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Every day, patients arrive at New Jersey hospitals having skipped or rationed their medications. Some cannot afford the insulin that keeps them out of the emergency department. Others have abandoned the blood pressure drugs that prevent strokes. These are not isolated tragedies — they are the result of a prescription drug system that has been quietly tilted against patients and employers alike. 

New Jersey businesses spend billions annually on employee health benefits, and prescription drug costs are among the fastest-growing line items. You have been told that Pharmacy Benefit Managers – PBMs– are your partners in controlling those costs. The data tells a more complicated story.

PBMs are the intermediaries who stand between your health plan and the pharmacy where your employees fill prescriptions. They negotiate rebates from drug manufacturers, set the formularies – the lists of covered drugs – and process every pharmacy claim. The three largest, CVS Caremark, Express Scripts and OptumRx, control roughly 80% of the U.S. market. Chances are one of them administers your employee drug benefit right now. 

PBM rebates

At the heart of the problem is a rebate system that sounds beneficial but often works against you.

PBMs negotiate billions in rebates from manufacturers in exchange for preferred formulary placement. Manufacturers, in turn, raise their list prices to fund larger rebates — because a higher list price means a bigger rebate check, which secures better placement. List prices inflate. Rebates grow. And your employees, whose cost-sharing is calculated on the inflated list price, pay more at the pharmacy counter.   

The numbers behind this system are startling. Consider Humalog, one of the most commonly prescribed insulins used by diabetic patients. In a disclosure to stockholders, Eli Lilly acknowledged that its net price for Humalog had fallen 8% between 2014 and 2019 — even as the company upped its list price by 52%. The gap between those two numbers is not an error — it is the rebate flowing to the PBM.

Your employees’ cost-sharing is calculated on the list price, not the far lower net price. To its credit, Lilly reduced Humalog’s list price by 70% in 2023 under significant public and legislative pressure. But that reform did not change the underlying architecture: PBMs still negotiate rebates tied to list prices; still profit from the spread between what plans pay and what pharmacies receive; and still have a financial incentive to favor high-list, high-rebate drugs over lower-cost alternatives.  

The problem was never just the price of one drug. It is the system that produced it.

The problem was never just the price of one drug. It is the system that produced it. 

Profiting at every step

There is a second, less visible mechanism: spread pricing. PBMs charge your health plan one price for a drug and reimburse the dispensing pharmacy a lower price, pocketing the difference.

This spread is often invisible to employers and plan sponsors. Audits of state Medicaid programs in other states, like New York, have found that spread pricing added hundreds of millions in excess costs with no corresponding benefit to patients. New Jersey has moved toward greater transparency in its Medicaid and state employee programs, but the commercial market – where most of your employees are insured – remains largely opaque. 

The Federal Trade Commission issued a landmark report in 2024 finding that PBMs’ tactics have inflated drug costs AND harmed competition. The three major PBMs are no longer neutral brokers. Through a wave of acquisitions, they now own or are owned by major insurers, and they operate their own specialty and mail-order pharmacies.

When a PBM steers your employees toward its own affiliated pharmacy, it profits at every step: on the rebate, the spread and the dispensing margin. Independent pharmacies in New Jersey’s communities – especially in underserved urban and rural areas – cannot compete, and many are closing. When a local pharmacy closes, patients lose a trusted health care resource, and the community loses another small business. 

Action items for NJ employers

New Jersey has made headway in addressing some of these practices. The state requires PBMs to register with the Department of Banking and Insurance, provides independent pharmacies with audit protections and Maximum Allowable Cost transparency, and has pushed for greater accountability in state-administered programs.  

But much-needed additional protections include mandatory rebate pass-through to patients at the point of sale, full spread pricing bans in the commercial market, and robust conflict-of-interest rules for vertically integrated PBMs. These safeguards have not yet been enacted for commercial plans covering most New Jersey workers.  

New Jersey employers are not powerless. There are concrete steps you can take: 

• Demand a transparent contract. Ask your PBM for a full accounting of rebates collected on your plan and require those dollars flow back to your plan or to employees — a “pass-through” model.  

• Audit for spread pricing. Request a reconciliation showing what your plan paid versus what pharmacies were reimbursed. If your PBM refuses, that tells you something important. 

• Engage your legislators. New Jersey’s congressional delegation is actively debating PBM reform. Federal bills targeting spread pricing and transparency are advancing. Business voices matter in this debate. 

• Reconsider your plan design. When plan designs force employees toward large chain or mail-order pharmacies, patient choice and community health infrastructure suffer. Ask whether your current design serves your workforce or your PBM’s bottom line. 

Our hospitals see the downstream consequences of unaffordable medications every day — in emergency admissions, in preventable readmissions, in patients who waited too long. That uncompensated care ultimately flows back into the cost of health coverage for every employer in this state.  

The system does not have to work this way. Transparent, accountable PBM practices would lower costs for employers, reduce out-of-pocket costs for employees, and keep patients – your employees – healthier. They deserve better. And so do you.  

Cathy Bennett is president and CEO of the New Jersey Hospital Association, a not-for-profit trade association with 400 members spanning hospitals and post-acute care providers.