The government has a habit of chasing simple villains for deeply complicated problems. Every few years, politicians point to either drug manufacturers, insurers, hospitals, pharmacies, or “middlemen” as key to finally lowering drug costs and cleaning up the healthcare system.
Most recently, their scapegoat for high drug prices has become pharmacy benefit managers, or PBMs. PBMs operate as the middlemen between drug manufacturers, insurance companies, pharmacies, and employer health plans. They negotiate rebates with pharmaceutical companies, determine which drugs are covered by insurance plans, and help manage prescription drug benefits for millions of Americans. In recent years, concerns have grown about PBM business practices and increasing vertical integration within the healthcare industry. Many of the largest PBMs are owned by or affiliated with major health insurers and pharmacy chains, creating complex corporate structures that place multiple parts of the prescription drug supply chain under common ownership. Critics argue that these arrangements can create conflicts of interest and reduce market competition, while supporters contend they help coordinate care and lower costs through economies of scale. Because they sit in the middle of the prescription drug supply chain, PBMs have become powerful players in the debate over healthcare costs and transparency.
In February, Congress passed major PBM reforms through the Consolidated Appropriations Act (CAA), requiring expanded reporting on rebates, fees, spread pricing arrangements, and financial relationships throughout the prescription drug supply chain. The law imposed substantial new oversight and transparency requirements on PBMs operating in both Medicare and the commercial market. Now, before those reforms have even had time to fully take effect, the Department of Labor (DOL) has proposed a second, overlapping disclosure regime targeting PBMs that serve self-insured employer plans.
The DOL’s proposed PBM Fee Disclosure Rule would require PBMs and affiliated consultants to disclose extensive information regarding direct and indirect compensation under Employee Retirement Income Security Act (ERISA) fiduciary standards. The proposal is framed as a transparency measure. Transparency itself is not the problem. The problem is that Congress already established a broad federal transparency framework through the CAA just months ago.
Instead of allowing those reforms to be implemented and evaluated, the DOL is building a parallel compliance structure with separate timelines, reporting expectations, and disclosure obligations.
The problem of bureaucracy, which creates layers of overlapping functions, is well documented. Gary Hamel and Michele Zanini of the Management Lab and co-authors of Humanocracy estimate that the cost of excess bureaucracy in the US economy amounts to more than $3 trillion in lost economic output, or about 17 percent of GDP.
This effect is no less significant with PBMs, who would now have to navigate overlapping systems governing many of the same financial arrangements. In some cases, the same transaction could require disclosure under multiple regulatory frameworks using different definitions and standards.
To keep up with the layered compliance requirements, it takes staffing, legal review, auditing infrastructure, reporting systems, and operational restructuring. Large PBMs will likely absorb those costs. Smaller and mid-market PBMs may not, effectively pushing some out of the market altogether and leaving even more power concentrated among the largest players.
Ironically, that could undermine the very accountability policymakers say they want. Less competition rarely leads to lower prices or greater responsiveness. It creates markets where fewer institutions dominate more of the system while smaller innovators and regional actors disappear under administrative burden.
Supporters of the DOL proposal will argue that stronger transparency standards are necessary because PBMs remain opaque and influential actors in the healthcare system. They are not entirely wrong, but they’re failing to recognize that Congress already tackled that issue with CAA. For example, the CAA already requires PBMs to report information related to rebates, fees, spread pricing arrangements, and compensation structures throughout the prescription drug supply chain. The DOL proposal would require many of the same entities to disclose overlapping compensation and financial relationship data under the Employee Retirement Income Security Act (ERISA) framework. Two new sets of rules that effectively do the same things are not useful in practice.
The better approach now is to allow the CAA reforms to take effect, assess whether meaningful gaps remain, and coordinate future oversight in a way that strengthens accountability without creating more bureaucracy and unintentionally reducing competition.
Washington wanted more transparency in the PBM market. Fair enough. But if regulators are not careful, they may end up creating a healthcare system where only the largest firms can afford to survive, competition shrinks as smaller players are pushed out, and the high costs policymakers set out to address become even more entrenched.
