demand: A case study

In recent consulting work, our team supported a manufacturer with an established direct-to-patient (DTP) program for a general medicine product. Following patent expiry, the client observed a 300% increase in demand for the molecule.

That data forced a critical question: Was insurance supporting demand — or suppressing it?

When we evaluated the commercial access environment, the answer became clear. National drug code (NDC) exclusions, formulary blocks, high patient out-of-pocket costs, copay accumulator programs, prior authorizations, step edits, and the rapid growth of high-deductible health plans were all acting as demand suppressants. Combined with an unsustainable gross-to-net profile for pharmaceutical manufacturers, the conclusion was unavoidable.

Insurance was not expanding access. It was constraining it.

This realization led to a fundamental reframing: Why not return the product to a cash or self-pay model where access is direct, friction is reduced, and pricing is transparent?

Cash pay as a market correction

While some manufacturers have launched DTP initiatives in response to political pressure around MFN, these programs also serve a genuine market function. Retail pharmacy abandonment rates approaching 50% for certain categories—combined with PBM reimbursement structures that often fall below pharmacy acquisition cost—have created conditions ripe for cash-based alternatives.

The weight-loss category provides a compelling illustration. Early monthly price points near $1,000 have rapidly compressed to approximately $149 per month, with further declines expected. Much of the focus has been on patient willingness to pay, but the more telling dynamic is payer behavior.

Coverage was either absent or accompanied by clinically indefensible utilization controls, including prior authorization requirements, such as mandatory proof of prolonged gym attendance. In response, patients and prescribers bypassed the insurance channel entirely.

Cash pay did not emerge as protest. It emerged as correction.

Specialty is not immune

The assumption that specialty medicines are insulated from cash dynamics is increasingly outdated. Products with annual wholesale acquisition costs exceeding $100,000 may ultimately net 50–70% of that amount after rebates and concessions, while specialty generics for similar indications can now be accessed for hundreds of dollars per year through cash-based platforms.

For patients facing deductibles of $2,500 to $8,500—a group that represented approximately 27% of commercial lives as of 2024—the economic calculus is straightforward. Even biosimilars become attractive cash alternatives when insurance coverage introduces delay, friction, or uncertainty.

As a result, the PBM’s grip on specialty is weakening, not because of policy, but because of relevance.

Why insurance cannot easily follow cash

Despite these dynamics, traditional insurance reimbursement cannot easily migrate toward cash pricing. The reason lies in usual & customary (U&C) constraints and government program protections.

• Medicaid reimbursement is typically the lesser of ingredient cost plus dispensing fee or U&C. Aggressive cash pricing risks resetting the U&C benchmark, capping Medicaid reimbursement.
• Medicare Part D requires accurate U&C reporting to calculate patient cost-sharing and True Out-of-Pocket (TrOOP) accumulation. Misreporting distorts federal subsidy calculations and introduces compliance risk.
• VA, DoD, and TRICARE programs operate under federal ceiling price and contract pharmacy rules that similarly constrain pricing flexibility.

These constraints help explain the rise of dedicated cash-pay pharmacies and DTP channels. They also illuminate why the current administration’s MFN posture includes support for DTP: lowering list prices while enabling cash access undermines the high list /high rebate construct at its foundation.

The real threat to the commercial channel

The greatest pressure on the commercial PBM model is not reform. It is the combination of patent cliffs, list price compression, cash-pay democratization, and direct-to-employer innovation, all of which expose the inefficiencies embedded in rebate-centric economics.

Ironically, this shift represents a partial return to the late 1980s and early 1990s, when much of the pharmaceutical market operated on a cash basis governed by supply and demand rather than rebate engineering.

Where PBMs still matter

None of this suggests that PBMs will disappear. They remain essential for low-volume, high-risk, and clinically complex categories such as oncology, orphan and rare disease, immunology, and multiple sclerosis. In these areas, utilization management and benefit coordination still play a meaningful role.

The strategic challenge for manufacturers is not ideological. It is portfolio-specific segmentation—understanding which products belong in which payer economy and designing pricing and channel strategies accordingly. This is a great inflection point in this article series to highlight why I called the series “The Great Repricing.”

Looking ahead

In the next installment of the series, we will examine the rise of the government payer economy—how Medicaid, Medicare, and federal programs including 340B, operate under fundamentally different pricing logic, and why their growing influence and impact further accelerates the unraveling of the high list /high rebate model.

As we will explore, pharma’s opportunity to truly “pop the GTN bubble” has never been stronger.

About the Author

Bill Roth is general Manager and managing partner of IntegriChain’s consulting business, which includes Blue Fin Group, a strategy consulting company he started in 2001, and the IntegriChain advisory services business.