A new law in Iowa requires pharmacy benefit managers (PBMs) to reimburse pharmacies based on average state or national drug prices instead of negotiated rates and stops PBMs from favoring a specific pharmacy to fill a prescription.
Gov. Kim Reynolds of Iowa signed the bill on June 11, saying it was necessary to improve accountability of PBMs.
“In enacting this bill into law, Iowa joins Texas, Georgia, Indiana and Montana that this year passed similar legislation to address this important issue along with several other states that have done so previously, bringing the total to 32 states,” said Reynolds in a statement.
PBM practices led to the closure of 34 rural pharmacies in the state in 2024 alone, a press release from the governor stated.
“On paper, PBMs exist to secure lower prices for consumers,” said Sally Pipes, president, CEO, and Thomas W. Smith fellow in health care policy, the Pacific Research Institute. “But too often they create distortions in the prescription drug market and keep prices high.”
Overwhelming Market Power
Smaller pharmacies in the state had complained it was too difficult to compete against large pharmacy chains. Although PBMs operate as independent systems, many are subsidiaries of big managed care companies, insurance companies, and drug chains, says Emma Freer, a senior health policy analyst at the American Economic Liberties Project.
“In addition to the market control exercised by the ‘Big Three’ PBMs—CVS Caremark, Cigna Group’s Express Scripts, and UnitedHealth Group’s OptumRx—which control nearly 80 percent of U.S. prescription drug claims, each of the Big Three is also vertically integrated with a health insurer that also owns large chain, specialty, and/or mail-order pharmacies,” said Freer.
“Because of this set-up, they are incentivized to steer patients to their affiliated pharmacies, which they reimburse at higher rates—up to 7,736 percent times more, according to a January 2025 FTC report—than independent pharmacies, driving them out of business,” said Freer. “When these independent competitors fail, this steering only becomes easier, further entrenching the largest PBMs’ market power and increasing costs to patients, employers, and taxpayers.”
Harm to Smaller Pharmacies
Small, independent pharmacies have legitimate concerns about pharmacy benefit managers, says Katy Talento, president of KFT Consulting
“PBMs often pay pharmacies that are not affiliated with or owned by them or their parent company less than the acquisition cost of the drug, so that the pharmacies lose money each time they sell that drug to a patient covered by that PBM,” said Talento.
“They also impose fake requirements and paperwork burdens on pharmacists, misleadingly referred to as quality metrics, and if the paper isn’t filled out just so, the PBM will require the pharmacist to pay back money already received,” said Talento. “This can be crushing and business-destroying.”
Courts have had to intervene, says Talento.
“There have been a number of lawsuits of employers or their employees that involve PBM malfeasance with respect to secret pricing deals that harm payers and benefit manufacturers or, more often, insurers and brokerage firms,” said Talento.
Just Another Middleman
PBMs were designed to get consumers better prices on prescription drugs, but they’ve ended up functioning like middlemen, says Ryan Ellis, president of the Center for a Free Economy.
“PBMs are a symptom of the larger problem of an Rx and generic market not sending accurate market-price signals,” said Ellis. “The manufacturer has a list price. It goes through an incredibly complicated series of discounts and rebates. And the consumer often ends up using a third-party payment system with a copay, coinsurance, and a deductible.
“Imagine if we bought bananas that way,” said Ellis. “It’s nuts, and it can’t be fixed. It has to be blown up.”
The system needs free-market reforms that empower consumers, says Pipes.
“A bigger direct-to-consumer market for prescription drugs would lead to lower costs and better-quality care in the long run,” said Pipes. “Consequently, policymakers should be looking to expand patient access to health savings accounts, whose proceeds consumers own and control. If patients had more control over their health care dollars, they’d be able to cut out many of the intermediaries that increase cost and decrease efficiency within the health-care market.”
Kevin Stone ([email protected]) writes from Arlington, Texas.
