Pharmaceutical Manufacturers Cross the Rubicon

As early as 2018, Pfizer’s then-CEO predicted the eventual demise of manufacturer rebates.¹ Lilly’s CEO followed soon after, alongside veiled references from other leaders in the brand manufacturing sector. Rebates were created to allow price discrimination, in which the same product or service can be offered to different customers at different prices. Starting with the Medicaid rebate program in 1991, which allowed pharmaceutical manufacturers to avoid direct negotiations with the US government, rebates have become the norm up and down the supply chain.² They spread quickly in the 1990s to most transactions, from manufacturer to wholesaler to group purchasing organization to pharmacy, as well as to health plans and employers. By 2018, manufacturer CEOs began to realize that the rebate system had gotten so out of control that it was costing them more than it was benefiting them.

Price-to-Net Becomes Untenable

Why had rebates become a bad deal for manufacturers? In short, the price discrimination that had worked in their favor for so many years began to be turned against them. Pharmacy benefit managers (PBMs) became increasingly adept, bold, and cunning in extracting rebates from manufacturers, regardless of value to the marketplace. In many instances, drugs with better value and cost-effectiveness were placed on second- or third-tier status or were not covered at all unless manufacturers offered more sizable rebates to secure a position on formularies and cost shares that patient-consumers believe are more favorable. Now, in 2026, the gross-to-net gap has reached eye-popping levels, with reports that manufacturers of popular diabetes medications are now retaining only 30% to 40% of every dollar they take in after sending money to the PBM (and others in the form of rebates) under the current and conventional spreadsheet war rules.³

GLP-1s Break the Bank With Highly Effective, High-Demand Product Category

Glucagon-like peptide-1 (GLP-1) medications are truly a blockbuster category. They have a distinctive clinical and economic profile that has hastened the collapse of the hidden rebate system—a model built on deliberate opacity that allowed PBMs to profit from obscured pricing for the past 25 years. Diabetes was just the start. Weight loss followed. Now, early data on a host of other conditions, such as heart disease and substance use disorder, are encouraging, and we can expect many more labels to be earned. Altogether, it is quite possible that more than 50% of the US population would be candidates for a GLP-1 under label, not just with off-label prescribing, which is already happening with the longevity medicine and general wellness practices alongside a boom in microdosing.

We’ve had highly effective medication categories before, such as β-blockers for the “silent killer” of hypertension. But weight is not silent, and no other category of drugs has had the powerful feedback loop of the patient standing on a scale each morning and seeing the number drop nearly every day, resulting not only in weight loss and downstream health impacts across multiple conditions, but life-changing visual and functional changes. GLP-1 pills are well on their way to continued demand acceleration, with JP Morgan predicting a $200 billion global market for GLP-1s by 2030, including more than 1 in 8 adults in the US.⁴

GLP-1s Become a Trojan Horse for PBM Workaround

Prior to GLP-1s’ popularity, industry insiders winced at the notion of patients paying more than $100 to $200 out of pocket for a medication. However, consumer demand has been so high that the price elasticity of GLP-1s has proven to be much, much greater, with many middle-income households willing to pay up to $500 out of pocket each month. With an increasing proportion of patients using health savings accounts and the uninsured population growing due to recent Medicaid cuts, paying full price for GLP-1s has become commonplace. Why bother using pharmacy insurance if you cannot get the medication approved by the PBM? Even if it is covered, it can often be a very laborious process to get a GLP-1 claim accepted, and when it is, it can often be a similar out-of-pocket amount as the going cash price using the manufacturer’s direct program or its extensions at some chain pharmacies. Pharmaceutical manufacturers have determined that, at least for GLP-1s, selling directly to patients at or slightly above their net price—after rebates and fees—yields comparable revenue to what they would have received had the prescription been successfully processed through a PBM.

Pharmaceutical Manufacturers Cross the Rubicon With Employers

For the past few years, manufacturers have tested the edges of the traditional supply chain and insurance system but have largely limited direct sales to cash-paying and uninsured patients. At the same time, they have tacitly allowed compounders to bring millions of patients onto GLP-1s at affordable prices. This appears to be a deliberate strategy: Manufacturers know that patients who start on these medications tend to stay on them, and that once the FDA cracks down on mass compounding, many of those patients will need to transition to brand-name products. By letting compounders handle patient acquisition, manufacturers are quietly building a large installed base, including patients with employer-sponsored insurance, while avoiding the contractual and legal complications that would arise if they had sold to those patients directly.

And now they have indeed crossed the Rubicon. Beginning in January, Novo Nordisk and Lilly began courting large, self-insured employers, who are themselves on the hook for drug costs, to offer manufacturer-to-employer programs and the claims processing systems necessary to support them.⁵ This action strikes straight at the midship of the PBM boat since the majority of PBM profits to date have been from retained rebates and group purchasing arrangements that could become worthless with this new approach. As a growing number of states have carved pharmacy benefits out of Medicaid managed care contracts, and with GLP-1 medications now subject to Medicare's transparent maximum fair price negotiations, Employee Retirement Income Security Act of 1974–governed employer health plans have become the last major arena where PBMs can still profit from opaque pricing, hidden rebates, and black-box contracting in what is poised to become the largest drug class in history by total purchase volume.⁶

What Might Come Next?

In response, Cigna has already indicated that it will end rebate opacity and provide upfront rebates for some plan types in 2027.⁷ It moved quickly to avoid losing primacy of relationship with plans and employers before the manufacturer end-around metastasizes to more classes of medications. Expect rebate transparency (or outright rebate extinction among private plans) to spread across many other PBMs, because cutting out the PBM entirely from the coverage process is an existential threat to the PBM industry. Most medications filled in the US are already “zero-claim” drugs in which the claim is adjudicated and a fee is charged, but no insurance coverage is provided. If branded drugs are displaced and rebates can no longer be credibly presented as delivering the best available price, what value proposition does the PBM have left to offer?

Tens of thousands of employees at the largest PBMs have already lost their jobs as executive leadership prepares for a fundamental squeeze on the middleman model—one driven by forced transparency that may ultimately push PBMs back to their original purpose: efficiently adjudicating claims on behalf of insurers, government programs, and employer-sponsored health plans.^8,9

REFERENCES

1. Taylor SI. The high cost of diabetes drugs: disparate impact on the most vulnerable patients. Diabetes Care. 2020;43(10):2330-2332. doi:10.2337/dci20-0039

2. Summary of 1990 Medicaid drug rebate legislation. ASHP Government Affairs Division. Am J Hosp Pharm. 1991;48(1):114-117.

3. Hedt S. Why is insulin so expensive? middlemen take half the profit. USC Today. November 5, 2021. Accessed March 23, 2026. https://today.usc.edu/insulin-costs/

4. How demand for (and supply of) weight loss drugs is playing out in 2026. JP Morgan. February 27, 2026. Accessed March 23, 2026. https://www.jpmorgan.com/insights/global-research/current-events/obesity-drugs

5. Bilodeau K. Lilly, Novo test direct-to-employer approach that could cut out PBMs and lower costs. PharmaVoice. January 14, 2026. Accessed March 23, 2026. https://www.pharmavoice.com/news/lilly-novo-direct-employer-drug-cost-pbm-consumer/809575/

6. Herges JR, Neumiller JJ, McCoy RG. Easing the financial burden of diabetes management: a guide for patients and primary care clinicians. Clin Diabetes. 2021;39(4):427-436. doi:10.2337/cd21-0004

7. Roy S. Cigna ends drug rebates in some types of health plans. Reuters. Updated October 27, 2025. Accessed March 23, 2026. https://www.reuters.com/business/healthcare-pharmaceuticals/cigna-will-end-drug-rebates-many-private-health-plans-2027-bloomberg-news-2025-10-27/

8. Steinzor P. CVS to lay off nearly 3000 employees as part of cost-saving initiative. AJMC. October 1, 2024. Accessed March 23, 2026. https://www.ajmc.com/view/cvs-to-lay-off-nearly-3000-employees-as-part-of-cost-saving-initiative

9. Wilkerson J. Pfizer CEO predicts rebate extinction will benefit biosimilar development. Inside Health Policy. July 31, 2018. Accessed March 23, 2026. https://insidehealthpolicy.com/inside-drug-pricing-daily-news/pfizer-ceo-predicts-rebate-extinction-will-benefit-biosimilar