How PBMs Turn Cheap Generic Drugs Into "Specialty" Gold Mines

Every American who fills a prescription would assume generic options are the bargain that keeps drug costs down. A deep new analysis  from drug-pricing researchers at 46brooklyn shows how that bargain is being quietly broken – and how the middlemen running the system are cashing in.

The report highlights how pharmacy benefit managers (PBMs) are labeling cheap generic drugs as high-cost "specialty" medications – and then reimbursing their own affiliated pharmacies at rates dozens of times the drugs' actual cost. The result: billions in inflated spending for Medicare, employers, and patients, flowing to the same three companies already under scrutiny for driving up drug costs.

The report zeroes in on two generics for cancer drugs to show how the scheme works in practice.

No Agreement on What "Specialty" Even Means

There is no shared definition of a "specialty drug." Medicare's definition is essentially price-based, which is easy to manipulate when no one can agree on what a drug actually costs. The Big 3 PBMs each classify dozens to hundreds of generics as "specialty," and PBM contracts typically hand PBMs the exclusive authority to decide what counts. That gives the middlemen a powerful lever: call a cheap generic "specialty," and it lands on a high-cost tier with a fat reimbursement. And since the PBMs own the “specialty” pharmacies that dispense many of these prescriptions, that fat reimbursement often ends up in the laps of the PBM-affiliated pharmacy – an obvious demonstration of the conflicts of interest that permeate the vertically integrated PBM’s self-dealing business models.

The Same Generic, Ten Different Prices

For abiraterone, the same-day price varied roughly tenfold across the Big 3: about $750 at CVS, $1,200 at Optum, and $12,411 at Express Scripts. Meanwhile, the actual pharmacy acquisition cost was about $314 for a month's supply — and Mark Cuban Cost Plus Drugs sold it for under $100. The PBMs are not reflecting real costs. They are capturing the spread.

Medicare Is Overpaying by Billions

Conservative estimates put Medicare Part D overspend at roughly $500 million a year on abiraterone alone – a drug that costs about $90 to acquire but was reimbursed at $2,779 per prescription, more than 14 times its acquisition cost and more than double the manufacturer's list price. For lenalidomide, a single generic used by under 1% of Medicare beneficiaries accounted for about 4% of all Part D generic spending in 2023 and is projected to double to roughly $3.5 billion by 2025. That kind of concentration is unheard of for a generic.

Restricted Networks, Vertical Integration, No Competition

Lenalidomide can only be dispensed by roughly 21 specialty pharmacies, meaning prescriptions are flowing mostly through companies owned by or affiliated with the Big 3 PBMs and their insurers. This concentrates dollars in a handful of PBM-affiliated pharmacies and shuts out lower-cost alternatives. Mark Cuban's pharmacy, for example, still can't get into Optum's network, despite having some of the lowest prices in the market. In commercial markets, Express Scripts reimbursed its own affiliated pharmacies about $2,756 more per abiraterone prescription than non-affiliated pharmacies for the same drug.

Patients Left Paying the Price

Nearly 60% of Medicare plans, covering 66% of enrollees, still classified abiraterone as a specialty drug into 2026 – even though its acquisition cost had been under $200 a month for two years. Opaque and disparate plan bids, drug prices, and tiering decisions controlled by the PBM intermediaries all tilt the system the same way: toward PBM incentives, and often away from taxpayers, employers, providers, and patients. The report ties this directly to the Congressional Budget Office's projection that Part D spending could run hundreds of billions higher than expected over the next decade.

As long as the same corporation controls the insurer, the PBM, and the pharmacy – and gets to define "specialty" however it likes while setting the prices however they choose – we should expect them to find ways to extract profit at every step. The “bargain” for patients is not there.

Read the full analysis at 46brooklyn.com.