“If you’re saving companies millions, how does everyone still make money?”
By Rachel Strauss
What does the color pink or glitter have in common with pharmacy benefits? Rachel has spent more than 20 years trying to answer that – and, while the answer may still be vague – she enjoys claiming the throne as the PBM Princess on a mission to find out.
A friend asked me a question recently that made me stop mid-sip of my iced coffee.
She said:
“If employers and patients can save so much money on healthcare and prescriptions, how are all these (pharmacy) companies still making money?”
And honestly?
Its valid.
Because every time I tell someone I’ve helped uncover hundreds of thousands or even millions of dollars in healthcare savings, the immediate reaction is:
“Wait. If that money can be saved, where is it going now?”
Excellent question.
Let’s follow the money.
Imagine Buying a Pair of Shoes
You know I can’t resist a shopping analogy.
Let’s say you want a pair of fabulous shoes.
The manufacturer makes them.
A distributor moves them.
A retailer sells them.
A marketing company promotes them.
A shipping company delivers them.
Everyone along the way earns money for the role they play.
Healthcare works similarly.
The difference?
When you buy shoes, you usually know what they cost.
In healthcare, most people have absolutely no idea.
Who Makes Money In Healthcare?
Let’s simplify the cast of characters.
Drug Manufacturers
These are the companies that actually create medications.
Their revenue comes from selling drugs.
No surprise there.
Pharmacies
The pharmacy dispenses the medication.
They earn money through dispensing fees and the difference between what they pay for medications and what they’re reimbursed.
Wholesalers and Distributors
These companies move medications from manufacturers to pharmacies.
Think FedEx, but for pharmaceuticals.
They make money handling and distributing products.
Insurance Companies
Insurers collect premiums and manage risk.
The healthier their population and the better they manage costs, the more profitable they can be.
Pharmacy Benefit Managers (PBMs)
PBMs administer prescription drug benefits on behalf of employers and health plans.
They negotiate contracts, build pharmacy networks, process claims, manage formularies, and monitor safety.
Some PBMs make money through administrative fees.
Others make money through rebates, spread pricing, data arrangements, or various contractual structures.
The details vary widely from PBM to PBM.
And that’s where things often get interesting.
So If Everyone Is Making Money, Where Do The Savings Come From?
Here’s the biggest misconception:
Savings don’t always come from someone losing money.
Many savings come from eliminating inefficiencies.
Think about airline tickets.
Two people can sit next to each other on the same flight and pay wildly different prices.
Healthcare often works the same way.
The exact same medication can cost dramatically different amounts depending on:
The contract
The pharmacy
The PBM
The network
The manufacturer arrangement
The purchasing strategy
The drug didn’t change.
The patient didn’t change.
The path the money took changed.
The $500 Handbag Problem
Let’s say I walk into a boutique and buy a handbag for $500.
Then I discover the exact same bag online for $250.
The store didn’t steal from me.
The handbag isn’t suddenly worthless.
I simply paid more because I didn’t know there was another option.
Healthcare is full of these moments.
Not because every company is acting maliciously.
But because the system is incredibly complicated and often lacks transparency.
Why Can A “Broken” System Support So Many Profitable Companies?
Because complexity creates opportunity.
Every layer solves a problem.
Manufacturers create drugs.
Distributors move products.
Pharmacies dispense medications.
PBMs administer benefits.
Insurers manage risk.
Employers fund coverage.
Each participant provides value.
The challenge isn’t that companies make money.
The challenge is when buyers can’t clearly see what they’re paying for.
Imagine going to dinner and receiving a bill with no itemization.
You don’t know what the steak cost.
You don’t know what the drinks cost.
You don’t know whether you were charged twice for dessert.
You just get a total.
That’s how many employers feel when they look at healthcare spending.
The Goal Isn’t To Eliminate Profit
This is where healthcare conversations often go sideways.
The goal isn’t to put pharmaceutical companies, PBMs, insurers, pharmacies, or distributors out of business.
The goal is to create alignment.
Companies should absolutely earn money for providing value.
But employers and patients should understand:
What they’re buying
What they’re paying
Who is being compensated
Whether the arrangement makes sense
That’s not anti-business.
That’s good business.
So What Does It Mean When We Find Savings?
It doesn’t necessarily mean someone was doing something wrong.
It usually means there was a better path available.
A better contract.
A better purchasing strategy.
A better network.
A better level of transparency.
A better way to move dollars through the system.
The healthcare industry often talks about costs.
What we should be talking about is value.
Because the real question isn’t:
“Who is making money?”
The real question is:
“Who is creating value—and can we see it?”
Once you can answer that question, healthcare starts making a whole lot more sense.
