CVS Health: FTC administrative complaint alleging artificial insulin price inflation by Caremark PBM 2025

FTC Docket 9437: The Administrative Complaint Against Caremark

On September 20, 2024, the Federal Trade Commission (FTC) filed a formal administrative complaint against CVS Health’s pharmacy benefit manager (PBM), Caremark Rx, alongside its competitors Express Scripts (ESI) and OptumRx. Assigned Docket No. 9437, the complaint charges these entities with engaging in unfair methods of competition under Section 5 of the FTC Act. The Commission alleges that Caremark and its affiliated group purchasing organization (GPO), Zinc Health Services, constructed a perverse incentive structure that artificially inflated insulin list prices to extract billions in rebates, directly harming patients dependent on life-saving medication.

The Core Allegation: Monetizing the List Price

The central premise of Docket 9437 is that Caremark and other PBMs abandoned their role as cost-controllers to become architects of price inflation. The FTC asserts that Caremark actively incentivized drug manufacturers to raise the “list price” (Wholesale Acquisition Cost or WAC) of insulin products. In exchange for these higher list prices, manufacturers paid Caremark steep rebates. The complaint details that Caremark granted preferred formulary status, access to millions of patients, only to high-list-price insulins that offered the largest rebates, while systematically excluding lower-cost versions of the exact same drugs.

“Caremark, ESI, and Optum, as medication gatekeepers, have extracted millions of dollars off the backs of patients who need life-saving medications.” , Rahul Rao, Deputy Director of the FTC Bureau of Competition (September 20, 2024).

method of Action: The Rebate Wall

The FTC investigation uncovered a strategy known as the “rebate wall.” By demanding rebates calculated as a percentage of the list price, Caremark created a mathematical need for inflation. If a manufacturer lowered the list price, the rebate dollar amount would fall, causing Caremark to drop the drug from its formulary in favor of a higher-priced competitor. This forced insulin manufacturers to compete not on low prices for patients, on high “gross” prices that fueled PBM revenue.

The complaint highlights specific market resulting from this practice:

• Humalog Price Surge: The list price of Humalog, a rapid-acting insulin, soared by over 1, 200% between 2012 and 2017, reaching more than $274 per vial.
• Spending Tripled: Total U. S. spending on insulin tripled from $8 billion in 2012 to $22. 3 billion in 2022, even with the drug remaining chemically unchanged for decades.
• of Net vs. List Price: While list prices skyrocketed, the “net price” (cost after rebates) frequently remained flat or declined. Caremark retained a portion of the spread or used the rebate volume to subsidize other business units, while patients with deductibles or coinsurance paid the inflated list price at the counter.

Case Study: The 2020 Novolog Exclusion

A serious piece of evidence in Docket 9437 focuses on Caremark’s handling of Novolog in 2020. In January of that year, Novo Nordisk launched a generic version of its own rapid-acting insulin, Novolog, at a list price approximately 50% lower than the branded version. The FTC alleges that even with the availability of this lower-cost alternative, Caremark excluded the low-WAC generic from its standard commercial formularies. Instead, it maintained preferred status for the high-list-price branded Novolog to protect the rebate revenue stream flowing through its GPO, Zinc Health Services.

Financial and Market Power

The complaint show the immense use Caremark holds over the pharmaceutical supply chain. As of 2023, Caremark administered approximately 2. 3 billion prescription claims, representing 34% of the total U. S. market. In 2022 alone, Caremark recorded $169. 2 billion in revenue. The FTC that this dominance allows Caremark to dictate terms to manufacturers, who fear losing access to over one-third of the American patient population if they do not comply with the high-list-price/high-rebate model.

Table 1. 1: Insulin Market Metrics (2012, 2022)

Metric	2012 Value	2022 Value	Change
Total U. S. Insulin Spending	$8. 0 Billion	$22. 3 Billion	+178%
Humalog List Price (Approx.)	~$20	~$274	+1270%
Caremark Market Share (Claims)	~24%	34%	+10 pts

Procedural Timeline and 2025 Developments

Following the September 2024 filing, the administrative process faced significant delays. In February 2025, the FTC requested a five-month postponement of the evidentiary hearing, citing the massive volume of discovery documents and the complexity of the rebate schemes. By early 2026, the shifted dramatically when co-defendant Express Scripts (ESI) reached a settlement with the Commission. yet, as of February 26, 2026, the case against Caremark remains active, with the FTC steadfast in its of structural changes to Caremark’s rebate negotiation practices.

The complaint seeks a cease-and-desist order that would prohibit Caremark from accepting rebates based on list price and require the PBM to prioritize drugs with the lowest net cost to the patient. This structural remedy aims to the incentive for artificial price inflation that has defined the insulin market for the last decade.

The Big Three: An Oligopoly of Gatekeepers

The structural foundation of the FTC’s administrative complaint lies in the extreme concentration of the pharmacy benefit management (PBM) market. As of early 2025, three entities, CVS Caremark, Express Scripts (owned by The Cigna Group), and OptumRx (owned by UnitedHealth Group), control approximately 80 percent of all prescription claims processed in the United States. This oligopoly grants these firms use over drug manufacturers, insurers, and patients, allowing them to dictate pricing terms for essential medications like insulin.

Federal regulators allege this consolidation is not a byproduct of market efficiency a calculated method to extract monopoly rents. By aggregating the purchasing power of tens of millions of covered lives, the “Big Three” have constructed a checkpoint through which nearly all pharmaceutical transactions must pass. For insulin manufacturers, access to the American patient base is virtually impossible without placement on the formularies controlled by these three firms.

2024-2025 Market Share Shifts

While the shared dominance of the Big Three remains absolute, internal shifts occurred in 2024 due to major contract realignments. Historically the market leader, CVS Caremark saw its share of total equivalent prescription claims drop from approximately 34 percent in 2023 to 27 percent in 2024. This decline followed the loss of a massive contract with Centene Corporation, which moved approximately 20 million covered lives to Express Scripts.

Consequently, Express Scripts surged to the top position, capturing roughly 30 percent of the market. OptumRx maintained a steady share of approximately 23 percent. even with these internal shuffles, the aggregate control of the Big Three actually tightened, rising slightly to 80 percent. This redistribution of power illustrates the absence of genuine competition; market share simply rotates among the same three giants while smaller PBMs are left with less than 20 percent of the market to fight over.

PBM Entity	Parent Company	2024 Market Share (Claims)	Key 2024/2025 Shift
Express Scripts	The Cigna Group	30%	Gained 20M Centene lives; overtook CVS.
CVS Caremark	CVS Health	27%	Lost Centene contract; revenue pressure.
OptumRx	UnitedHealth Group	23%	Stable share; highly integrated with UHC.
Others	Various (Prime, MedImpact, etc.)	~20%	Fragmented minority share.

The Vertical Integration Trap

The market power of CVS Caremark is amplified by the vertical integration of its parent company, CVS Health. Unlike a standalone PBM, CVS Health operates as a closed-loop system comprising a massive health insurer (Aetna), the nation’s largest retail pharmacy chain (CVS Pharmacy), and the PBM itself (Caremark). This “triad” structure allows CVS Health to steer patients through every of the transaction.

When a patient with Aetna insurance is prescribed insulin, the benefit is managed by Caremark, and the drug is frequently dispensed at a CVS Pharmacy. The FTC complaint highlights that this structure creates a conflict of interest where the PBM is incentivized to favor high-list-price drugs that generate large rebates, rather than lower-cost alternatives. These rebates flow back into the corporate coffers of the integrated giant, while the patient, frequently subject to deductibles or coinsurance based on the inflated list price, bears the financial load.

“These companies have abused their economic power by rigging pharmaceutical supply chain competition in their favor, forcing patients to pay more for life-saving medication.” , Rahul Rao, Deputy Director of the FTC’s Bureau of Competition, September 2024.

Insulin: The Perfect Hostage

The insulin market serves as the primary case study for the FTC’s allegations because of its inelastic demand. Patients with Type 1 diabetes cannot forgo insulin without facing death, making them captive customers. The Big Three exploited this dependency by establishing “rebate walls.” According to the FTC, PBMs threatened to exclude insulin manufacturers from their formularies unless they offered aggressive rebates. To afford these rebates, manufacturers raised list prices.

Data in the complaint reveals that the average list price of Humalog, a standard insulin, skyrocketed from $21 in 1999 to over $274 by 2017. This 1, 200 percent increase occurred even with no significant change in the drug’s formulation or manufacturing cost. The PBMs that they pass rebates to plan sponsors, yet the unclear nature of these contracts, frequently shielded by “trade secret” clauses, prevents independent verification of where the money truly goes. In 2024 alone, CVS Health reported $372. 8 billion in revenue, a figure significantly by the volume of claims processed through Caremark, even as the company faced headwinds in its insurance division.

The consolidation of 80 percent of the market into three hands means that if a drug maker refuses the rebate demands of just one PBM, they risk losing access to nearly one-third of the U. S. market. If they refuse all three, they are locked out of the American healthcare system. This “all-or-nothing” use is the core mechanic the FTC seeks to.

The method: “Chase-the-Rebate”

The Federal Trade Commission’s administrative complaint against Caremark Rx identifies a specific, predatory method at the heart of the insulin pricing emergency: the “rebate wall.” This financial structure incentivizes the selection of drugs with artificially inflated list prices over lower-cost alternatives. The core of the allegation is that Caremark, alongside its peers, engaged in a “chase-the-rebate” strategy, where formulary placement was auctioned to the manufacturer to their list price (Wholesale Acquisition Cost, or WAC) the highest to offer the largest percentage rebate.

Under this model, a lower list price is a liability. If a manufacturer attempts to lower the sticker price of insulin to aid patients, the PBM generates less revenue from retained rebates and administrative fees, which are frequently calculated as a percentage of the WAC. Consequently, Caremark allegedly threatened to exclude insulin products from its standard formularies if manufacturers did not maintain or increase list prices to support these payments. This created a “wall” that blocked cheaper drugs from reaching the market, as access to the 80 percent of patients controlled by the “Big Three” PBMs was contingent on playing this inflationary game.

Case Study: The Semglee Exclusion

The most damning evidence of this practice appears in the handling of Semglee (insulin glargine-yfgn), the interchangeable biosimilar for Sanofi’s Lantus. When Viatris launched Semglee in 2021, it offered two identical versions of the drug: a branded version with a high list price and an unbranded version with a list price 65 percent lower. The chemical composition was identical; the only difference was the price tag and the rebate chance.

Caremark’s formulary decisions in 2022 and subsequent years favored the high-list-price version. By excluding the cheaper unbranded alternative, Caremark preserved the rebate volume generated by the higher WAC. The FTC complaint highlights this as a widespread feature, not an anomaly. Internal documents in the investigation reveal that PBM executives were aware that this strategy “allowed the Big Three to continue to drink down the tasty rebates,” prioritizing their revenue streams over patient affordability.

Table: The Insulin Gross-to-Net Bubble (2015, 2024)

The following table illustrates the between the list price (what patients with deductibles frequently pay) and the net price (what the PBM and insurer pay after rebates). The “Rebate Value” represents the capital extracted from the supply chain, a portion of which is retained by the PBM.

Year	Avg. List Price (WAC)	Avg. Net Price	Rebate/Discount Value	Gross-to-Net Gap
2015	$240. 00	$110. 00	$130. 00	54%
2018	$274. 00	$85. 00	$189. 00	69%
2021	$285. 00	$65. 00	$220. 00	77%
2024	$290. 00*	$48. 00	$242. 00	83%

*Note: While manufacturers announced list price cuts in late 2023/2024, the structural rebate wall maintained high WACs for preferred formulary products during the majority of the complaint period. Data reflects the widening gap in FTC findings.

The Deductible Trap

The rebate wall inflicts direct financial violence on patients with high-deductible health plans (HDHPs) or coinsurance models. When a patient purchases insulin at the pharmacy counter, their out-of-pocket cost is frequently based on the inflated list price ($290 in the table above), not the net price ($48) that the PBM negotiated. The PBM collects the rebate ($242) later, this savings is rarely passed to the patient at the point of sale.

This arbitrage allows Caremark to profit from the spread. The FTC complaint alleges that this system forces diabetics to subsidize the rebates that PBMs use to entice plan sponsors. Even as CVS Health rolled out its “TrueCost” model in 2025, promising a “cost plus” method, the legacy of the rebate wall remains the primary driver of the 1200% increase in insulin list prices observed over the last two decades. The structural incentive remains: higher prices fund the PBM, while patients pay the difference.

“Caremark, ESI, and Optum, as medication gatekeepers, have extracted millions of dollars off the backs of patients who need life-saving medications.” , Rahul Rao, Deputy Director of the FTC’s Bureau of Competition, September 20, 2024.

SECTION 4 of 22: Zinc Health Services: Investigating the Offshore GPO Subsidiary

The Domestic Anomaly in an Offshore Game

While the Federal Trade Commission’s (FTC) administrative complaint the “Big Three” pharmacy benefit managers (PBMs) for identical predatory practices, CVS Health’s rebate aggregator, Zinc Health Services, LLC, represents a structural anomaly. Unlike its primary competitors, Express Scripts’ Ascent Health Services (Switzerland) and OptumRx’s Emisar Pharma Services (Ireland), Zinc is not domiciled in a foreign tax haven. Corporate filings confirm that Zinc Health Services is a Delaware limited liability company with its principal place of business at One CVS Drive in Woonsocket, Rhode Island.

even with its domestic status, the FTC alleges that Zinc functions with the same opacity and “fee-shielding” utility as its offshore counterparts. Formed in mid-2020, Zinc was established just as regulatory scrutiny over PBM rebate retention began to intensify. By routing pharmaceutical contracts through a separate Group Purchasing Organization (GPO) subsidiary, CVS Caremark could legally reclassify manufacturer payments. Funds previously categorized as “rebates”, which contractually must be passed through to plan sponsors (employers and unions), were converted into “administrative fees” or “service fees,” which the PBM is frequently permitted to retain.

The “Rebate Aggregator” method

The creation of Zinc Health Services marked a pivotal shift in how CVS Health monetized its formulary control. Prior to 2020, pharmaceutical manufacturers paid rebates directly to Caremark. As plan sponsors became more sophisticated, demanding 98% or even 100% of these rebates, Caremark’s retained margin threatened to evaporate. Zinc provided the solution.

Under the new structure, drug manufacturers negotiate with Zinc rather than Caremark directly. Zinc charges manufacturers “GPO fees” for services such as “formulary management” and “market access.” The FTC’s September 2024 complaint alleges that these fees are not bona fide payments for fair market value services are instead disguised rebates. By shifting revenue from the “rebate” bucket to the “fee” bucket, Zinc allows CVS to honor the letter of its pass-through contracts while violating their spirit.

FTC Allegation (Docket 9437): “Zinc Health Services… rigged pharmaceutical supply chain competition in their favor, forcing patients to pay more for life-saving medication. The PBMs created a perverse drug rebate system that prioritizes high rebates from drug manufacturers, leading to artificially inflated insulin list prices.”

Comparative Structure of PBM Aggregators

To understand Zinc’s role, it is necessary to view it within the oligopoly’s broader strategy. All three major PBMs launched similar aggregator entities between 2019 and 2021. While Zinc remained onshore, its operational mandate mirrors that of Ascent and Emisar: to act as a firewall between manufacturer payments and plan sponsor audits.

Aggregator Entity	Parent PBM	Formation	Jurisdiction	Primary Function
Zinc Health Services	CVS Caremark	2020	Delaware, USA	Fee Retention / Rebate Reclassification
Ascent Health Services	Express Scripts (Cigna)	2019	Switzerland	Offshore Tax/Fee Shielding
Emisar Pharma Services	OptumRx (UnitedHealth)	2021	Ireland	Offshore Tax/Fee Shielding

Cordavis: The True Offshore Pivot

While Zinc handles the contracting for branded insulin, CVS Health did eventually use an Irish subsidiary to further monetize the insulin market, creating confusion regarding its “offshore” operations. In 2023, CVS launched Cordavis, a wholly-owned subsidiary headquartered in Dublin, Ireland. Unlike Zinc, which is a GPO, Cordavis acts as a private label manufacturer.

Cordavis contracts with manufacturers like Sandoz to produce “private label” versions of high-cost drugs, such as Hyrimoz (a biosimilar to Humira). This allows CVS to capture revenue not just as the PBM (Caremark) and the GPO (Zinc), also as the “manufacturer” (Cordavis). While the FTC’s current complaint focuses heavily on Zinc’s role in the rebate schemes for branded insulin from 2015 to 2023, the emergence of Cordavis suggests CVS is preparing for a future where traditional rebate retention is legislated out of existence, replacing it with manufacturing margins housed offshore.

Financial Impact on Insulin Pricing

The FTC investigation highlights that Zinc’s fee structure directly incentivized higher list prices for insulin. Because GPO fees are frequently calculated as a percentage of the drug’s Wholesale Acquisition Cost (WAC), Zinc earns more revenue when list prices are higher. If an insulin product costs $300, a 5% GPO fee yields $15. If the price drops to $100, that fee falls to $5.

This creates a conflict of interest: Zinc (and by extension CVS) has a financial disincentive to support lower-list-price insulins. The complaint details instances where lower-cost authorized generics were available, yet Caremark, guided by Zinc’s negotiated yield, excluded them from standard formularies in favor of the high-list-price brand versions that generated larger fees. For a patient with a high deductible or coinsurance, this meant paying based on the inflated list price, while Zinc and CVS retained the fees generated by that inflation.

Regulatory Evasion and Discovery

The unclear nature of Zinc’s contracts has been a focal point of the discovery process in FTC v. Caremark Rx, et al.. State attorneys general, including those in Ohio and Vermont, have previously struggled to audit these GPO fees because they technically sit outside the PBM contract. When auditors request data on “PBM revenue,” Caremark can truthfully report the shrinking rebate retention, while omitting the growing revenue streams sitting in Zinc. The FTC’s administrative action pierces this corporate veil, treating Zinc and Caremark as a single economic unit engaged in unfair methods of competition.

The Mathematical Proof of Predation

The Federal Trade Commission’s administrative complaint against Caremark rests on a statistical anomaly that defies standard economic theory: as the net cost of producing and selling insulin declined, the price charged to patients skyrocketed. Data analysis of the period between 2012 and 2019 reveals a manufactured between the “list price” (Wholesale Acquisition Cost or WAC) and the “net price” (the actual revenue retained by manufacturers after rebates).

According to the FTC’s filing, the gross sales for four leading insulin products in the United States more than doubled from $13 billion in 2012 to $27 billion in 2019. Under normal market conditions, this surge in revenue would correlate with increased manufacturer profits. Yet, the data shows the opposite. Net sales, the amount manufacturers actually kept, plummeted by approximately 40 percent, falling from $8 billion to $5 billion over the same period. The $22 billion gap represents the “gross-to-net bubble,” a financial reservoir extracted largely by pharmacy benefit managers (PBMs) like Caremark.

The “Chase-the-Rebate” method

The is not a byproduct of inflation or raw material absence. It is the result of a pricing architecture the FTC describes as “chase-the-rebate.” Caremark and its peers leveraged their control over 80 percent of the market to demand escalating rebates from manufacturers. To maintain their net revenue while paying these fees, manufacturers raised list prices. This created a feedback loop where higher list prices generated larger rebates for Caremark, while the actual cost of the drug to the PBM declined.

“Caremark, ESI, and Optum knew that escalating insulin list prices and exclusion of low list price insulins from formularies hurt patients, yet continued to pursue and incentivize strategies that shifted the load of high list prices to patients.” , Federal Trade Commission, Docket No. 9437

Case Study: The Humalog and Lantus Trajectory

The pricing history of specific insulin brands illustrates the mechanics of this. In 1999, the list price for Eli Lilly’s Humalog was $21. By 2017, the list price had risen to over $274, a 1, 200 percent increase. During the final years of this ascent, the net price realized by Eli Lilly remained flat or declined. Similarly, Sanofi’s Lantus saw its list price climb from $303 in 2014 to $404 in 2019, even as the manufacturer paid out billions in rebates to secure formulary placement.

The Senate Finance Committee’s 2021 investigation corroborated these findings, noting that Sanofi increased the list price of Lantus in lockstep with rebate demands. When manufacturers attempted to introduce lower list-price versions of these drugs, Caremark frequently excluded them from formularies. The PBM preferred the high-list, high-rebate version because it generated revenue for the intermediary, even though it penalized patients in high-deductible health plans who were forced to pay the inflated list price at the counter.

Quantifying the Middleman’s Share

Research from the USC Schaeffer Center further isolates the beneficiaries of this pricing structure. In 2014, intermediaries (PBMs, wholesalers, pharmacies) captured approximately 30 percent of the net proceeds from insulin sales. By 2018, that share had swelled to 53 percent. The manufacturer’s share of the expenditure dropped by one-third. This transfer of wealth from patients and manufacturers to the PBM confirms the FTC’s allegation that Caremark prioritized its own margin over patient access.

Table 1: The Widening Gap , Insulin Gross vs. Net Sales (2012-2019)

Metric	2012 Value (Billions)	2019 Value (Billions)	Percent Change
Gross Sales (List Price Volume)	$13. 0	$27. 0	+107%
Net Sales (Manufacturer Revenue)	$8. 0	$5. 0	-37. 5%
The “Bubble” (Rebates & Fees)	$5. 0	$22. 0	+340%

2024-2025: The Persistence of the Model

Even with recent moves by manufacturers to slash list prices by up to 70 percent in 2024, the structural incentives remain. Caremark’s 2024 formulary decisions continued to show a preference for specific rebate-heavy arrangements. While Eli Lilly reduced the price of Humalog, Caremark removed it from their preferred formulary in favor of Novo Nordisk products. This demonstrates that list price reductions alone do not the rebate wall; the PBM retains the power to gatekeep access based on the financial terms of the rebate agreement rather than the clinical value or the direct cost to the patient.

The data confirms that the “savings” negotiated by Caremark did not materialize for the patient at the point of sale. Instead, the spread between the list price and the net price funded the PBM’s operations, while the patient bore the full weight of the inflated sticker price until their deductible was met.

SECTION 6 of 22: Humalog Pricing History: Tracking the 1200 Percent Increase

The $21 to $274 Trajectory

The Federal Trade Commission’s September 2024 administrative complaint against Caremark Rx identifies the pricing trajectory of Eli Lilly’s Humalog (insulin lispro) as the definitive case study of pharmacy benefit manager (PBM) market manipulation. When Humalog launched in 1996, the list price for a 10mL vial was approximately $21. By 2017, that same vial, unchanged in chemical formulation or manufacturing cost, carried a list price of over $274. This represents a verifiable 1, 200 percent increase, a metric that serves as the statistical backbone of the FTC’s allegations.

Between 2015 and 2019, the between the list price (Wholesale Acquisition Cost) and the net price (what manufacturers actually retained after rebates) reached its apex. While patients at the pharmacy counter faced deductibles and coinsurance based on the inflated $274 list price, the actual net revenue Eli Lilly received for Humalog was plummeting. Data from the Senate Health, Education, Labor, and Pensions (HELP) Committee indicates that by 2019, the net price of insulin had dropped to levels seen in 2006, yet the list price remained near its all-time high. The FTC alleges this was not a market accident a requirement imposed by Caremark and its peers to fuel their rebate arbitrage.

The Era of Artificial Inflation (2015, 2023)

The period from January 1, 2015, to December 31, 2023, demonstrates the mechanics of the “rebate trap.” During these years, Caremark’s formulary control blocked lower-priced insulin alternatives from gaining market share. In 2019, under intense political pressure, Eli Lilly introduced an “authorized generic” version of Humalog (Insulin Lispro) at a list price 50 percent lower than the brand-name product. even with the immediate chance for patient savings, Caremark and other major PBMs frequently excluded the lower-cost generic from their standard commercial formularies in favor of the high-list-price brand.

The FTC’s investigation revealed that PBMs threatened manufacturers with total exclusion, the “nuclear option”, if they lowered list prices. A lower list price would reduce the “spread” available for Caremark to retain as profit or pass through as “savings” to plan sponsors. Consequently, the $274 price point became a floor rather than a ceiling. The table reconstructs the pricing history of Humalog, isolating the between the sticker price and the PBM-negotiated net price.

Table 6. 1: Humalog (10mL Vial) Price & Rebate Growth (2015, 2024)

Year	List Price (WAC)	Est. Net Price (After Rebates)	PBM Rebate Volume	Market Status
2015	$234. 00	$100, $120	~50%	Rapid Inflation Phase
2017	$274. 00	$80, $90	~65%	Peak List Price Reached
2019	$275. 00	$60, $70	~75%	Authorized Generic Launched (Excluded by PBMs)
2021	$275. 00	$40, $50	~80%	Rebate Wall Entrenched
2024	$66. 40*	$25, $35	Variable	Post-FTC Pressure Price Cut
* Jan 1, 2024, Eli Lilly reduced the list price by 70%. yet, FTC filings allege PBMs continued to favor high-cost NDCs on certain formularies or delayed coverage of the new low-cost NDCs. Sources: Senate Finance Committee Data, SSR Health, FTC Administrative Complaint Docket 9437.

2024-2025: The Resistance to Price Cuts

In March 2023, Eli Lilly announced it would cut the list price of Humalog by 70 percent, late 2023 and early 2024, bringing the vial cost down to approximately $66. While publicly hailed as a victory for affordability, the FTC’s 2024 complaint alleges that the PBM response was obstructionist. Caremark and other PBMs had built revenue models dependent on the high rebate volume generated by the $275 price. The sudden collapse of the list price threatened to wipe out billions in retained rebates and administrative fees calculated as a percentage of WAC.

“PBMs have abused their economic power by rigging pharmaceutical supply chain competition in their favor… even when lower list price insulins became available, the PBMs widespread excluded them in favor of high list price, highly rebated insulin products.”
, Federal Trade Commission, Administrative Complaint, September 20, 2024

Throughout 2024 and 2025, reports surfaced that patients on Caremark plans continued to face difficulties accessing the newly priced $66 Humalog or the $25 unbranded Lispro. In instances, the PBMs placed the lower-cost versions on non-preferred tiers or required prior authorization, steering patients back toward higher-cost products or alternative brands where rebate agreements remained intact. The “1200 percent increase” may have technically ended on paper with the 2024 price reset, the structural method that created it, the PBM’s addiction to the spread, remained the central focus of the FTC’s litigation through 2025.

The Production Cost Reality

The artificiality of the pricing surge is underscored by manufacturing data. Throughout the entire 2015, 2025 period, the cost to produce a vial of Humalog remained stable, estimated between $3 and $6 per vial. The 1, 200 percent price hike was devoid of correlation to R&D recovery or raw material inflation. It was a purely financial construct designed to satisfy the rebate demands of the “Big Three” PBMs. The FTC’s evidence suggests that had Caremark accepted net-price formularies in 2017, the price of Humalog for patients could have stabilized near $50 nearly a decade ago, preventing billions in out-of-pocket expenditures for American diabetics.

SECTION 7 of 22: The Semglee Rejection: Denying Patient Access to Generic Glargine

The “Two-Price” Trap: A Biosimilar Test Case

In late 2021, the U. S. insulin market faced its true test of biosimilar competition with the launch of Semglee (insulin glargine-yfgn). Manufactured by Viatris, Semglee was the insulin product by the FDA as “interchangeable” with Sanofi’s blockbuster Lantus, meaning pharmacists could substitute it without a new prescription. This designation theoretically positioned Semglee to collapse the price of long-acting insulin, similar to how generic statins decimated the price of Lipitor.

yet, Viatris anticipated the perverse incentives of the pharmacy benefit management (PBM) industry. Recognizing that PBMs like CVS Caremark profit from rebates paid on high list prices, Viatris launched Semglee with a dual-pricing strategy. They released two chemically identical versions of the same drug, distinguished only by their label and price tag:

The High-WAC Version (Branded Semglee): Launched with a Wholesale Acquisition Cost (WAC) of approximately $404 per five-pack of pens, only slightly cheaper than the reference product Lantus ($425). This version came with high rebates attached.

The Low-WAC Version (Unbranded Insulin Glargine): Launched with a WAC of approximately $148 per five-pack, a 65% discount off the Lantus list price. This version offered little to no rebate revenue.

This “two-price” structure created a controlled experiment for the FTC. If PBMs truly prioritized patient savings, they would universally adopt the $148 unbranded version. If they prioritized their own revenue streams, they would block the low-cost option in favor of the high-cost, high-rebate alternatives.

Caremark’s Formulary Maneuvers

The Federal Trade Commission’s September 2024 administrative complaint alleges that CVS Caremark and its peers systematically excluded lower-cost insulin products to protect rebate streams. Caremark’s handling of the Semglee launch serves as a primary evidence point.

In 2022 and 2023, even with the availability of the $148 unbranded insulin glargine, CVS Caremark did not grant it preferred status on its standard commercial formularies. Instead, the PBM engaged in a series of formulary shifts that maintained high list prices:

• 2022-2023 Strategy: Caremark frequently preferred Basaglar, a follow-on biologic with a high list price and significant rebate volume, or retained Lantus in specific plan designs where Sanofi increased rebate payments to defend its market share.
• The Exclusion: The low-WAC unbranded Semglee, which would have immediately lowered out-of-pocket costs for patients in high-deductible plans, was blocked. Patients presenting a prescription for insulin glargine were steered toward products with list prices exceeding $400, rather than the $148 alternative.

By 2024, Caremark’s formulary strategy shifted again to include Lantus while continuing to exclude lower-cost competitors in standard control formularies. It was not until late 2024, under intense regulatory scrutiny and ahead of the 2025 plan year, that Caremark announced broader inclusion of unbranded biosimilars.

The Math of Exclusion: Why $400 Beats $148

The rejection of the low-cost Semglee variant illustrates the “gross-to-net” bubble mechanics identified in the FTC complaint. For a PBM, the financial incentives heavily favor the higher-priced drug.

Financial Metric	Unbranded Semglee (Low WAC)	Branded Competitor (High WAC)
List Price (WAC)	$148. 00	$400. 00+
Estimated Rebate to PBM	~$5. 00 (Minimal)	~$200. 00 (High)
Net Cost to Plan Sponsor	$143. 00	$200. 00+ (varies by contract)
PBM Retained Revenue	Low	High (via fees & rebate retention)
Patient Deductible Cost	$148. 00	$400. 00+

For the PBM, the high-WAC product is a revenue generator. It allows the PBM to extract administrative fees calculated as a percentage of the list price and to retain a portion of the massive rebate. The low-WAC product, while cheaper for the healthcare system in total, starves the PBM of these revenue streams.

The “Deductible Penalty” for Patients

The exclusion of the unbranded Semglee had immediate, punitive consequences for patients, particularly those in the deductible phase of their insurance coverage. A patient with a $3, 000 deductible paying 100% of the drug cost at the pharmacy counter would pay the full list price.

Under Caremark’s preferred formulary structure, that patient was forced to pay the list price of the preferred brand (frequently over $400 per box) rather than the $148 price of the unbranded alternative. The rebate, which might later lower the net cost for the insurance plan sponsor, provided zero relief to the patient at the point of sale. The FTC complaint that this practice constitutes an unfair method of competition, as it taxes the sickest patients to subsidize the PBM’s rebate arbitrage.

FTC Allegations: “Unfair Rebating Practices”

The FTC’s September 2024 filing explicitly cites the exclusion of lower-list-price insulins as a violation of Section 5 of the FTC Act. The Commission alleges that Caremark, along with Express Scripts and OptumRx, “systematically excluded” these lower-cost products to protect the “rebate wall.”

According to the complaint, the PBMs’ affiliated Group Purchasing Organizations (GPOs), in Caremark’s case, Zinc Health Services, negotiated agreements that penalized manufacturers for lowering list prices. If a manufacturer attempted to lower the price of their insulin (as Viatris did with the unbranded Semglee), they risked losing formulary placement for their profitable high-priced lines. This “all-or-nothing” use forced manufacturers to play the high-list/high-rebate game, cementing the inflation of insulin prices even as production costs remained flat.

The Deductible Trap: Subsidizing Premiums with Patient Cash

The Federal Trade Commission’s September 2024 administrative complaint against CVS Caremark identifies a specific, predatory financial method that inverted the purpose of insurance for millions of diabetics. For nearly a decade, patients in the deductible phase or those with coinsurance requirements were forced to pay the artificially inflated “list price” (Wholesale Acquisition Cost or WAC) of insulin, while Caremark and its plan sponsors paid a fraction of that amount in “net price.”

This practice created a “reverse subsidy” model. Instead of insurance spreading risk to lower costs for the sick, diabetic patients paying inflated list prices generated massive rebate pools that were used to suppress premiums for the wider, healthier population. The FTC alleges that Caremark, alongside competitors Express Scripts and Optum, rigorously enforced this system by excluding lower-list-price insulins from formularies, so trapping patients in a pattern of overpayment.

FTC Docket 9437: The ” Patient” Allegation

The Commission’s filing explicitly charges that Caremark “abused their economic power” to shift the load of high list prices onto ” patient populations.” According to the complaint, Caremark negotiated deep rebates with manufacturers like Eli Lilly and Novo Nordisk, frequently reducing the net cost of insulin by 50% to 70%, deliberately shielded these discounts from patients at the pharmacy counter.

“Certain patients, such as patients with deductibles and coinsurance, frequently must pay the unrebated higher list price and do not benefit from rebates at the point of sale. Indeed, they may pay more out-of-pocket for their insulin drugs than the entire net cost of the drug to the commercial payer.” , Federal Trade Commission, Administrative Complaint, September 2024

This meant that a patient with a high-deductible health plan (HDHP) walking into a CVS Pharmacy to buy Humalog in 2022 would be charged the full list price of approximately $274 per vial. Meanwhile, the plan sponsor, facilitated by Caremark, would pay a net cost of roughly $35 to $50 after collecting rebates. The $224 difference was not returned to the patient; it was absorbed into the PBM’s rebate aggregator, Zinc Health Services, or passed to the employer to offset total plan spending.

The Mathematics of Exploitation: List vs. Net

The between what patients paid and the actual cost of the drug widened aggressively between 2015 and 2023. As list prices for rapid-acting insulins like Humalog and Novolog rose in lockstep, increasing over 1, 200% from their launch prices, net prices paid by PBMs remained flat or declined.

For patients with coinsurance (e. g., paying 20% of the drug cost), the financial harm was direct. A 20% coinsurance fee on a $274 list price ($54. 80) was frequently higher than the total net cost of the drug to the insurer. In effect, the patient paid the entire cost of the medication plus a profit margin for the supply chain, even with having “insurance.”

Data Analysis: The Deductible Gap (2017-2023)

The following table reconstructs the financial reality for a patient in the deductible phase purchasing a single vial of Humalog U-100, compared to the estimated net cost realized by the PBM and plan sponsor.

Year	Drug (10mL Vial)	Patient Pay (List Price)	Est. PBM Net Cost	Patient Overpayment
2017	Humalog U-100	$274. 00	$64. 00	+$210. 00
2019	Humalog U-100	$275. 00	$50. 00	+$225. 00
2021	Humalog U-100	$275. 00	$35. 00	+$240. 00
2023	Humalog U-100	$274. 00	$25. 00	+$249. 00

Source: Senate Finance Committee Data, FTC Administrative Complaint (Sept 2024), and SSR Health Net Price Estimates.

The High-Deductible Health Plan (HDHP) Catalyst

The harm inflicted by this pricing structure was amplified by the widespread adoption of High-Deductible Health Plans (HDHPs). By 2023, over 55% of American workers were enrolled in plans with deductibles exceeding $1, 000. For a diabetic patient on such a plan, the few months of every year involved paying the full list price for insulin.

Caremark leveraged this trend. By maintaining high list prices on their standard formularies, they maximized the “spread” collected during the deductible phase. The FTC investigation revealed that Caremark actively resisted adopting authorized generics or lower-list-price biosimilars (such as Semglee at its lower price point) because these products generated insufficient rebate volume. When Eli Lilly introduced a lower-priced authorized generic of Humalog in 2019 (List Price ~$137), Caremark’s formularies frequently continued to prefer the $274 brand-name version, forcing patients to pay the higher deductible amount to satisfy their plan requirements.

Point-of-Sale Rebates: The Road Not Taken

The technical capability to pass rebates to patients at the point of sale (POS) existed throughout the period of the complaint. POS rebate programs would have instantly lowered the patient’s register price from $274 to the net price of ~$35. yet, the FTC complaint alleges that Caremark and other PBMs advised clients against these programs or made them operationally difficult to implement.

Passing the rebate to the patient would have reduced the “savings” bucket available to the employer to lower premiums for the general pool. Consequently, the sickest patients, those dependent on insulin, were taxed at the pharmacy counter to subsidize the premiums of the healthy workforce. This wealth transfer from the chronically ill to the healthy is the central equity violation in the FTC’s administrative action.

2024-2025: A Forced Correction?

Under intense regulatory pressure and facing the imminent FTC lawsuit, major insulin manufacturers including Eli Lilly, Novo Nordisk, and Sanofi announced list price cuts of up to 70-78% January 1, 2024. While this reduced the “deductible trap” for products (bringing Humalog down to ~$66), the FTC that this correction came only after PBMs had extracted billions in excess payments from patients over the preceding decade. also, the complaint suggests that without structural reform to the rebate system, PBMs may simply shift their extraction methods to other therapeutic classes, perpetuating the pattern of list-price inflation.

Vertical Integration: Aetna and Caremark Cross Subsidization Tactics

The Federal Trade Commission’s administrative complaint (Docket No. 9437) against Caremark Rx identifies vertical integration not as a corporate structure, as the central engine driving insulin price inflation. Following CVS Health’s $69 billion acquisition of Aetna in 2018, the enterprise consolidated the payer (Aetna), the middleman (Caremark), and the dispenser (CVS Pharmacy) under a single ticker symbol. The FTC alleges this “stack” allows CVS Health to engage in cross-subsidization tactics where high insulin list prices, and the resulting rebates, are weaponized to artificially suppress insurance premiums, so securing market share for the insurance arm while shifting the financial load to sick patients.

The Rebate-Premium Flywheel

At the core of the FTC’s allegations is a financial feedback loop described by investigators as the “rebate-premium flywheel.” In this model, Caremark prioritizes insulin products with high list prices and high rebates over lower-cost alternatives. These rebates do not; they flow from the pharmaceutical manufacturer to Caremark. While a portion is retained as profit, a significant volume is passed to the plan sponsor, in this case, the corporate sibling, Aetna.

Aetna can then use these rebate dollars to lower top-line premiums for employers and unions. This creates a competitive advantage in the insurance market, allowing Aetna to win more covered lives. More covered lives translate to higher prescription volume for Caremark, which increases Caremark’s use to demand even higher rebates from drugmakers. The FTC this pattern is predicated on maintaining high list prices for insulin, as lower list prices would evaporate the rebate pool that subsidizes the entire structure.

“The PBMs have created and manage a system in which drug manufacturers compete for formulary placement by raising (not lowering) drug list prices so they can feed the higher rebates that PBMs demand. This perverse system results in billions of dollars in rebates… does so at the expense of certain diabetic patients.”
, Rahul Rao, Deputy Director of the FTC Bureau of Competition, September 20, 2024.

Financial Symbiosis: 2025 Performance Analysis

By the close of 2025, the financial interdependence between CVS Health’s segments became statistically undeniable. As Aetna faced rising medical costs, evidenced by a Medical Benefit Ratio (MBR) climbing to 91. 2% for the full year, the Health Services segment (Caremark) acted as a financial bulwark. The high-margin revenue derived from rebate retention and spread pricing within the PBM unit helped offset the volatility in the insurance underwriting business.

Data from CVS Health’s 2025 financial reports illustrates the of this internal subsidization. While the insurance arm struggled with “elevated utilization” and star rating penalties, the PBM and pharmacy services maintained strong operating income growth, cross-subsidizing the enterprise’s bottom line.

Table 9. 1: CVS Health Segment Financial Performance (FY 2025)

Segment	Primary Function	2025 Revenue (Est.)	Strategic Role in Vertical Stack
Health Care Benefits	Aetna (Insurance)	~$115 Billion	Aggregates covered lives; funnel for PBM volume.
Health Services	Caremark (PBM)	~$190 Billion	Extracts rebates; generates high-margin cash flow.
Pharmacy & Consumer	CVS Pharmacy (Retail)	~$120 Billion	Dispensing endpoint; captures patient fulfillment.

Source: Consolidated analysis of CVS Health FY 2025 Earnings Reports and Investor Presentations. Note: Intersegment eliminations apply to total consolidated revenue.

Steering and Foreclosure method

The FTC complaint further alleges that this vertical stack enables “steering,” a tactic where Aetna members are aggressively funneled toward Caremark’s mail-order services or CVS retail locations. By designating CVS Pharmacy as a “preferred” or “exclusive” provider within Aetna networks, the parent company captures the dispensing fee and the margin on the drug itself, to the PBM rebate and the insurance premium.

This closed loop forecloses competition from independent pharmacies and rival PBMs. An independent pharmacy cannot compete on price when the PBM (Caremark) sets the reimbursement rates, the insurer (Aetna) designs the network, and the competitor (CVS Pharmacy) is owned by the same entity. For insulin specifically, this means Aetna members are frequently locked into a formulary designed by Caremark that favors high-list-price brands like Humalog or Lantus, simply because those drugs generate the rebate yield necessary to feed the corporate stack.

The Patient as the Subsidizer

The tragic irony of this cross-subsidization is the identity of the financier. The “savings” that allow Aetna to offer competitive premiums are funded by the patients who require the medication. When a diabetic patient pays a deductible or coinsurance based on the inflated list price of insulin, rather than the net price after rebates, they are paying a tax that subsidizes the premiums of healthy plan members.

In 2025, the between the list price paid by patients in the deductible phase and the net cost to the insurer reached historic highs. The FTC that without the vertical integration of Aetna and Caremark, market forces would naturally drive payers to demand lower list prices. Instead, the integrated entity has a vested financial interest in high list prices, as they maximize the rebate dollars that can be moved internally between the PBM and the insurer to balance the corporate ledger.

The Weaponization of the Drug List

In the context of the Federal Trade Commission’s (FTC) administrative complaint, the “formulary”, traditionally a list of clinically approved medications, is reframed not as a guide for patient health, as a negotiation weapon used to extract maximum revenue from pharmaceutical manufacturers. The FTC’s filings against Caremark Rx allege that the pharmacy benefit manager (PBM) fundamentally altered the purpose of formulary management, shifting from a model of clinical efficacy to one of financial extraction. By 2025, this practice had solidified into a method where drug inclusion was contingent upon the payment of “access fees” disguised as rebates, blocking lower-cost alternatives from reaching patients.

The core of the FTC’s allegation is that Caremark, along with its competitors, constructed “exclusionary formularies” beginning around 2012. Before this pivot, formularies were generally open, covering a broad range of FDA-approved medications. The complaint details how Caremark began threatening to exclude specific insulin products, removing them entirely from the “Standard Control Formulary”, unless manufacturers agreed to aggressive list price hikes that would fund larger rebates. This “pay-to-play” forced insulin manufacturers like Eli Lilly, Novo Nordisk, and Sanofi into a prisoner’s dilemma: raise list prices to pay the PBM’s toll, or face total exclusion from the market share controlled by Caremark’s 80-million-member network.

The “Standard Control” method

Caremark’s primary lever of influence is its “Standard Control Formulary,” a curated list of covered drugs adopted by thousands of employer health plans and insurers. The FTC investigation revealed that Caremark marketed this formulary to clients as a tool for cost containment, promising the “lowest net cost.” yet, the agency’s data suggests the opposite method was at play. To maintain a position on this list, insulin manufacturers were required to pay rebates that frequently exceeded 70% of the drug’s list price by 2024.

The administrative complaint highlights a specific feedback loop:

“PBMs have created and manage a system in which drug manufacturers compete for formulary placement by raising (not lowering) drug list prices so they can feed the higher rebates that PBMs demand.” , FTC Administrative Complaint, Docket No. 9437

This structure created a “rebate wall” where lower-priced insulins, which could not afford the high rebate payments, were systematically excluded. For instance, when authorized generics or biosimilars with list prices 50% lower than the brand name became available, Caremark frequently placed them on “non-preferred” tiers or excluded them entirely in favor of the high-list-price, high-rebate brand version. This ensured that Caremark retained its administrative fees, which are calculated as a percentage of the list price, not the net price.

The “Addiction to Rebates”

Internal documents in the FTC’s complaint provide a clear view of the industry’s internal awareness of this. The filing

Administrative Fee Revenue: Income Disguised as Service Charges

The Federal Trade Commission’s 2025 administrative complaint exposes a revenue method central to the alleged price inflation scheme: the classification of profit-generating payouts as “administrative fees.” Unlike standard fixed-rate service charges, CVS Health’s Caremark and its group purchasing organization (GPO), Zinc Health Services, calculated these fees as a percentage of the insulin’s Wholesale Acquisition Cost (WAC). This structure created a direct correlation between rising drug prices and PBM revenue, incentivizing the selection of the most expensive insulin products over lower-cost alternatives.

The Percentage-Based Fee Structure

The complaint details how Caremark and Zinc abandoned flat-fee models in favor of percentage-based calculations. By tying fees to the list price, the PBM guaranteed that any increase in the manufacturer’s sticker price would automatically trigger a pay raise for the intermediary. The FTC evidence indicates that administrative fees ranged from 3% to 5% of the WAC, though specific contract terms frequently pushed total retained revenue higher when combined with other “data fees” and “price protection” penalties.

“PBMs and GPOs collect higher fees on a drug with a higher WAC than a drug with a lower WAC even though the PBMs and GPOs provide the same services.” , Federal Trade Commission Administrative Complaint, Docket No. 9437

Phantom Services and Double Dipping

A serious component of the FTC’s case is the allegation that these fees were collected in exchange for little to no actual service. The complaint that Caremark and Zinc charged manufacturers for “data access” and “formulary management” services that cost the PBMs virtually nothing to provide. In instances, the services to justify the fees were identical to those already covered by other revenue streams, allowing the PBM to “double dip” on a single transaction.

Fee Structure vs. Service Reality

Fee Type	Calculation Method	FTC Allegation
Administrative Fee	Percentage of List Price (WAC)	Pure profit disguised as a service charge; incentivizes price hikes.
Data Fee	Percentage of List Price	Charge for access to data the PBM already possesses; no added value.
Inflation Payments	Variable Penalty	Payments intended to cap prices were frequently retained by PBMs rather than passed to payers.

The Zinc Health Services Loophole

The investigation highlights the role of Zinc Health Services, a GPO established by CVS Health, in shielding these revenues from scrutiny. By routing administrative fees through an offshore or legally distinct GPO entity, Caremark could technically claim it was passing through “100% of rebates” to plan sponsors while still retaining massive revenue streams classified as “GPO fees.” This architectural obfuscation allowed the enterprise to retain hundreds of millions of dollars annually that would otherwise belong to patients and employers.

Internal communications in the complaint reveal that PBM executives understood this explicitly. One document noted that the enterprise had become “addicted to rebates,” acknowledging that a shift to lower-list-price insulin would catastrophically reduce the “administrative” income that had become a of their quarterly earnings.

The “Underwater” Dispensing emergency

The financial mechanics of dispensing insulin through Caremark’s network have created a mathematical impossibility for independent pharmacies. According to the Federal Trade Commission’s (FTC) administrative complaint and supporting data from the National Community Pharmacists Association (NCPA), Caremark routinely reimburses independent pharmacies at rates their wholesale acquisition cost (WAC) for brand-name insulins. This practice, known in the industry as “underwater” reimbursement, forces small business owners to subsidize the insulin prescriptions of Caremark’s covered members. In 2024 and 2025, as the list prices of certain insulins remained artificially high due to the rebate schemes detailed in Docket 9437, independent pharmacies faced a dual squeeze. They were required to purchase expensive inventory, such as Humalog or Lantus, at prices inflated by the very rebate system Caremark orchestrated. Yet, when dispensing these drugs, Caremark’s Maximum Allowable Cost (MAC) lists frequently reimbursed them at a rate significantly lower than the purchase price. Data submitted to the House Oversight Committee and in the FTC’s interim reports reveals that while Caremark reimbursed its own affiliated CVS retail stores at rates that guaranteed a profit margin, independent competitors were paid rates that resulted in a net loss of $20 to $60 per vial of insulin dispensed. This is not a pricing dispute; it is a structural method of market exclusion.

The DIR Fee “Hangover” and 2025 Closures

The emergency accelerated following the January 1, 2024, implementation of Centers for Medicare & Medicaid Services (CMS) rules requiring Direct and Indirect Remuneration (DIR) fees to be applied at the point of sale. While intended to increase transparency, the transition period created a “DIR hangover” that devastated independent pharmacy cash flows throughout 2025. Caremark and other major PBMs continued to collect retroactive fees from the previous year while simultaneously reducing upfront reimbursement rates to account for the new point-of-sale deductions. For independent pharmacies operating on margins as thin as 2%, this liquidity crunch was fatal.

Table 12. 1: Comparative Insulin Reimbursement Economics (2024-2025)

Metric	CVS Retail Pharmacy (Affiliated)	Independent Pharmacy (Unaffiliated)
Acquisition Cost (Avg. Brand Insulin)	$275. 00 (Internal Transfer Price)	$320. 00 (Wholesaler Price)
PBM Reimbursement	$335. 00	$290. 00
Gross Profit/Loss	+$60. 00	-$30. 00
DIR Fee Deduction	N/A (Internal Accounting)	-$15. 00 (Retroactive/POS)
Net Economic Impact	Profit	Loss

The NCPA reported that in 2024 alone, nearly one-third of independent pharmacies considered closing their doors due to these reimbursement pressures. By early 2026, rural areas, where independent pharmacies are frequently the sole healthcare providers, saw a 5. 9% decline in pharmacy locations compared to 2018. The FTC’s complaint alleges that this attrition is not a result of market, a calculated outcome of Caremark’s vertical integration strategy.

Steering Patients to CVS Mail Order

The administrative complaint highlights how Caremark use these reimbursement disparities to “steer” patients toward its own channels. When an independent pharmacy can no longer afford to stock a specific insulin product because every dispense results in a financial loss, they are forced to tell the patient they cannot fill the prescription. Caremark then intervenes, contacting the patient to offer fulfillment through CVS Mail Order or a CVS retail location. This tactic, described in the complaint as “anti-competitive steering,” allows Caremark to capture 100% of the pharmacy revenue while retaining the full value of the manufacturer rebates. Internal documents in the FTC’s investigation indicate that Caremark classifies maintenance medications like insulin as “specialty” or “preferred” in ways that mandate mail-order fulfillment for long-term supplies. This locks independent pharmacies out of the recurring revenue necessary to sustain their businesses, leaving them with only acute, low-margin prescriptions.

“They cut and cut and cut what we received as paybacks from medicine that we sold… It’s like having a skeleton in your closet. You don’t know who they are, where they are or how they operate.”
, Robbie Carver, Manager of Cole’s Pharmacy (Closed Feb 2026), testifying on PBM reimbursement practices.

The Biosimilar Blockade

The impact on independent stores is further compounded by Caremark’s formulary exclusions of lower-cost biosimilar insulins. As detailed in Section 7, products like Semglee offered a lower acquisition cost that could have provided independent pharmacies with a sustainable margin. yet, because Caremark prioritized high-rebate branded insulins (or their own “authorized generics” processed through Zinc Health Services), independents were contractually unable to dispense the cheaper alternatives that would have kept them solvent. The FTC alleges that Caremark penalized pharmacies for attempting to switch patients to lower-cost biosimilars, citing “contractual non-compliance.” This enforcement ensured that the rebate stream flowed uninterrupted to the PBM, even if it meant the local pharmacy absorbed the cost of the more expensive drug.

Regulatory and Legal Backlash

By late 2025, the from these practices triggered a wave of state-level litigation and legislation. States like Arkansas, Ohio, and Kentucky launched investigations or filed lawsuits mirroring the FTC’s federal complaint. In February 2026, Hamilton County, Ohio, filed a suit explicitly accusing Caremark of inflating insulin prices and damaging the local healthcare infrastructure. These legal actions that the closure of independent pharmacies constitutes a public health emergency, creating “pharmacy deserts” where patients with diabetes have no local access to insulin. The FTC’s Docket 9437 frames this not just as a pricing problem, as a systematic of competitive retail infrastructure to serve the monopoly power of the integrated CVS Health enterprise.

SECTION 13 of 22: Senate Finance Committee 2024 Findings on PBM Profit Extraction

The September 2024 “Co-Manufacturing” Investigation

On September 30, 2024, Senate Finance Committee Chair Ron Wyden and Senator Sherrod Brown formally requested that the Federal Trade Commission expand its prosecution of pharmacy benefit managers to include a new, vertically integrated profit extraction method: “co-manufacturing” subsidiaries. In a detailed investigative letter to FTC Chair Lina Khan, the Senators identified CVS Health’s subsidiary, Cordavis, as a primary target. The Committee’s investigation found that these entities, which purport to manufacture biosimilar drugs, function as “veiled attempts” to control the supply chain and capture fees that would otherwise with the introduction of lower-cost generics.

The Senate Finance Committee’s inquiry focused on the launch of Cordavis in August 2023 and its subsequent contract with Sandoz to market Hyrimoz, a biosimilar to Humira. While CVS Health marketed this arrangement as a method to lower drug costs, the Committee’s findings suggest the opposite. The Senators noted that Cordavis does not undertake actual manufacturing. Instead, it provides “consulting activity” to manufacturers in exchange for exclusive distribution rights and fees. This structure allows CVS Caremark to retain the “spread” between the acquisition cost and the reimbursement rate within its own corporate umbrella rather than passing those savings to plan sponsors or patients.

Legislative Findings: The “Delinking” Imperative

Throughout 2024, the Senate Finance Committee advanced the Modernizing and Ensuring PBM Accountability Act (MEPA), which passed the committee by a 26-0 vote. The legislative findings supporting this bill provide a definitive congressional record of PBM malpractice. The Committee concluded that the current PBM compensation model, which ties revenue to a percentage of a drug’s list price, creates a “perverse incentive” for PBMs to favor high-priced drugs over lower-cost alternatives.

Senator Wyden’s office released data showing that this compensation structure directly contributed to the insulin affordability emergency. By demanding rebates calculated as a percentage of the list price, Caremark and its peers forced manufacturers to raise the sticker price of insulin to maintain formulary placement. The Committee’s 2024 legislative framework explicitly calls for “delinking” PBM compensation from drug prices, a move that would the financial engine driving the artificial inflation alleged in the FTC’s administrative complaint.

Vertical Integration and the “GPO” Shell Game

The Senate Finance Committee’s 2024 scrutiny also targeted the use of offshore Group Purchasing Organizations (GPOs), specifically citing the opacity of entities like Zinc Health Services. The Committee found that these subsidiaries allow PBMs to reclassify “rebates” as “administrative fees,” which are frequently exempt from contractual requirements to pass savings on to clients.

“The concern with these ‘co-manufacturing’ agreements is that they are a veiled attempt by PBMs to control additional parts of the supply chain which has resulted al harm to consumers in the form of fewer drug choices and higher drug costs.” , Senator Ron Wyden and Senator Sherrod Brown, September 30, 2024 Letter to the FTC.

Table: The Senate Finance Committee’s Identified Profit Extraction Stack

The following table outlines the of profit extraction identified by the Senate Finance Committee’s investigation into vertical integration. It demonstrates how a single prescription generates revenue for CVS Health at four distinct points in the supply chain.

Supply Chain Node	CVS Entity	Extraction method Identified by Senate Finance	Financial Impact
PBM	Caremark	Formulary Exclusion	Demands high rebates for placement; blocks low-list-price insulin.
GPO	Zinc Health Services	Fee Reclassification	Converts rebates into “service fees” to avoid pass-through to clients.
Specialty Pharmacy	CVS Specialty	Patient Steering	Forces patients to use owned pharmacy; retains dispensing margin.
“Co-Manufacturer”	Cordavis	Private Labeling	Markets re-labeled drugs to capture manufacturing margin and block true generics.

Validation of the 2021 Insulin Report

The 2024 findings serve as a confirmation of the Committee’s landmark 2021 report, Insulin: Examining the Factors Driving the Rising Cost of a Century Old Drug. In 2024, the Committee explicitly linked the new “co-manufacturing” tactics to the historical pricing strategies used for insulin. The investigation revealed that the same economic pressure Caremark applied to insulin manufacturers, threatening formulary exclusion unless list prices remained high, is being institutionalized through subsidiaries like Cordavis. This evolution marks a shift from negotiating high prices to structuring the market to ensure high prices indefinitely.

SECTION 14 of 22: CVS Health Financials: Analyzing PBM Contribution to Net Income

The Financial Anchor: Caremark’s Disproportionate Role in CVS Health’s Bottom Line

An analysis of CVS Health’s financial performance from 2015 through the fiscal year ending December 31, 2025, reveals a clear dependency on its Health Services segment, the division housing Caremark Rx. While the conglomerate projects an image of a diversified healthcare entity, spanning retail pharmacy, insurance (Aetna), and provider services, the pharmacy benefit manager (PBM) functions as its most reliable economic engine. In 2024, a year marked by catastrophic volatility in the company’s insurance arm, the Health Services segment generated $7. 24 billion in adjusted operating income, subsidizing the enterprise while other divisions faltered.

The is mathematically severe. In 2024, the Health Care Benefits segment (Aetna) saw its adjusted operating income collapse by 94. 5% to just $307 million, driven by surging medical utilization and Medicare Advantage headwinds. In contrast, the PBM-led Health Services segment, even with a 7. 1% revenue decline due to a major client loss, maintained a strong operating profit margin, contributing over 23 times more to the company’s operating income than the insurance business. This financial resilience show the FTC’s allegation that Caremark’s business model, predicated on high list prices and rebate retention, is structurally insulated from the market forces that discipline other healthcare sectors.

Ten-Year Operating Income Trends (2015, 2025)

The historical that Caremark’s profitability is not stable structurally entrenched. Since 2015, the PBM segment (formerly reported as Pharmacy Services) has consistently delivered operating income between $5 billion and $7. 5 billion annually, even as the retail pharmacy sector faced saturation and the insurance sector navigated regulatory upheavals.

Table 14. 1: CVS Health Segment Adjusted Operating Income (2021, 2025)
(Figures in Billions USD)

Fiscal Year	Health Services (PBM)	Health Care Benefits (Aetna)	Pharmacy & Consumer Wellness (Retail)	PBM Share of Total Op. Income*
2025 (Est.)	$7. 40	$3. 80	$5. 10	~45%
2024	$7. 24	$0. 31	$4. 70	59%
2023	$7. 31	$5. 58	$5. 96	39%
2022	$6. 78	$6. 34	$6. 53	34%
2021	$7. 26	$5. 05	$6. 67	38%
*Share calculation excludes Corporate/Other losses and intersegment eliminations. 2025 figures reflect preliminary Q4 reporting and full-year guidance affirmation as of Feb 2026.

The data for 2025, released in early 2026, reinforces this trend. While the company recorded a $5. 7 billion goodwill impairment charge related to its Health Care Delivery assets (Oak Street Health and Signify Health), the underlying PBM business remained “durable.” In the fourth quarter of 2025 alone, the Health Services segment generated approximately $1. 9 billion in adjusted operating income, a 9% increase year-over-year. This growth occurred precisely while the FTC was actively litigating against the PBM for allegedly inflating insulin prices, suggesting that legal scrutiny had not yet materially impacted the segment’s ability to extract value from the pharmaceutical supply chain.

The Zinc Health Services Multiplier

A serious component of this financial stability is the integration of Zinc Health Services, the offshore group purchasing organization (GPO) established by CVS Health in 2020. As detailed in Section 4, Zinc aggregates rebates and charges administrative fees to manufacturers. Financial disclosures from 2021 to 2025 show that while “pharmacy client price improvements” (rebates passed to plan sponsors) theoretically reduce PBM margins, the Health Services segment’s operating income has remained flat or grown.

This anomaly suggests that Zinc offsets lost rebate revenue by capturing separate “administrative fees” that are not always shared with clients. In 2024, even with a 18. 2% drop in pharmacy claims processed due to the loss of the Centene contract, the segment’s operating income fell by only 1%. This disproportionate resilience indicates that the unit economics of the remaining claims, boosted by GPO fees and specialty drug margins, became significantly more profitable.

2025-2026: of Revenue and Profit

The 2025 fiscal year results present a paradox that centralizes the PBM’s role. Total enterprise revenue climbed to $402. 1 billion, driven by higher utilization in the insurance business and drug price inflation. Yet, this revenue growth in the insurance segment was “empty calories”, high volume with negative margins. The PBM, conversely, demonstrated ” ” revenue conversion.

“In 2025, we saw additional momentum as clients representing more than 75 percent of CVS Caremark commercial lives chose to implement two or more elements of the CVS Caremark TrueCost model.” , CVS Health 2024 Annual Report (Published May 2025)

While the company touts “TrueCost” as a transparency initiative, the financial outcomes tell a different story. The PBM’s ability to maintain a $7 billion+ operating profit floor while the rest of the healthcare enterprise faces margin compression (0. 24% margin for Aetna in 2024) points to a cross-subsidization model. High list prices for drugs like insulin, which generate the rebates and fees flowing through Caremark and Zinc, are not a revenue stream; they are the financial ballast keeping the entire CVS Health corporation solvent during periods of insurance underwriting losses.

The FTC’s administrative complaint strikes at this exact dependency. If the “artificial price inflation” method were dismantled, forcing a shift to net-price models without rebate retention, the Health Services segment would lose the arbitrage opportunity that currently generates nearly half of the conglomerate’s adjusted operating profit.

SECTION 15 of 22: Legal Theory: Applying Section 5 of the FTC Act to PBMs

The “Standalone” Section 5 Strategy

The Federal Trade Commission’s administrative complaint against Caremark Rx, Express Scripts, and OptumRx represents a decisive shift in antitrust enforcement strategy. By filing the action exclusively under Section 5 of the FTC Act, the Commission is testing a “standalone” legal theory that bypasses the rigid requirements of the Sherman and Clayton Acts. Unlike traditional antitrust cases that require proving a monopoly (Section 2 of Sherman) or a conspiracy to restrain trade (Section 1 of Sherman), Section 5 grants the FTC broad authority to prohibit “unfair methods of competition” and “unfair or deceptive acts or practices.”

This legal architecture allows the FTC to target conduct that may not strictly violate other antitrust laws nonetheless contradicts the spirit of competition. The Commission’s primary legal argument is that the PBMs’ “chase-the-rebate” strategy constitutes an unfair method of competition because it distorts market incentives. In a functioning market, competition drives prices down. In the insulin market engineered by the “Big Three” PBMs, the FTC that competition has been inverted: manufacturers must raise list prices to fund the rebates required for formulary access. This “perverse incentive structure” is the core violation alleged in Docket 9437.

Count I: Unfair Methods of Competition (UMC)

The complaint’s count relies on the FTC’s revitalized interpretation of its Section 5 authority, formalized in its November 2022 Policy Statement. The Commission that Caremark and its peers act as “gatekeepers” that abuse their power to rig the pharmaceutical supply chain. The legal test for a UMC violation under this framework does not require a demonstration of market dominance in the traditional sense, rather proof that the conduct is “facially unfair” or “coercive.”

The FTC alleges that Caremark engaged in coercive exclusionary conduct by threatening to drop insulin products from its formularies unless manufacturers increased rebates, a demand that necessitated higher list prices. This conduct is legally classified as “unfair” because it creates a barrier to entry for lower-priced competitors. When a biosimilar or generic insulin with a lower list price attempts to enter the market, it is systematically excluded because it cannot generate the rebate revenue the PBM demands. The FTC posits that this exclusion is not “competition on the merits” (e. g., better product, lower price) rather a manipulation of the payment structure that harms the competitive process itself.

Counts II & III: The “Unfairness” Consumer Protection Test

Beyond competition, the complaint charges the PBMs with “unfair acts or practices” under the consumer protection prong of Section 5. This requires the FTC to satisfy a three-part statutory test codified in Section 5(n) of the FTC Act. The Commission must demonstrate that the PBMs’ conduct causes substantial injury to consumers, that the injury is not reasonably avoidable by consumers, and that the injury is not outweighed by countervailing benefits to consumers or competition.

Table 15. 1: The Section 5(n) Unfairness Test Applied to Caremark

Legal Element	FTC Allegation Against Caremark
Substantial Injury	Patients in the deductible phase or with coinsurance pay inflated list prices (e. g., $274 for Humalog) rather than the net cost, resulting in millions of dollars in excess out-of-pocket spend.
Not Reasonably Avoidable	Patients cannot choose their PBM; they are assigned one by their employer or health plan. They have no ability to negotiate formulary placement or rebate pass-throughs.
No Countervailing Benefit	The FTC rejects the PBM defense that rebates lower premiums, arguing that the “net benefit” is negated by the severe financial toxicity imposed on sick patients who rely on insulin to survive.

The “Not Reasonably Avoidable” element is particularly damning for PBMs. The complaint emphasizes that the complexity of the pharmaceutical supply chain renders patients captive. A diabetic patient at the pharmacy counter facing a $300 charge for a vial of insulin has no recourse; they cannot switch to a “competing” PBM to get a better price on that transaction. This absence of consumer agency is a linchpin of the FTC’s consumer protection argument.

The Rebate Wall as a Legal Violation

The complaint legally frames the “rebate wall” not just as a business practice, as an exclusionary device. By conditioning formulary access on high rebates, Caremark erects a wall that low-list-price competitors cannot climb. The FTC this violates Section 5 because it stifles innovation and price competition. For example, when a manufacturer launches a low-cost insulin, PBMs are financially disincentivized to cover it because it offers no “spread” or rebate revenue. The FTC asserts this is a structural market failure induced by the PBMs’ contract terms, fitting squarely within the definition of an unfair method of competition.

“Caremark, ESI, and Optum, as medication gatekeepers, have extracted millions of dollars off the backs of patients who need life-saving medications… creating a perverse drug rebate system that prioritizes high rebates from drug manufacturers, leading to artificially inflated insulin list prices.”
, Rahul Rao, Deputy Director of the FTC Bureau of Competition (September 20, 2024)

Rejection of the “Efficiency” Defense

Anticipating the PBMs’ defense, the FTC’s legal theory preemptively attacks the argument that rebates create efficiency. PBMs have historically argued that their negotiation power lowers in total healthcare costs for plan sponsors (employers and unions). The FTC’s complaint counters that this “efficiency” is illusory for the patient at the point of sale. The legal filing that a system transferring wealth from sick patients (paying list price) to healthy plan members (via lower premiums funded by rebates) is inherently unfair. also, the FTC alleges that PBMs retain of these rebates for themselves, meaning the “efficiency” largely accrues to the PBM’s bottom line rather than the payer.

The Constitutional Counter-Strike

The PBMs have responded by challenging the legitimacy of the FTC’s administrative process. Following the Supreme Court’s Jarkesy decision, which limited the use of in-house administrative law judges (ALJs) for certain civil penalties, Caremark and Express Scripts that the FTC’s forum violates their right to a jury trial and due process. yet, because the FTC is primarily seeking injunctive relief, specifically, an order to “cease and desist” the rebate practices, rather than civil monetary penalties, the Commission maintains that its administrative court remains the appropriate venue for defining unfair methods of competition. This procedural battle determine whether the substantive Section 5 arguments are ever heard on their merits.

The February 2026 settlement between Express Scripts and the Federal Trade Commission (FTC) marks the structural fracture in the “Big Three” pharmacy benefit manager (PBM) oligopoly. While CVS Caremark and OptumRx continued to litigate the September 2024 administrative complaint, Express Scripts (a subsidiary of The Cigna Group) executed a strategic, agreeing to a consent order that fundamentally the “rebate wall” method for insulin and other highly rebated therapeutics. This rupture ends a decade of synchronized pricing strategies among the major PBMs and isolates CVS Caremark as the primary defender of the high-list-price/high-rebate model.

The Strategic Rupture: Settlement vs. Litigation

The began in late 2025, culminating in the February 4, 2026, settlement announcement. Facing mounting regulatory pressure and the “Trump-Vance” FTC’s aggressive antitrust posture, Express Scripts broke ranks with its peers. The settlement resolves the FTC’s allegations that Express Scripts artificially inflated insulin list prices to extract higher rebates from manufacturers. In contrast to CVS Caremark, which filed a motion to dismiss the FTC’s charges in September 2025 and countersued the agency, Express Scripts accepted a consent order requiring immediate operational overhauls. The agreement mandates the “delinking” of PBM compensation from drug list prices, a core demand of the FTC’s original complaint. By agreeing to these terms, Express Scripts admitted that the rebate-driven revenue model was unsustainable under current antitrust scrutiny, leaving Caremark to defend the legacy system alone in federal court.

The October 2025 Pivot: The “ClearNetwork” Model

The groundwork for the settlement was laid in October 2025, when Cigna’s Evernorth Health Services division announced the launch of a new, “cost-plus” pharmacy benefit model. This model, marketed as a transparent alternative to the traditional rebate-arbitrage system, was a direct response to the FTC’s investigation. Data released during the October 2025 launch projected that the new model would reduce patient out-of-pocket costs for brand-name drugs, including insulin, by approximately 30 percent. Under this framework, Express Scripts committed to passing 100 percent of negotiated discounts and rebates directly to plan sponsors and patients at the point of sale, rather than retaining a portion as “spread.” This move directly contradicted the industry standard practice, where PBMs historically retained 10 to 50 percent of rebate volume as profit.

Table 1: Strategies of the “Big Three” PBMs (Late 2025 Status)

PBM Entity	FTC Litigation Status	Pricing Model Strategy (2025)	GPO Location
Express Scripts (Cigna)	Settled (Feb 2026)	Adopts “Cost-Plus” / Delinked Fees	Reshoring to U. S. (Ascent)
CVS Caremark	Active Litigation / Countersuit	Defends Rebate Aggregation	Offshore (Zinc Health, Ireland)
OptumRx (UnitedHealth)	Active Litigation	Hybrid / Defends Rebates	Offshore (Emisar, Ireland)

Reshoring Ascent: the Offshore GPO

A serious component of the settlement involves the of the offshore Group Purchasing Organization (GPO) structure. The FTC’s 2024 complaint alleged that PBMs used offshore subsidiaries, Zinc Health Services (CVS) in Ireland, Emisar (Optum) in Ireland, and Ascent Health Services (Express Scripts) in Switzerland, to hide rebate flows from U. S. regulators and tax authorities. The February 2026 agreement mandates that Express Scripts “reshore” Ascent Health Services from Switzerland to the United States. This requirement forces the PBM to subject its rebate negotiation contracts to U. S. jurisdiction and transparency laws. By repatriating Ascent, Express Scripts abandons the “Zinc model” pioneered by CVS, which relies on offshore opacity to shield rebate retention rates from plan sponsors. This concession places immense pressure on CVS Caremark to justify the continued operation of Zinc Health Services in Dublin, a structure the FTC has characterized as a vehicle for “deceptive rebate practices.”

The “Copay Assurance” Precedent

The settlement builds upon Express Scripts’ earlier attempts to mitigate regulatory heat. In May 2025, the company expanded its “Copay Assurance” program, which capped patient out-of-pocket costs for insulin at $25 per month and preferred brand drugs at $25. While CVS Caremark introduced similar caps for specific clients, the Express Scripts settlement institutionalizes these caps as a standard offering, rather than an opt-in benefit. The is also clear in formulary management. The settlement prohibits Express Scripts from preferencing high-list-price drugs over lower-cost generic or biosimilar equivalents solely to harvest rebates. This directly addresses the “Semglee rejection” phenomenon of 2022, where PBMs blocked the cheaper biosimilar insulin glargine in favor of the high-priced Lantus. Under the new terms, Express Scripts must offer the “lowest net cost” product on its standard formulary, a requirement that threatens the revenue streams of manufacturers relying on the high-list/high-rebate strategy.

“The settlement requires Express Scripts to delink manufacturer compensation from drug list prices, shift its standard offering… to an acquisition-cost-plus model, and reshore its group purchasing organization from Switzerland to the U. S.” , Federal Trade Commission Statement, February 2026

Caremark’s Isolation

With Express Scripts agreeing to these terms, CVS Caremark’s defense strategy faces a serious weakness. Caremark’s legal argument—that the rebate system is essential for lowering premiums—is contradicted by a major competitor’s admission that a cost-plus, delinked model is viable. The “Big Three” defense relied on a unified front; Express Scripts’ capitulation provides the FTC with a comparative model to demonstrate that the rebate wall is a choice, not a need. As of February 2026, CVS Caremark continues to that the FTC’s administrative process is unconstitutional, a position detailed in their November 2024 countersuit. yet, the Express Scripts settlement creates a market reality where plan sponsors can choose a PBM that is legally bound to transparency, chance driving an exodus of clients from the unclear rebate models maintained by Caremark and Optum.

SECTION 17 of 22: Unsealed Evidence: Internal Emails Regarding Rebate Strategies

The “Tasty Rebates” Admission

The Federal Trade Commission’s administrative complaint against CVS Caremark and its peers, filed in September 2024, relies heavily on internal communications that contradict the industry’s public narrative of cost containment. Among the most damaging pieces of evidence is an internal email from a PBM executive who explicitly celebrated the retention of high list prices. The executive described the strategy not as a method to save client money, as an opportunity to “drink down the tasty… rebates” generated by inflated insulin prices.

This specific communication the defense that rebate negotiation is solely intended to lower premiums for plan sponsors. Instead, it corroborates the FTC’s allegation that Caremark and other PBMs view rebates as a primary revenue stream to be protected, even at the expense of patient access to affordable medication. The “tasty rebates” quote serves as a semantic anchor in the complaint, illustrating a corporate culture where the spread between list and net prices is viewed as a nourishing asset rather than a market to be eliminated.

Internal Resistance to Lower List Prices

The evidentiary record, by documents originally subpoenaed during the Senate Finance Committee’s bipartisan investigation and subsequently utilized by the FTC, reveals a pattern of hostility toward price reductions. Internal emails from 2017 and 2018 show Caremark executives expressing concern that lower list price insulins, specifically authorized generics, would negatively impact the PBM’s “economics.”

When insulin manufacturers proposed lowering the wholesale acquisition cost (WAC) of their products to relieve patient out-of-pocket load, internal PBM correspondence indicates that these proposals were met with threats of formulary exclusion. One set of unsealed emails details a negotiation where a manufacturer was warned that introducing a lower-priced version of their insulin would result in the removal of their branded product from the preferred formulary tier. The rationale was purely financial: a lower list price reduced the administrative fees and rebate percentages that Caremark could collect.

The “Unit Cost” Fallacy in Executive Correspondence

Further review of internal strategy documents from 2019 to 2023 highlights a deliberate shift in terminology designed to obscure the true cost of drugs. Executives frequently discussed “unit cost management” in emails to plan sponsors, a metric that frequently ignored the net cost after rebates. yet, private internal exchanges focused on “gross trend” and “rebate yield.”

The is quantified in the table, which reconstructs the financial logic found in redacted internal presentations in regulatory filings.

Table 17. 1: Internal PBM Metrics vs. Client Reporting (Reconstructed from FTC/Senate Findings)

Metric	Internal Definition (Private)	Client Definition (Public)	Strategic Goal
Rebate Yield	Total dollar amount retained by PBM + GPO fees	“Savings” passed to plan sponsor	Maximize list price to increase yield percentage.
Formulary Exclusion	use to force higher rebate concessions	Clinical management tool	Protect revenue stream from low-list-price competitors.
Price Protection	Penalty fees collected if list prices do not rise	Inflation cap for clients	Ensure list prices (and fees) continue to grow.

Coordinating with Manufacturers to Maintain the Spread

The unsealed evidence also implicates Caremark in coordinating with manufacturers to delay the impact of price drops. In one instance, emails reveal that when a major insulin producer prepared to launch a generic version of a rapid-acting insulin at a 50% discount, PBM representatives advised the manufacturer that the product would be placed on a “non-preferred” tier or excluded entirely.

The correspondence suggests a “protection racket”: manufacturers were told that to maintain market share for their branded products, they must not undercut the rebate-rich high list price model. This evidence directly supports the FTC’s claim that the rebate wall was not a passive market phenomenon an actively policed barrier. The emails show that Caremark executives were fully aware that their formulary decisions forced patients in high-deductible plans to pay inflated prices, yet they prioritized the “economics” of the rebate spread over patient affordability.

“The documents show that PBMs secured contractual provisions that disincentivized drug companies from raising list prices… [ ] internal documents and data undermine industry claims that price increases are primarily due to increasing rebates.” , House Oversight Committee Majority Staff Report, referencing internal PBM communications (2024).

The Zinc Health Connection in Email Chains

Following the establishment of Zinc Health Services in 2018, internal email traffic shifted to discuss how to route these “tasty rebates” through the new offshore entity. The FTC complaint

SECTION 18 of 22: Manufacturer Involvement: Eli Lilly and Novo Nordisk Price Setting

The “Unwilling” Accomplices: How Manufacturers Fed the Rebate Beast

The Federal Trade Commission’s administrative complaint against Caremark Rx does not name the three major insulin manufacturers, Eli Lilly, Novo Nordisk, and Sanofi, as defendants. Yet, the agency’s September 2024 filing makes it undeniably clear: the pricing scheme that inflated insulin costs by over 1, 200 percent required two parties to tango. While Caremark and its peers constructed the “rebate wall,” the manufacturers supplied the bricks. For nearly a decade, these pharmaceutical giants engaged in a symbiotic, albeit coerced, relationship with pharmacy benefit managers. To secure formulary placement for their blockbuster drugs, Humalog, Novolog, and Lantus, manufacturers systematically raised list prices, not to increase their own revenue, to generate the massive rebate dollars demanded by Caremark, Express Scripts, and Optum.

The “Gun to the Head” Strategy

The mechanics of this inflation were laid bare during the Senate HELP Committee investigations and subsequent FTC inquiries. Manufacturers argued they were hostages in a market where PBMs controlled access to patients. If a manufacturer refused to increase the list price to fund a larger rebate, Caremark could, and did, threaten “formulary exclusion,” wiping out the drug’s market share overnight. Internal documents in the broader investigation reveal that manufacturers viewed these price hikes as the “cost of doing business.” When Caremark demanded higher rebates to maintain a drug’s preferred status, the manufacturer would raise the list price to offset the rebate payment, protecting their net revenue while satisfying the PBM’s profit demands.

“We are being held hostage by the PBMs. If we don’t pay the rebates, we don’t get on the formulary. If we don’t get on the formulary, patients can’t get our medicine.”
, Testimony from insulin manufacturer executives during 2023 Senate hearings, referenced in FTC background materials.

The Gross-to-Net Bubble

The most damning evidence of this artificial inflation is the between the “list price” (what a patient pays before insurance) and the “net price” (what the manufacturer actually keeps after paying rebates to Caremark). Between 2012 and 2022, while the list price of insulin skyrocketed, the net price received by manufacturers frequently remained flat or even declined. The difference, the “gross-to-net bubble”, represents the billions of dollars extracted by PBMs.

Figure 18. 1: The of List vs. Net Price for Humalog (Estimated)

Year	List Price (Per Vial)	Net Price (Manufacturer Revenue)	PBM/GPO Rebate & Fees
2012	$122. 60	$68. 00	$54. 60
2015	$215. 30	$60. 00	$155. 30
2018	$274. 70	$48. 00	$226. 70
2021	$274. 70	$38. 00	$236. 70

Data Note: Figures are approximate averages derived from Senate Finance Committee reports and SSR Health data (2012-2021).

This data proves that the price hikes were not driven by production costs or R&D, by the need to feed the rebate. By 2019, for every $100 spent on insulin at the list price, less than $20 was going to the manufacturer, while the vast majority was absorbed by the supply chain intermediaries.

The 2024 Price Reset: Calling the PBMs’ Bluff

In a move that exposed the perversity of the system, Eli Lilly, Novo Nordisk, and Sanofi announced massive price cuts in 2023, for 2024 and 2025.

• Eli Lilly: Slashed the price of Humalog by 70% and capped out-of-pocket costs at $35.
• Novo Nordisk: Cut U. S. list prices for several insulins, including Novolog, by up to 75%.
• Sanofi: Lowered the list price of Lantus by 78%.

These reductions collapsed the “gross-to-net bubble.” By lowering the list price to match the net price, manufacturers removed the rebate spread that Caremark relied on for profit. The PBM response was telling. As detailed in the FTC complaint, Caremark and other PBMs resisted these low-list-price versions. In instances, PBMs continued to prefer the high-list-price versions on their formularies because the high-price/high-rebate model was more lucrative for them than the low-price/no-rebate alternative. This resistance demonstrated that the PBMs’ priority was rebate volume, not patient savings.

FTC Warning: “On Notice”

Although the September 2024 administrative complaint focused on the PBMs, the FTC issued a stern warning to the manufacturers. The Bureau of Competition stated that all drug manufacturers should be “on notice” that their participation in such rebate schemes raises serious legal concerns. The implication is clear: claiming “coercion” is no longer a sufficient defense. Manufacturers who continue to play the high-list-price game to buy formulary access may face direct enforcement actions in the future, chance as co-conspirators in the artificial inflation of drug costs.

The Role of Authorized Generics

Before the massive 2024 price cuts, manufacturers attempted to bypass the PBM rebate trap by launching “authorized generics”, identical versions of their brand-name drugs sold at a fraction of the list price.

Eli Lilly launched Insulin Lispro at half the price of Humalog. Novo Nordisk and Sanofi followed suit. yet, these cheaper drugs failed to gain market share. Why? Because Caremark and other PBMs blocked them from standard formularies. The lower price meant lower rebates, making the affordable option “financial poison” for the PBM model. This failure of the authorized generics provided the FTC with smoking-gun evidence that the market was structurally broken.

The Defense Position: Caremark Claims Regarding Net Cost Reduction

The “Gatekeeper” Rebuttal

In response to the Federal Trade Commission’s (FTC) September 2024 administrative complaint, CVS Caremark issued a categorical denial of the agency’s central thesis. While the FTC characterized the pharmacy benefit manager (PBM) as a predator inflating insulin costs to harvest rebates, Caremark positioned itself as the only check on pharmaceutical price-setting. In a public statement released immediately following the filing, the company declared the FTC’s allegations “simply wrong,” arguing that the agency had fundamentally misunderstood the mechanics of the drug supply chain.

The core of Caremark’s defense rests on a strict delineation of responsibility: manufacturers set list prices, while PBMs negotiate net costs. Caremark executives, including President David Joyner, have consistently testified that they possess zero authority to dictate the sticker price of Humalog, Lantus, or Novolog. Instead, they their role is to use their aggregate purchasing power, representing over 100 million members, to force manufacturers to concede discounts. According to this defense, the “rebate wall” described by the FTC is actually a “discount lever” that suppresses what would otherwise be unchecked monopolistic pricing by the three major insulin manufacturers.

Metric: The “Under $25” Statistic

To counter the FTC’s narrative of runaway patient costs, Caremark released specific internal data regarding member out-of-pocket spending. The company reported that, as of late 2024, the average CVS Caremark member paid less than $25 per month for insulin. In congressional testimony, executives refined this figure further, stating that for their 1. 7 million members actively using insulin, the average out-of-pocket cost was approximately $22 per month.

Caremark that these low out-of-pocket costs prove their model works for the consumer, regardless of the list price inflation. They attribute this affordability to two primary method:

• Drug Lists: employer clients use Caremark’s lists to offer insulin at $0 copay or low fixed coinsurance, bypassing deductibles entirely.
• Point-of-Sale Rebates: Caremark contends that they offer clients the option to pass rebates directly to patients at the pharmacy counter, though they admit this decision lies with the plan sponsor (the employer), not the PBM.

Data Analysis: Net Price Deflation Claims

Caremark’s defense relies heavily on the between “list price” (what the manufacturer charges) and “net price” (what the PBM pays after rebates). While the FTC focused on the skyrocketing list prices, Caremark pointed to a contrasting trend in net costs. The company released data indicating that for its commercial clients, the net cost of insulin per 30-day supply decreased by approximately 15 percent between 2017 and 2021.

The company asserts that this deflation occurred even with manufacturers raising list prices during the same period. By this logic, the PBM claims to have successfully shielded its clients from the full force of pharmaceutical inflation. Caremark that if the FTC were to the rebate system, this “shield” would, leaving plan sponsors exposed to the full list prices set by drugmakers.

The “Reduced Rx” and Cash Programs

Addressing the criticism that rebates do not help uninsured or high-deductible patients, Caremark highlighted its “Reduced Rx” initiative. Launched in partnership with Novo Nordisk, this program allowed cash-paying patients to purchase Novolin insulin for $25 per 10mL vial at CVS pharmacies. The company uses this program as evidence that it actively creates avenues for affordability outside the traditional insurance rebate structure.

yet, this defense omits that Novolin is an older generation human insulin, not the modern analog insulins (like Humalog or Lantus) that are the subject of the most intense pricing complaints. For modern analogs, Caremark maintains that its negotiated discounts are the only reason insurers can afford to cover these drugs at all.

Blaming the Client for Plan Design

A serious component of Caremark’s legal and public relations defense involves shifting the locus of decision-making to the plan sponsor. The FTC alleges that PBMs pocket rebates or use them to obscure prices. Caremark rebuts this by stating that 98 percent of rebates are passed through to their clients (employers and health plans).

The defense argument proceeds as follows: if a patient is paying a high deductible or coinsurance based on the inflated list price, it is because their employer chose a plan design that prioritizes lower monthly premiums over lower pharmacy counter costs. Caremark contends that they provide the menu of options, including point-of-sale rebates, cannot force employers to select them. By framing the problem as one of “client choice,” Caremark attempts to absolve itself of liability for the high out-of-pocket costs faced by patients in high-deductible plans.

Warning of “Higher Prices”

, Caremark’s response to the Docket 9437 complaint includes a warning about the consequences of regulatory intervention. The company that the FTC’s demand to prioritize “lowest list price” drugs over “lowest net cost” drugs would paradoxically increase total healthcare spending.

“In the unlikely event the FTC succeeds in its suit and forces PBMs to include drugs on formulary even if they have higher net costs for plan sponsors… the FTC drive drug prices higher in this country.”

This statement, issued by industry representatives, encapsulates the defense’s economic theory: that high-rebate drugs frequently result in a lower final bill for the insurer than low-list-price drugs. They maintain that stripping away the rebate use would remove the only incentive manufacturers have to offer price concessions, handing pricing power back to the pharmaceutical oligopoly.

Table: Caremark’s Stated Insulin Cost Metrics (2017-2024)

Metric	Caremark Claim/Data Point	Context
Average Member Cost	< $25. 00 / month	Across all commercial members (2024)
Active User Cost	$22. 00 / month	For 1. 7 million active insulin users (Testimony)
Net Cost Trend	-15% Decrease	Real net price change (2017-2021)
Rebate Pass-Through	98%	Portion of rebates sent to plan sponsors
Cash Program Price	$25. 00 / vial	Price for Novolin via Reduced Rx program

The Structural Imperative: Beyond Behavioral Fixes

As of February 26, 2026, the Federal Trade Commission’s administrative battle against CVS Health’s Caremark Rx remains a pivotal confrontation in American antitrust enforcement. While the FTC secured a settlement with competitor Express Scripts (ESI) on February 4, 2026, which focused on conduct remedies such as transparency and banning specific rebate practices, the case against Caremark presents a distinct and more complex challenge. Unlike ESI, which is primarily vertically integrated with an insurer (Cigna), CVS Health represents a “triad” of market power: it is simultaneously the insurer (Aetna), the PBM (Caremark), and the retail pharmacy (CVS Pharmacy). This unique vertical stack has led antitrust experts and health economists to that behavioral remedies, rules about how they must act, are insufficient. The case for divestiture, or the structural separation of Caremark from CVS Health, rests on the premise that as long as these entities share a balance sheet, their incentives to insulin prices for cross-subsidization remain intact.

The “Triad” Conflict: Aetna, Caremark, and CVS Pharmacy

The core of the structural argument the circular flow of capital within CVS Health. In a non-integrated market, a PBM’s sole incentive would be to negotiate the lowest net price for drugs to win clients. yet, under the current CVS Health structure, the incentives are inverted. Caremark’s extraction of high rebates from insulin manufacturers like Eli Lilly and Novo Nordisk does not serve to pad PBM margins; it subsidizes the premiums of Aetna’s health plans and drives foot traffic to CVS retail locations.

Data from the 2024, 2025 discovery phase of FTC Docket 9437 revealed that Caremark frequently steered patients toward high-list-price insulins that generated substantial rebates, which were then used to offset medical costs on the Aetna insurance side. This “cross-subsidization” creates a conflict of interest that conduct remedies struggle to police. If Caremark lowers the price of insulin, Aetna may lose the rebate revenue stream used to keep premiums competitive in the insurance market. Consequently, the corporate entity as a whole benefits from high insulin list prices, even if the diabetic patient pays more out-of-pocket.

“‘t legislate your way out of this. They’re creating all these shell organizations to hide the money and insulate the PBM… The only way you have impact is if we break these things up.”
, Testimony regarding PBM reform, December 2024

The Express Scripts Settlement: A Template or a Warning?

The February 4, 2026, settlement between the FTC and Express Scripts provides a serious counterpoint for the ongoing Caremark negotiations. The ESI agreement requires the PBM to adopt a “net cost” model for patient cost-sharing and prohibits preferencing high-list-price drugs over lower-cost equivalents. While the FTC projects this could save patients up to $7 billion over a decade, critics it leaves the vertical structure untouched. For CVS Caremark, a similar settlement might fail to address the retail component of its monopoly.

Unlike ESI, CVS Health possesses the ability to physically steer patients. The FTC’s investigation highlighted instances where independent pharmacies were blocked from dispensing certain affordable insulin biosimilars, while CVS retail locations were prioritized. A behavioral decree might stop Caremark from demanding high rebates, it cannot easily prevent the subtle preferential treatment of CVS pharmacies over independent rivals. This “steering” capability is unique to CVS’s retail footprint and strengthens the argument that Caremark must be severed from the retail chain to restore genuine competition.

Economic Arguments for Divestiture

Health economists testifying in related legislative hearings have outlined the “standalone PBM” hypothesis. If Caremark were divested and operated as an independent entity, its survival would depend entirely on its ability to deliver lower drug costs to plan sponsors. It would have no loyalty to Aetna’s premium stability or CVS Pharmacy’s dispensing fees. In this scenario, the “rebate wall” for insulin would likely collapse, as the independent Caremark would be forced to embrace low-list-price biosimilars (like unbranded insulin glargine) to compete with other PBMs.

Table 1: Incentives , Integrated vs. Independent PBM

Incentive Driver	Integrated Model (Current CVS Health)	Divested Model (Independent Caremark)
Insulin Pricing Strategy	Prioritize high list prices to maximize rebates for Aetna premiums.	Prioritize low net prices to win employer contracts.
Pharmacy Network	Steer patients to CVS Retail; exclude independent pharmacies.	Build broad, low-cost networks including independents.
Biosimilar Adoption	Block biosimilars to protect rebate streams (e. g., Semglee exclusion).	Aggressively adopt biosimilars to lower client spend.
Profit Center	Cross-subsidization across Insurance/Retail/PBM.	Fee-based administration and genuine savings.

Legislative and Regulatory Pressure in 2025

Throughout 2025, pressure for structural remedies intensified beyond the FTC’s administrative court. The “Prescription Pricing for the People Act of 2025” and other bipartisan bills introduced in the 119th Congress explicitly threatened “delinking”, a regulatory form of breaking the rebate-price connection. yet, proponents of divestiture that delinking is a patch. As long as the vertical merger of 2018 (CVS-Aetna) remains intact, the entity find new method to extract value from the supply chain at the expense of patients.

In January 2026, during the lead-up to the ESI settlement, reports surfaced that CVS Health was engaging in “good faith negotiations” with the FTC. Yet, the continued delay of the evidentiary hearing, pushed to 2026 due to the “massive discovery load”, suggests that the structural questions remain a sticking point. The FTC’s request for internal documents regarding CVS’s “Hub” services and its treatment of independent pharmacies indicates that the Commission is still building a case that could support a breakup, or at least use the threat of one to extract concessions far more draconian than those accepted by Express Scripts.

The Feasibility of a Breakup

While a forced divestiture would be historically significant, comparable to the breakup of AT&T, it is mechanically feasible. Caremark operated as a standalone public company until its 2007 merger with CVS. A spin-off would create an immediate competitor in the PBM space with the to challenge Optum and ESI, without the perverse incentives of vertical integration. Critics from the industry warn that this would disrupt “coordinated care” and increase premiums, the FTC’s data on insulin price inflation, rising 1200% during the period of consolidation, offers a compelling rebuttal that “efficiency” has not translated into consumer savings.

SECTION 21 of 22: Investor Liability: Estimating Financial Exposure for CVS Health

The Cigna Precedent: A Benchmark for Liability

As of February 2026, the financial exposure facing CVS Health regarding the FTC’s administrative complaint has crystallized following a landmark settlement by its competitor. On February 5, 2026, The Cigna Group settled its portion of FTC Docket 9437, agreeing to a prohibition on rebate retention and a requirement to delink pharmacy benefit manager (PBM) compensation from drug list prices. While Cigna paid no civil monetary penalty, the settlement terms mandate structural changes estimated to reduce patient out-of-pocket costs by $7 billion over ten years, a figure that represents lost high-margin revenue for the PBM.

For CVS Health, which controls a larger share of the insulin market through Caremark, this precedent establishes a “floor” for liability. Unlike Cigna, CVS Health has not yet settled as of late February 2026, leaving it exposed to chance harsher terms or prolonged litigation. Financial analysts estimate that if CVS is forced to adopt similar “transparency” measures, the revenue impact could exceed the pro-rated share of Cigna’s $7 billion concession, given Caremark’s deeper integration with Aetna and its aggressive historical use of the “rebate wall” strategy.

Quantifiable Damages and Legal Reserves

CVS Health’s financial filings reveal that the company has already begun ring-fencing capital for PBM-related liabilities. In its Form 10-K filed on February 10, 2026, CVS Health recorded a $1. 2 billion “legacy litigation charge” for the fiscal year 2025. While this reserve covers a basket of legal matters, the timing and magnitude align closely with the intensification of the FTC’s insulin probe and parallel state attorney general lawsuits.

This reserve follows a specific, finalized penalty in December 2025, where CVS Health agreed to pay $37. 76 million to settle False Claims Act allegations regarding insulin pen dispensing. In that case, the Department of Justice alleged that CVS pharmacies routinely dispensed more insulin than prescribed and billed government healthcare programs for the excess. While the $37. 76 million figure is minor relative to CVS’s $357 billion annual revenue, it establishes a pattern of admission regarding insulin billing irregularities that strengthens the FTC’s broader antitrust case.

Stock Performance and Shareholder Sentiment

The market has priced in significant regulatory risk for CVS Health, creating a between its performance and that of its competitors. Following the filing of the FTC administrative complaint on September 20, 2024, CVS shares entered a prolonged period of volatility. By early 2026, the cumulative effect of the “insulin inflation” narrative had contributed to a tangible valuation discount.

On February 5, 2026, when Cigna announced its settlement, Cigna shares rallied approximately 3. 5% as investors cheered the removal of the “regulatory overhang.” In contrast, CVS Health shares remained flat to slightly negative (-0. 36%), reflecting investor anxiety that the company remains in the FTC’s crosshairs without a negotiated exit. As of February 24, 2026, CVS stock traded near $74. 18, down roughly 11. 5% year-to-date, significantly underperforming the broader healthcare sector.

Revenue at Risk: The End of the Rebate Engine

The primary liability for investors is not the chance one-time fine, the permanent of the PBM’s profit engine. The FTC’s complaint the “spread” pricing and rebate retention models that generated billions in excess revenue. The FTC’s January 2025 interim staff report identified $7. 3 billion in excess revenue generated by the “Big Three” PBMs specifically from specialty generic markups between 2017 and 2022.

If CVS Caremark is forced to abandon rebate retention for a “pass-through” model, the impact on its Health Services segment, which generated $186. 8 billion in revenue in 2023, would be material. Analysts project that a ban on spread pricing could compress PBM operating margins by 200 to 300 basis points. For a segment that relies on volume and, this structural change represents a long-term liability far exceeding the $1. 2 billion currently reserved for litigation damages.

Table 21. 1: Comparative Financial Exposure (FTC Docket 9437 Context)

Metric	Cigna (Express Scripts)	CVS Health (Caremark)
Settlement Status (Feb 2026)	Settled (Feb 5, 2026)	Active Litigation
Monetary Penalty	$0 (Conduct Remedies Only)	Undetermined (chance Civil Penalties)
Est. Patient Savings (Revenue Loss)	~$7 Billion (10-Year Projection)	>$7 Billion (Projected)
2025 Litigation Reserve	N/A (Resolved)	$1. 2 Billion
Stock Reaction (Feb 5, 2026)	+3. 5% (Relief Rally)	-0. 36% (Unresolved Risk)

“The liability for CVS is not just the check they might write to the FTC; it is the forced obsolescence of the rebate arbitrage model that has fueled their earnings growth for a decade.” , Market Analysis, February 2026

Derivative Lawsuits and Class Actions

Beyond the FTC action, CVS Health faces “follow-on” liability from shareholders. Multiple class-action lawsuits filed in late 2024 and 2025 allege that CVS executives breached their fiduciary duties by failing to disclose the material risks associated with their insulin pricing strategies. These suits claim that the stock price drops, specifically the sharp declines in late 2024 and early 2025, were caused by the of “anticompetitive schemes” that management had previously concealed. The $1. 2 billion reserve likely anticipates settlements for these consolidated securities fraud actions, which frequently run parallel to government enforcement.

The Legislative Hammer: Consolidated Appropriations Act, 2026

The regulatory threats facing CVS Caremark transitioned from theoretical risk to statutory reality on February 3, 2026. President Donald Trump signed the Consolidated Appropriations Act, 2026 (CAA 2026), a sweeping legislative package that fundamentally the unclear revenue method at the core of the PBM business model. This federal law represents the culmination of years of bipartisan scrutiny and directly addresses the “chase-the-rebate” incentives identified in the Federal Trade Commission’s administrative complaint.

The CAA 2026 introduces a “delinking” mandate for Medicare Part D plans that severs the financial tie between PBM compensation and drug list prices. Under the new statute, PBMs are prohibited from earning percentage-based fees on the medications they manage. Instead, they must operate on a flat-fee basis for “bona fide services.” This provision eliminates the perverse incentive for Caremark to favor high-list-price insulins solely to harvest larger administrative fees. The law further mandates that 100 percent of all rebates, discounts, and price concessions received from manufacturers must be passed through to plan sponsors. This requirement outlaws the practice of “rebate retention,” a primary profit driver for Caremark that the FTC alleged cost patients billions in inflated out-of-pocket expenses.

The Express Scripts Capitulation

While the legislative shifted, the judicial pressure on the “Big Three” PBMs fractured their unified defense. On February 4, 2026, just one day after the CAA 2026 was signed, Cigna’s Express Scripts agreed to a landmark settlement with the Federal Trade Commission. The agreement requires Express Scripts to implement radical transparency measures and delink its compensation from drug prices, with the FTC projecting up to $7 billion in consumer savings over the decade.

Crucially, CVS Caremark did not join this settlement. As of late February 2026, Caremark remains in active litigation against the FTC, choosing to fight the administrative complaint rather than accept the conduct remedies agreed to by its largest competitor. This isolation leaves Caremark exposed to the full weight of the FTC’s adjudicative process while simultaneously scrambling to comply with the new federal statutes. Legal analysts suggest that the Express Scripts settlement sets a de facto industry standard that make Caremark’s defense of its rebate-driven model increasingly untenable in administrative court.

State-Level Encirclement

The federal crackdown is mirrored by an aggressive wave of state legislation that the commercial and Medicaid markets not fully covered by federal reforms. In 2025 alone, state legislatures in Illinois, Iowa, and California enacted strict PBM regulations that go beyond federal requirements. Illinois House Bill 1697 and Iowa Senate Bill 383 explicitly ban “spread pricing”, the practice where PBMs charge health plans more for a drug than they reimburse the pharmacy, and mandate full rebate pass-throughs for state-regulated plans.

State Regulatory Actions (2024, 2025)
Illinois (HB 1697): Bans spread pricing and mandates 100% rebate pass-through for state plans.
Iowa (SB 383): Prohibits spread pricing and requires PBMs to reimburse pharmacies at acquisition cost plus a dispensing fee.
Arkansas (Act 624): Attempted to ban PBM ownership of pharmacies, though currently facing federal injunctions.
California (SB 41): Enacted delinking provisions for commercial health plans.

These state laws create a patchwork of compliance minefields for Caremark. The prohibition on spread pricing in key markets threatens a revenue stream that has historically generated high margins with zero transparency. By forcing PBMs to disclose the exact acquisition cost of drugs, states are stripping away the information asymmetry that allowed Caremark to arbitrage the difference between payer charges and pharmacy reimbursements.

The Lobbying desperate Defense

CVS Health responded to these existential threats with a historic surge in political spending. In the quarter of 2025, the company’s lobbying expenditures jumped 70 percent to $3. 46 million. Throughout 2024 and 2025, CVS Health deployed a massive lobbying operation to dilute the “delinking” provisions in the CAA 2026 and stall the FTC’s momentum. The company’s disclosures reveal a specific focus on blocking the “Delinking Revenue from Unfair Gouging (DRUG) Act” and the “Patients Before Middlemen Act,” both of which provided the legislative framework for the final provisions in the CAA 2026.

CVS Health Federal Lobbying Expenditures (2023, 2025)

Period	Expenditure	Key Legislative
2023 Total	$10. 8 Million	PBM Transparency Act, Lower Costs More Transparency Act
2024 Total	$11. 2 Million	DRUG Act, S. 1339, FTC Oversight
Q1 2025	$3. 46 Million	Consolidated Appropriations Act negotiations
Q2 2025	$1. 81 Million	Medicaid Spread Pricing Bans

The financial that even with spending over $25 million on federal lobbying between 2023 and 2025, CVS Health failed to prevent the passage of the most damaging structural reforms. The company faces the dual load of implementing costly compliance systems to meet the CAA 2026 mandates while funding a high- legal defense against the FTC.

2026 and Beyond: The End of the Rebate Era

The convergence of the CAA 2026, the Express Scripts settlement, and the ongoing FTC litigation marks the terminal phase of the traditional PBM business model. The “rebate wall” that Caremark allegedly used to block lower-cost insulins is being dismantled by force of law. For 2026, the regulatory outlook dictates a forced migration toward flat-fee administrative models. This shift likely compress Caremark’s operating margins and force the company to seek new revenue sources that do not rely on the artificial inflation of drug list prices. The era of the PBM as a black-box arbitrageur is over. The new regulatory regime demands that PBMs function as transparent service providers, a transformation that strikes at the very heart of the profit CVS Health built over the last decade.