Half of every dollar spent on brand medicines goes to entities that play no role in the research, development, or manufacturing of those medicines. So where does all that money go?
In the complex prescription drug market, various stakeholders have leveraged convoluted pricing mechanisms to maximize their profits. With health care spending on the rise and a growing focus on patient affordability, scrutiny has intensified over who is truly benefiting.
A 2025 report published by the Berkeley Research Group (BRG) dug into this question and revealed that over $670 billion was spent on brand medicines – an increase of $39 billion from the previous year. However, most of this new spending is not going to the people who make the medicines. This report details the significant portion of spending that is funneled to middlemen such as pharmacy benefit managers (PBMs) and insurers, as well as the hospitals and for-profit pharmacies in the 340B markup program.
Middlemen are driving medicine costs
Insurers and PBMs decide what medicines patients can access and the price they pay at the pharmacy counter. Just three PBMs control 80% of the prescription drug market, and the largest PBMs and insurers are owned by the same large health care conglomerates.
BRG’s study revealed that middlemen like PBMs and insurers receive the largest share of brand medicine spending among non-manufacturer stakeholders. The rebates, fees and other payments middlemen siphon out of the system is also the single largest factor driving growth in spending in 2023.
Rebates and discounts offered by pharmaceutical manufacturers on medicines can lower costs by 50% or more, but patients rarely benefit directly from these savings. Instead, these predatory practices contribute to patients paying more out of pocket than they should, as PBMs profit.
340B medicine markups drive up costs for patients, employers, and taxpayers
Another market inefficiency lies with hospitals that are abusing a little-known federal program to charge huge markups on medicines. Big, tax-exempt hospitals and clinics in the 340B program can purchase pharmaceuticals at steep discounts but continue to charge patients whatever they want, some even marking up medicines by as much as 7 times or more. 340B markups are a hidden tax on patients, employers, and taxpayers and a profit-generating tool for hospitals, PBMs, private equity firms, and large chain pharmacies – well beyond the intended scope of the program.
Profits from 340B markups now account for nearly $65 billion – 10% of brand medicine spending – and continue to grow unchecked.
According to the study, from 2022 to 2023, spending on medicines increased by $39 billion. The second largest contributor was the growth of 340B hospital markups and 340B provider and pharmacy profit on prescription drugs. These costs continue to increase because there’s no oversight or transparency. Worse, the money isn’t going to directly help low-income and uninsured patients.
340B provider markups and 340B pharmacy margins grew by $9.2 billion from 2022’s profit numbers, marking a 23% increase year over year. These providers have capitalized on the program to raise profits on the sale and administration of brand medicines – receiving outsized reimbursement off of patients to whom they sell brand medicines at marked-up costs.
The impact on patients
The rising costs imposed on patients by middlemen and others in the health care system are impossible to ignore, particularly at the pharmacy counter. There is no evidence to suggest entities, like PBMs and insurers, or programs like 340B actually directly lower patient out-of-pocket costs at the pharmacy counter. In some cases, patients are forced to pay more than their insurer or hospital originally paid for the medicine.
Instead of reinvesting these funds into drug development, research, or improved patient access, PBMs and 340B hospitals often use the inflated revenue they collect from the sale of medicines in ways that do not help lower out-of-pocket costs for patients. As a result, many patients struggle to access the treatments they need, facing higher costs and greater barriers to care.
The role policymakers can play
As patients continue to advocate for practical solutions to help lower health care costs, policymakers must examine these troubling practices that are driving up medicine costs for millions of Americans.
If policymakers want to make health care more affordable, they should consider common sense PBM reforms that put patients first and fix the 340B markup program.
Note: this essay was sponsored and written in partnership with PhRMA. I want Hospitalogists to understand that reading / digesting different viewpoints on topics is an important part of improving healthcare, and pharmaceuticals are obviously an important stakeholder in healthcare. I hope this article helps articulate their viewpoints and opinions on various hot-button issues at hand in 2025, and please feel free to reach out with any questions or comments.
