Congress and regulators have, to a large extent, scrutinized pharmacy benefit managers for the rebate deals they negotiate with drugmakers. But according to a report, PBM profit sources have shifted over the past decade toward two lesser-known areas: fees and specialty pharmacies.

Over that span, the two sources drove a greater share of profits than the value of rebates PBMs received from pharma companies and spread pricing, according to data from a survey of manufacturers. The report estimates that, since 2012, profits derived from fees increased fourfold while those earned from specialty pharmacy more than doubled .

The report, written by healthcare equity researcher Nephron, includes both the firm’s existing research as well as new data on PBM compensation based on its survey of biopharma companies from 2018 to 2022.

“These data underscore how PBMs are shifting their business model to rely less on commercial rebates as a profit center,” said PhRMA head Steven Ubl, whose group funded the survey design and data analysis. “Instead, PBMs increasingly make more money from opaque fees and steering patients to pharmacies they own.”

PBMs are often vertically integrated with pharmacy chains and insurers, which can decrease competition. Three PBMs control about 80% of the market. They charge fees to manufacturers, pharmacies, health insurers and employers. 

Many of these pricing practices remain murky. In 2023, lawmakers have convened several hearings. Bipartisan efforts to reform the sector have led to bills designed to boost clarity around costs.

Based on a projection of the fee levels reported by the 16 drugmakers included in Nephron’s quantitative survey, fees charged to pharma companies have doubled in the commercial market over the last five years. 

“We extrapolate that total PBM compensation tied to fees doubled from $3.8 billion in 2018 to $7.6 billion in 2022,” wrote the report’s author, Nephron co-founder and senior analyst Eric Percher.

Driving that growth were increases in traditional administrative fees as well as the emergence of so-called vendor fees. Those costs, which involve data and contracting charges, grew from near zero in 2018 to more than $1.7 billion in 2022. 

Another new type of payment obtained by PBMs, data portal fees, expanded from effectively zero in 2018 to 0.56% of U.S. commercial brand sales in 2022, the report noted.

All told, the aforementioned fees account for 22% of the PBM profit pool, “more than offsetting” a decline in rebates, which are the better-known source of PBM compensation, Nephron observed. 

PBMs lowered the share of the commercial rebates they negotiate with drugmakers, from 46% of estimated profit in 2012 to 13% in 2022, as a greater share of rebates were passed through to plan sponsors. But rebates paid by manufacturers rose by 64%, or $25 billion, from 2018 to 2022, based on an extrapolation of rebate levels reported by survey respondents to the total market. 

This is “well above commercial brand sales growth of 39% over this period,” Nephron pointed out. He added that, if rebates had remained at 2018 levels, they would have totaled $61 billion, or $3 billion lower, in 2022.

Moreover, findings show that specialty pharmacy, which includes compensation from payers and manufacturers, is now the largest PBM profit pool. The report calls this “the single most important growth component, accounting for 39% of PBM profits.”

Rebates, pricing protection and spread pricing (the difference between the prices PBMs charge to payers and what they reimburse to pharmacies) comprise another 20% to 24% of the pie, followed by mail order (16%). 

An additional qualitative survey of pharma firms found that PBMs are directing a growing share of fee proceeds toward subcontractors, as opposed to channeling them into traditional PBM operations. Nephron claims that shift has the potential to reduce fee pass-through and transparency to sponsors and patients.

The qualitative survey also confirmed that PBM fees are most frequently tied to list prices, also known as wholesale acquisition costs. That’s important to note given the ongoing debate on delinking. PhRMA, for one, has pushed for PBMs to receive flat fees based on the services they provide, regardless of a medicine’s price.

The Pharmaceutical Care Management Association, the trade body which represents PBMs, did not respond to a request for comment.