US Health Insurers Face Scrutiny Over PBM Rebate Practices
A new report alleges UnitedHealth, CVS, and Cigna used obscure Swiss-based subsidiaries to retain billions in drug rebates, intensifying pressure on the managed care sector.
A detailed investigation has brought fresh scrutiny to the opaque world of pharmacy benefit managers (PBMs), accusing some of the largest U.S. healthcare conglomerates of using a network of shell-like companies in Switzerland to divert billions of dollars in drug rebates away from clients and patients.
The report, published by investigative outlet Hunterbrook Media, alleges that UnitedHealth Group (NYSE: UNH), CVS Health (NYSE: CVS), and The Cigna Group (NYSE: CI) — which collectively control over 80% of the U.S. prescription drug market — established and utilized these entities to circumvent promises of passing on 100% of rebates to their health plan customers.
At the heart of the allegations are three obscure, low-profile group purchasing organizations (GPOs) reportedly based in Switzerland: Emisar for UnitedHealth's Optum Rx, Zinc for CVS's Caremark, and Ascent for Cigna's Express Scripts. According to the investigation, these GPOs contract with drug manufacturers to secure rebates, then allegedly retain a significant portion of those funds as administrative fees before passing the remainder back to the PBMs. This structure, the report claims, allows the parent companies to profit from rebates while maintaining that their PBM subsidiaries are passing all rebates through.
Despite the serious nature of the allegations, shares of the companies involved showed relative stability in recent trading. UnitedHealth Group, a $304 billion behemoth, saw its stock rise modestly. Cigna and CVS Health, with market capitalizations of $76 billion and $101 billion respectively, also posted small gains, suggesting investors may be adopting a wait-and-see approach to potential regulatory fallout.
However, the report adds significant fuel to an already intense firestorm of criticism surrounding PBMs. These powerful intermediaries in the healthcare system have long been criticized by lawmakers, regulators, and pharmaceutical companies for their role in inflating drug prices. Their business practices are currently the subject of a major investigation by the Federal Trade Commission (FTC), and members of Congress have held numerous hearings aimed at bringing transparency and reform to the industry.
The use of foreign-based entities to handle rebates could amplify regulatory risk, inviting investigations into anti-kickback statutes and fiduciary responsibilities. The complexity and opacity of these arrangements, as detailed in the Hunterbrook report, which drew on internal documents and interviews with former executives, play directly into the narrative that PBMs operate with minimal transparency to their own financial benefit.
For years, employers and health plan sponsors have questioned the flow of funds in their pharmaceutical supply chain. The report notes that some health plans have successfully Clawed back millions of dollars after audits uncovered these GPO arrangements. The new allegations could embolden more clients to pursue legal action and demand greater clarity in their contracts.
As Washington continues its broad crackdown on healthcare costs, the detailed claims against Optum Rx, CVS Caremark, and Express Scripts provide a specific and potentially explosive new avenue for legislative and regulatory action. The market's muted initial reaction belies the significant legal and operational risks that now hang over the managed care and PBM sector.