The 38,000% Markup

Many companies view their employee health benefits as an unavoidable, fixed cost that simply increases every year. But what actually drives up those expenses? One factor is Pharmacy Benefit Managers (PBMs).

James Murray joined a recent episode of Moving to Value Unscripted to dig deeper. Drawing on decades of Wall Street capital markets and risk-management experience, James detailed how plan sponsors can leverage public filings, new transparency mandates and direct contracting with local independent pharmacies to break free from corporate middlemen.

The Markups Sitting in Plain Sight

Employers don’t need to look far to uncover the source of their rising drug costs. The evidence is already sitting in public Department of Labor filings and recent court records. Under ERISA, self-insured plans submit an annual Form 5500. When James audited five-year trends for real self-insured employers, the patterns were unmistakable:

• Explosive Fee Growth: Across those plans, PBM compensation on flat covered-life populations climbed more than 90% over five years.

• The $6,229 Generic: In the closely watched ERISA case Stern v. JPMorgan Chase, a prohibited-transaction claim advanced after plaintiffs alleged that the plan paid $6,229 for a 30-unit prescription of a generic multiple sclerosis drug that pharmacies acquire for roughly $16 — a markup of about 38,000%. The same prescription can be filled in cash, without insurance, for $11 to $35 at ordinary retail pharmacies.

• The Disclosure Gap: PBM compensation is often listed as zero or even as a negative number because rebates flow back to the carrier rather than the employer's plan.

The Legal Catalyst: ERISA and CAA 2026

The landscape for plan sponsors shifted dramatically following landmark legal rulings and statutory changes. Under the U.S. Supreme Court’s Cunningham v. Cornell University ruling, plaintiffs asserting prohibited-transaction claims under ERISA face a significantly lower pleading bar, allowing claims regarding excessive service-provider compensation to proceed to discovery.

As demonstrated in Stern v. JPMorgan Chase, courts are now letting suits against self-insured employers proceed when PBMs extract unreasonable compensation through spread pricing and retained rebates out of plan assets.

At the same time, the Consolidated Appropriations Act requires full fee disclosures on PBM contracts. This transforms the Form 5500 from a routine compliance document into an active bargaining tool at the renewal table.

The Blueprint: Direct Contracting with Independent Pharmacies

To bypass carrier-loyal Third-Party Administrators (TPAs) and opaque PBM pricing, James advocates for a direct-contracting model. Industry-wide, specialty medications now drive roughly half of total drug spend — a share heading toward 60%.

At the individual plan level the concentration is sharper: a small number of high-cost drugs can account for as much as 80% of a single employer's pharmacy spend. Employers can carve out the high-cost categories an independent or compounding pharmacy can actually dispense — GLP-1s, hormone therapy, compounds, and high-markup generics — and route them locally on transparent pricing schedules.

By working with aligned TPAs to administer these carve-outs, employers can protect their bottom line, fulfill their legal fiduciary duties and keep healthcare dollars circulating within their local communities.

Catch our full conversation with James to learn more.

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