Business

Pharmacy Benefit Managers Found a Way Around a Law That Was Supposed to Protect Taxpayers

By Mike Harper · July 20, 2026

Iowa banned spread pricing in Medicaid in 2019. According to a new state audit, the pharmacy benefit managers that administer the state’s drug coverage found a way around the ban without technically violating it.

Spread pricing is the practice of charging a health plan more for a prescription drug than the PBM actually pays the pharmacy — pocketing the difference. It’s a mechanism that has been documented, criticized, and in some states banned precisely because it inflates drug costs for taxpayers and health plans while obscuring how much intermediaries are actually taking.

Iowa’s audit of Medicaid pharmacy claims found that CVS, Envolve, Express Scripts, and IngenioRx used opaque year-end accounting adjustments — described in the STAT News report as “back-end” value — to generate what functioned as spread pricing while avoiding the label that would have triggered the state’s prohibition. One unnamed PBM generated roughly $100 million in this back-end value while the state and health plans were being charged more than the pharmacies ultimately received for the same drugs.

The mechanism works through year-end reconciliation: rather than taking a spread on each individual transaction — which would be visible and prohibited — PBMs accumulated the difference through aggregate accounting adjustments applied after the fact. The result on paper looked like compliance with Iowa’s spread pricing ban. The result in practice looked like spread pricing.

This is not a new accusation against pharmacy benefit managers, which sit between drug manufacturers and pharmacies in the prescription drug supply chain and have faced sustained scrutiny from state and federal regulators for years. The Federal Trade Commission opened a major investigation into PBM practices in 2022 and released a report in 2024 finding that the three largest PBMs — CVS Caremark, Express Scripts, and OptumRx — were inflating drug costs and steering patients toward their own affiliated pharmacies. Congressional scrutiny has grown alongside that report, though legislation to address PBM practices has repeatedly stalled.

What makes the Iowa audit notable is the specificity of the finding: a documented, auditable trail showing how a banned practice was reconstituted through a different accounting structure. Iowa auditors said the year-end adjustments produced prohibited spread pricing even though each individual transaction appeared compliant.

For Medicaid patients and taxpayers in Iowa, the practical consequence is that money intended for drug coverage traveled through the system and ended up as PBM revenue rather than pharmaceutical cost. The $100 million figure represents one state, one audit window, and one unnamed PBM. The same accounting structures exist in Medicaid programs across the country.

None of the named companies had publicly responded to the specific audit findings at the time of publication.