Shares of major healthcare companies experienced a significant drop on Wednesday, falling by nearly 5%, amid growing concerns that proposed changes to their business models could have a substantial impact on their operations. The companies affected include some of the largest players in the industry, such as UnitedHealth Group, Cigna, and CVS Health. These firms are major players in both private health insurance and the drug supply chain, with roles as pharmacy benefit managers (PBMs) and pharmacy owners.
The sharp stock declines seemed to be a direct response to new bipartisan legislation aimed at reforming the role of PBMs, which has become a focal point for scrutiny due to their influence over drug pricing. PBMs have long been accused of inflating drug prices, allegedly manipulating the system to increase profits at the expense of patients and healthcare providers. This legislation could force a significant restructuring of the PBM industry, triggering concerns among investors about the future of companies involved in this business model.
Among the companies impacted, UnitedHealth Group, Cigna, and CVS Health all saw their stock prices fall by at least 5% by the close of trading. These companies not only operate large private health insurance programs but also own and control PBMs, which serve as intermediaries between drug manufacturers, insurers, and pharmacies. Their PBMs—Optum Rx, Caremark, and Express Scripts—are among the largest in the U.S., collectively overseeing around 80% of the nation’s prescription drug market, according to the Federal Trade Commission (FTC).
The bipartisan legislation, which was reported by The Wall Street Journal, proposes to break up PBMs by requiring companies that own both PBMs and pharmacies to divest their pharmacy businesses within three years. This bill is sponsored by Senators Elizabeth Warren (D-Mass.) and Josh Hawley (R-Mo.) and comes as part of a broader effort to address rising drug prices and alleged conflicts of interest within the healthcare sector. The senators argue that the consolidation of insurance and PBM services under one roof creates an inherent conflict of interest that benefits large companies while harming patients and smaller pharmacies.
Senator Warren criticized PBMs for manipulating the drug market to their advantage. “PBMs have manipulated the market to enrich themselves—hiking up drug costs, cheating employers, and driving small pharmacies out of business,” she said in a statement. “My new bipartisan bill will untangle these conflicts of interest by reining in these middlemen.” She emphasized that the ownership of both PBMs and pharmacies by large insurers creates a “gross conflict of interest,” leading to inflated drug prices and reduced access to affordable medications.
PBMs are central to the U.S. pharmaceutical supply chain. They negotiate rebates and discounts with drug manufacturers on behalf of insurers, large employers, and federal health programs like Medicare and Medicaid. Additionally, they compile formularies, which are lists of medications covered under insurance plans, and reimburse pharmacies for prescriptions dispensed to patients. Because of their pivotal role in drug pricing and reimbursement, PBMs have been a target of ongoing investigations by both Congress and the FTC.
The FTC began investigating PBMs in 2022, prompted by concerns over their market power and potential anticompetitive practices. The commission has been looking into whether PBMs have used their position to inflate drug prices, leading to higher out-of-pocket costs for patients and employers who provide health coverage.
The bipartisan bill is part of a larger trend of growing public and legislative pressure on the healthcare industry. Lawmakers have increasingly criticized health insurers, PBMs, and pharmaceutical companies for their role in driving up drug costs. This scrutiny has intensified following the recent death of Brian Thompson, CEO of UnitedHealth Group’s insurance division, which further fueled public dissatisfaction with the industry.
As the proposed legislation gains traction, healthcare companies face mounting challenges. Not only are they dealing with potential regulatory changes that could force them to overhaul their business models, but they are also confronting the broader public perception of the healthcare system’s failings. The criticism surrounding PBMs and the companies that control them could lead to more significant reforms in the industry, which in turn would affect the profitability and structure of major healthcare companies.
The proposed legislation has not yet been passed, but its potential impact is already evident in the market. The sharp drop in healthcare stocks reflects investor concerns that these changes could disrupt the business models of large healthcare companies, particularly those with significant investments in both PBMs and pharmacies.
In the meantime, the healthcare industry continues to face heightened scrutiny. Lawmakers, regulators, and patients are pushing for reforms that could reshape the landscape of drug pricing, insurance practices, and the role of PBMs in the U.S. healthcare system. How these changes will unfold remains uncertain, but it is clear that the pressure on these companies is unlikely to ease anytime soon.
