Alan Pannier, chief strategy officer at SmithRx, said on the Jim Stroud Podcast that opaque pricing and misaligned incentives by pharmacy benefit managers (PBMs) drive higher pharmacy costs and create burdens for employers and patients, an issue attracting scrutiny in California.
“They’re putting pressure on drug manufacturers. And that pressure is what leads to rising drug costs,” said Pannier. “I think the uncomfortable truth would be if you’re using one of the big health companies as a pharmacy benefit manager today, you’re overpaying for your pharmacy benefits. We’re on a runaway train when it comes to pharmacy costs. We call it spread pricing. It’s a very common way for pharmacy benefit managers to make money.”
According to the Federal Trade Commission’s interim staff report, PBMs—often vertically integrated with major insurers and specialty pharmacies—”may be profiting by inflating drug costs and squeezing Main Street pharmacies.” The report underscores issues such as opaque fees, steering, and rebate dynamics that can increase patient and plan costs, leading to intensified scrutiny of industry practices.
Industry analysis estimates that in 2024, approximately 80% of all equivalent prescription claims will be managed by three PBMs: CVS Caremark, Express Scripts, and Optum Rx. This market concentration is said to amplify PBM leverage, entrenching opaque pricing practices, facilitating steering, and weakening employer bargaining power. These concerns align with fears that middlemen practices could increase overall pharmacy spending.
State data show California health plan drug costs have grown by 50%+ since 2017. At the same time, the FTC says the Big 3 PBMs’ affiliated pharmacies marked up specialty generics by hundreds to 1,000%+, generating $7.3B in excess revenue (2017–2022)—cost pressure that flows into California premiums and copays.
Pannier serves as Chief Strategy Officer at SmithRx, a pharmacy benefit manager focused on transparent contracting. His career includes leadership roles at SmithRx, Magellan Health, and Veridicus Health. He holds a PharmD and MBA from Idaho State University and is responsible for product strategy and cost-containment models aimed at reducing employer drug spending.
