Group Purchasing Organization (GPO)

PBM GPOs impact patient access primarily by shaping which drugs are covered and at what cost. While PBMs argue these entities lower overall drug spending through better negotiations, critics and regulatory bodies highlight several ways they may create barriers to care:

• Formulary Exclusions:PBM GPOs leverage their massive purchasing power to negotiate rebates, which often results in the exclusion of competing drugs from plan formularies. In 2022 alone, more than 1,150 medicines were excluded from the standard formularies of the “Big Three” PBMs.
• Preferential Tiering:To maximize rebate revenue, GPOs may place higher-priced brand-name drugs on “preferred” tiers while relegating lower-cost generics or biosimilars to non-preferred tiers. This practice, sometimes called adverse tiering, forces patients to pay higher out-of-pocket costs for essential medications.
• Utilization Management Barriers:Access is further restricted through tools like prior authorization and step therapy (or “fail first” policies). These require patients to try and fail on a GPO-preferred drug before they can access the medication their doctor originally prescribed.
• Inflated Out-of-Pocket Costs:Because patient cost-sharing is often calculated based on a drug’s high list price rather than its lower net price (after GPO rebates), patients may end up paying hundreds of dollars more per year.
• Pharmacy Choice Restrictions:Many PBMs use their GPOs to steer patients toward their own affiliated specialty or mail-order pharmacies. This can create “pharmacy deserts” by driving independent pharmacies out of business, particularly in rural or low-income areas.

PBM GPOs classify payments from drug manufacturers into several distinct categories. This classification is often used to differentiate between funds that must be “passed through” to clients and those the PBM can retain as revenue.

Common payment classifications include:

• Traditional Rebates:These are retrospective discounts paid by manufacturers in exchange for preferred placement on a drug list (formulary). Many PBM contracts now guarantee a 100% pass-through of these specific funds to the plan sponsor.
• Administrative & Service Fees:GPOs often reclassify a portion of what would traditionally be a rebate as an “administrative fee” or “service charge”. Manufacturers paid an estimated $7.6 billion in these fees to rebate aggregators in 2022 alone.
• Rebate Aggregator Fees:When a GPO (the aggregator) negotiates on behalf of a PBM, it may siphon off a portion of the manufacturer’s payment as a “participation fee” before passing the remaining “rebate” to the PBM.
• Ancillary Fees:PBMs and their GPOs may further sub-categorize revenue into specific buckets such as:
  • Data Fees: Charged for providing manufacturers with drug utilization data.
  • Marketing/Implementation Fees: Charged for promotional activities or adding a drug to a plan.
  • Clinical Program Fees: Charged for managing patient adherence or specialized care programs.

PBMs and their GPOs have recently faced intense scrutiny from federal regulators, Congress, and state governments over their role in inflating drug costs and their lack of transparency.

• Insulin Pricing Lawsuit: In September 2024, the Federal Trade Commission (FTC) filed an administrative complaint against the “Big Three” PBMs (CVS Caremark, Express Scripts, and OptumRx) and their affiliated GPOs (Zinc, Ascent, and Emisar). The agency alleges they engaged in anticompetitive rebate schemes that artificially inflated insulin list prices while excluding lower-cost alternatives.
• Market Opacity Inquiry: The FTC launched a comprehensive investigation in 2022 into PBM practices, including “junk fees” and the impact of vertical integration. An interim report in July 2024 highlighted how PBMs steer patients to their own pharmacies and extract high fees that do not always benefit consumers.
• House Oversight Committee: Following a multi-year investigation, the committee released a report in July 2024 finding that PBMs use their position to enact anticompetitive policies. Chairman James Comer later expanded the probe to specifically examine whether offshore GPOs in Switzerland and Ireland are used to evade U.S. transparency laws.
• Proposed Federal Legislation: The PBM Transparency Act of 2025 aims to ban deceptive pricing schemes, prohibit “clawbacks” of pharmacy payments, and mandate that 100% of rebates be passed through to health plans.
• Multiple states, including Michigan and Texas, have sued PBMs over insulin pricing and anticompetitive conduct. In 2025, states like Colorado and California passed “delinking” laws to prohibit PBM compensation from being tied to a drug’s list price.