The Price You Don’t See: How Pharmacy Benefit Managers Shape Hawai‘i’s Healthcare Costs

By David Isei , Executive Director, Hawai‘i Healthcare Task Force Editor’s Note: This article is part of the Task Force’s series on the economic factors affecting Hawai‘i’s healthcare access. Executiv

HHTF Staff · 2026-05-24

By David Isei , Executive Director, Hawai‘i Healthcare Task Force

Editor’s Note: This article is part of the Task Force’s series on the economic factors affecting Hawai‘i’s healthcare access. Executive Director David Isei examines how pharmacy benefit managers influence drug pricing, insurer spending, and local provider viability in Hawai‘i.

The Hidden Middlemen of Healthcare

When patients in Hawai‘i fill a prescription, they seldom consider who sets the price or profits before the medication reaches them. Pharmacy Benefit Managers are intermediaries that negotiate drug prices, determine formularies, and manage rebates among drug manufacturers, pharmacies, and health insurers.

PBMs were originally created to simplify claims and help employers secure lower prices. Over time they have evolved into some of the most powerful and least transparent players in the U.S. healthcare system. Today, three PBMs - CVS Caremark, Express Scripts, and OptumRx - control a dominant share of the U.S. prescription drug market. In Hawai‘i, almost every patient, clinic, and hospital interacts with PBMs through insurance plans. Few are aware of how PBM practices affect costs, drug access, and the financial stability of local pharmacies.

How PBMs Profit from the Spread

Key Mechanism: Spread pricing occurs when a PBM bills a health plan or employer a higher price for a drug than it reimburses the pharmacy. The difference - the spread - is retained by the PBM as profit.

Independent investigations and audits have shown that spread pricing and opaque rebate structures can add substantial costs to the system, often hidden behind proprietary contracts. PBMs argue that rebates and volume discounts reduce premiums, but patients rarely see direct savings. High list prices persist, and the rebate system encourages manufacturers to increase prices to support those rebates, creating a self-perpetuating cycle. In practice, PBMs benefit most when drug list prices increase.

The Impact on Hawai‘i’s Patients and Pharmacies

Local pharmacies struggle to survive. Many independent and community pharmacies report losses on prescriptions because PBM reimbursements fall below acquisition cost. This is especially harmful on the Neighbor Islands, where a closure can leave entire communities without local access.

Providers lose affordable options. Physicians face limited formularies and increased prior-authorization burdens that delay care and raise clinic overhead.

Patients pay more at the counter. Even when rebates exist, they typically benefit PBMs or insurers rather than consumers, contributing to higher out-of-pocket costs and medication nonadherence.

State budgets absorb diversion. In Medicaid and other public programs, spread pricing and opaque rebate flows divert millions of dollars away from patient care and workforce investment.

Connecting the Dots: The 15 Percent Rule and Hidden Costs

PBM practices also reveal how administrative spending can escape the federal Medical Loss Ratio rule, which caps insurer overhead at 15 percent. Under current definitions, many PBM and utilization-management services are classified as clinical or quality improvement, which places them inside the 85 percent medical-spending bucket, not the 15 percent administrative cap.

The result is that significant dollars leave Hawai‘i’s care system each year under the label of medical services. Fixing drug pricing is therefore inseparable from clarifying what qualifies as healthcare spending. To truly serve patients, Hawai‘i must keep those dollars working locally to support physicians, pharmacies, and the care infrastructure that keeps communities healthy.

Accountability in Motion: The Hawai‘i Case

On October 4, 2023, the Hawai‘i Department of the Attorney General filed suit against CVS Caremark, Express Scripts, and OptumRx, alleging unfair and deceptive practices that inflated prescription drug costs statewide. The state seeks civil penalties, restitution, disgorgement, and injunctive relief.

Current status: The case was filed in Hawai‘i’s First Circuit Court and later removed to the U.S. District Court for the District of Hawai‘i. The federal case remains active. This means the lawsuit was not dismissed on its merits but continues under federal jurisdiction pending further proceedings.

Why This Matters for Hawai‘i’s Workforce Crisis

Although PBMs may appear unrelated to provider shortages, the connection is direct. When funds are siphoned from clinics and pharmacies, the entire healthcare workforce is weakened.

Primary care clinics lose revenue from in-office pharmacies and 340B programs when PBM practices capture those margins.

Hospitals face discharge delays or disrupted care when medications or authorizations are stalled.

Physicians and pharmacists spend more time on administrative hurdles and less time with patients, fueling burnout and turnover.

Five Steps Toward Transparency and Local Accountability

Mandate PBM transparency. Require full disclosure of rebates, spreads, and administrative fees in Hawai‘i, especially in Medicaid and employer-sponsored plans.

Ban spread pricing in state programs. Eliminate spread pricing in Medicaid to recover savings for direct care.

Ensure fair reimbursement. Set minimum standards that reimburse pharmacies at or above acquisition cost plus a reasonable margin.

Reinvest savings locally. Direct recovered funds to residency expansion, rural clinician housing, and clinic stabilization.

Empower in-state oversight. Strengthen audit and enforcement authority for Hawai‘i regulators to ensure compliance.

A Call for Balance

PBMs are not inherently harmful and can provide value when operating transparently and competitively. Without accountability, however, they become one of the largest unregulated drains in American healthcare. Hawai‘i can realign incentives so that savings remain in the islands and support the people and institutions that deliver care.

By prioritizing clarity and reinvestment, Hawai‘i can turn a hidden cost driver into a catalyst for positive change, funding the clinics, hospitals, and workforce needed to keep care local.

Case and Source Notes

• Lawsuit summary from the Hawai‘i Department of the Attorney General, News Release 2023-45 (October 4, 2023).

• State docket: Case No. 1CCV-23-0001281, later removed to the U.S. District Court for the District of Hawai‘i.

• Bloomberg Law docket indicates termination of the state case and transfer to federal jurisdiction.

• Proceedings remain active under federal review.