Hospice Pharmacy's Hidden Conflict: When Your PBM Owns the Pharmacy

A hospice executive opens the monthly pharmacy invoice. The total looks reasonable. The line items look reasonable. Cost-per-patient-day is roughly where it was last quarter. By every metric they're trained to check, the relationship is working.

There's a question they were never told to ask.

Does your PBM own a pharmacy?

For most hospice operators, the answer is yes, and most have never thought about why that matters. The conflict it creates is structural. It's well-documented at the federal level. And it's almost entirely invisible on an invoice.

This article walks through how the conflict actually works, what state and federal regulators have started to say about it, and what an alternative model looks like: one where the company administering your pharmacy benefit makes more money when you do, and less when you don't.

What a PBM actually does

A pharmacy benefit manager, or PBM, sits between a hospice and the network of pharmacies that fill its patients' prescriptions. The acronym sounds neutral. The job is anything but.

Every month, a PBM makes hundreds of decisions that quietly shape what a hospice spends:

• What's covered on your formulary, and what gets recommended for inclusion as a branded form, a higher strength, or a more expensive medication entirely
• Which pharmacies are in the network, which one becomes the default at intake, and what terms each pharmacy operates under
• Which prescriptions trigger a prior authorization
• How long a fill is allowed to last: 3 days, 14 days, 30 days, or longer
• What the hospice pays for each fill, and whether that price reflects what the pharmacy was actually paid
• How drug manufacturer rebates are negotiated, and where those rebates end up

These are real, consequential decisions. Total drug spend at a 150-census hospice is meaningful money over a year. The question isn't whether the PBM has influence over that number. It does. The question is whose interests guide the decisions.

A PBM has power over your drug spend. That's the job. The question is whether they're using that power on your behalf, or against it.

Vertical integration: how the conflict works

When a PBM and a pharmacy share a parent company, the structure is called vertical integration. The PBM's decisions about your benefit also decide where your patients' fills go and how much that owned pharmacy earns. The same entity sits on both sides of every transaction.

Four mechanisms turn that structure into a transfer of money out of the hospice's pocket. None require anyone to act in bad faith. The incentives do the work.

Formulary advice that quietly grows your spend. PBMs frame coverage recommendations as expert clinical and economic guidance. Add this branded form. Cover this higher strength. Include this expanded list of medications. When the PBM (or its affiliated pharmacy) earns higher margin on the medications being recommended for inclusion, and rebates flow to the PBM on those same drugs, the recommendation isn't neutral. It's an expansion of the PBM's revenue surface, dressed up as expertise. The hospice ends up covering more medications at higher prices, and the advice all came from the same trusted source.

Default routing, and active friction against the alternatives. Patients are routed to the PBM's owned pharmacy through default assignments at intake, faster claim processing, and claims of superior service levels, whether or not those claims hold up in practice. What's harder to see is what happens to the alternatives. Local independent and chain pharmacies that try to compete get iced out of the network entirely, restricted to 3-day supplies that no patient or nurse wants to manage, or saddled with extra dispensing fees and claim fees for the same fill the affiliated pharmacy would have processed cleanly. The hospice ends up paying more to use a local pharmacy, and the local pharmacy ends up structurally unable to compete. Both outcomes route volume back to the PBM's own pharmacy.

Spread pricing, with the PBM on both sides of the contract. The PBM negotiates contract rates with pharmacies. When vertically integrated, the PBM is negotiating with itself. It pays one price at the pharmacy counter and bills the hospice a higher one. The difference is the spread. An invoice line item shows the hospice's price; it does not show what the pharmacy was actually paid, or how favorable the contract rate ended up when the PBM was sitting on both sides of the negotiation.

Rebate retention. Drug manufacturers pay rebates to PBMs in exchange for formulary inclusion and volume. Those rebates are negotiated on the PBM's total book of business, including your hospice's volume. Whether any of that money flows back to you depends entirely on a contract clause you may have never been shown.

How your PBM gets paid decides what they want for you

Ownership is the visceral version of the conflict. There is a quieter version that doesn't require the PBM to own a pharmacy at all.

It's the pricing model.

Most PBMs charge per claim. Every prescription that flows through the system generates a transaction fee. That structure is unremarkable until you trace its incentives.

Under per-claim pricing, the PBM's revenue grows when:

• Days supply limits get shorter (a stable patient on a cheap generic ends up with a 14-day fill instead of 30, doubling the claim count for the same medication)
• More medications are added to the covered list (more fills, more transaction fees, more rebate eligibility)
• Patients are on more concurrent prescriptions
• Refill cycles tighten

None of those things are automatically good for the hospice. Shorter days supply means more fills, more deliveries, more dispensing fees, and more workflow friction for staff. Broader coverage means higher hospice spend. Higher claim volume means higher PBM revenue, and in many cases, no improvement in patient care.

When the PBM also owns the pharmacy, the incentive doubles. Every claim now produces two revenue streams: a transaction fee on the benefit-management side, and dispensing margin on the pharmacy side.

There is an alternative pricing structure that flips the incentive: per-patient-day. The vendor's revenue is tied to census, not to claim count. The vendor makes more when the hospice grows. The vendor saves the hospice money when each patient day costs less. Cost-per-patient-day, the metric hospice executives actually care about, becomes the metric the vendor is rewarded for improving.

That is the only pricing structure where vendor and hospice want the same thing.

Why you don't see it on the invoice

The conflict is invisible by design.

An invoice tells you what you paid. It doesn't tell you what you could have paid. It doesn't surface the spread. It doesn't disclose the affiliated relationship between the PBM and the pharmacy that filled the prescription. It doesn't show the rebate flows. The line items balance. The math is consistent. Everything looks normal.

Comparing two vertically integrated PBMs against each other doesn't reveal the problem either; it normalizes it. If both vendors operate the same model, the bid that arrives looks competitive because everyone is doing the same thing. The market price of the conflict becomes the market price.

Hospice contracts compound the opacity. The disclosure language is dense. Ownership relationships are buried under affiliate definitions. Rebate retention is described in terms of "administrative fees" or "performance guarantees." A hospice executive doing thorough due diligence can still miss it. That isn't a failure of attention. It's a failure of disclosure.

What regulators have started to say

What follows isn't one company's grievance against the incumbents. The federal trade regulator and at least one state legislature have already concluded the structure is the problem.

In July 2024, the Federal Trade Commission released its interim staff report on the PBM industry: Pharmacy Benefit Managers: The Powerful Middlemen Inflating Drug Costs and Squeezing Main Street Pharmacies. The findings were direct. The six largest PBMs control roughly 95% of US prescription claims. The largest three, owned by the same parent companies as some of the country's largest pharmacies and health insurers, handle nearly 80% on their own. The FTC concluded that vertically integrated PBMs "appear to have the ability and incentive to prefer their own affiliated businesses, creating conflicts of interest that can disadvantage unaffiliated pharmacies and increase prescription drug costs."

Two months later, in September 2024, the FTC sued the three largest PBMs over their rebate practices, alleging they had artificially inflated insulin list prices. In February 2026, one of those defendants reached a settlement requiring fundamental changes to its business model and projected to lower patient out-of-pocket costs by up to $7 billion over ten years. Litigation against the other two continues.

In April 2025, Arkansas became the first state in the country to ban the structure outright. House Bill 1150 (now Arkansas Act 624) prohibits PBMs from holding any direct or indirect ownership interest in a pharmacy operating in the state. The legislative finding was simple: you cannot manage a benefit and dispense the drug. The conflict is irreducible.

The country's largest PBMs sued to block enforcement, and a federal court issued a preliminary injunction while the legal questions are resolved. That fact does not undo the legislative finding. It underlines it. When state lawmakers identify a structural conflict and the affected industry's response is to immediately go to court to stop the rule from taking effect, what's being defended is the structure itself.

Manager or administrator

The acronym is Pharmacy Benefit Manager. The word Manager is doing more work than most hospice operators notice.

A Manager makes decisions about your pharmacy benefit. What gets covered, which pharmacy fills it, what you pay, what counts as a prior authorization, how rebates are negotiated. When the Manager has its own pharmacy, its own per-claim revenue model, or both, those decisions have a second audience.

An Administrator is a different role. An Administrator executes the decisions you make and gives you the tools to make them well. An Administrator surfaces coverage, cost, and formulary data inside the workflow so your clinicians can make informed decisions in real time. An Administrator passes pharmacy contract rates through without spread. An Administrator doesn't keep rebates. An Administrator doesn't own a pharmacy. An Administrator's revenue is tied to whether you are succeeding, measured the way you measure it: cost-per-patient-day, clean-claim rate, time-to-fill, clinical satisfaction.

A hospice doesn't need someone to manage its pharmacy benefit. A hospice needs someone to administer it: alongside them, accountable to them, and structurally incapable of profiting at their expense.

Five questions to ask any pharmacy vendor

If a vendor cannot answer these clearly, that itself is the answer.

The structural question

When the company managing your pharmacy benefit is also the pharmacy dispensing the drugs, you don't have two parties working in partnership for your hospice. You have one company on both sides of every transaction, accountable only to itself. An administrator and a pharmacy network are supposed to be separate. That's how the partnership works, and how the hospice stays at the center of it.

If your PBM's revenue grows every time your team writes a prescription, your interests and theirs aren't aligned. If your PBM makes it harder for your local pharmacies to compete, your community relationships aren't theirs to protect.

This isn't an attitude difference between vendors. It's a structural one. The hospice industry has spent the last decade accepting an arrangement that the federal regulator has now formally questioned and at least one state has tried to outlaw.

It doesn't have to work this way.