Kickbacks by Any Other Name: How PBMs Turned "Rebates" Into a Shell Game — and Why Express Scripts Is Getting Sued For It

I spent over two decades watching this system get built from the inside, so to many of us, the recent class action lawsuit against Express Scripts isn't a surprise, it's a reckoning that's been a long time coming.

Let's start with what many of my colleagues in the employer and payer space used to call drug rebates when they thought no one outside the room was listening: “employer crack cocaine.” The following is a classic story of how employers caught payers’ hands in the cookie jar, demanded some of those cookies, and were fooled by some of the greatest whack-a-mole players of all time.

How the rebate game was born

PBMs and insurers began extracting significant rebates from drug manufacturers around 2009. Over the following decade, the practice exploded. Manufacturers found themselves in an arms race, outbidding each other for favorable placement on PBM formularies (the list of drugs that a health plan will cover.) The higher you bid, the better your placement. The better your placement, the more prescriptions got filled. It was pay-to-play kick back, dressed up in the language of negotiation.

Employers eventually caught wind of the piles of money their PBMs were generating from their drug spend and began demanding a cut. Over time, many employers became genuinely enamored with the annual rebate check — a tidy sum that arrived each year and felt like found money, even as premiums kept climbing. The rebate became a budget line item, a comfort, a reason not to look too hard at what was actually driving costs.

The tension between the rebate as an annual cash flow item and the rebate as a cost driver to their employees is at the heart of everything that followed.

Regulators take notice — and the industry gets creative

Government agencies and legislators eventually caught on to what many believed was a pay-to-play system driving up drug list prices. It came to a head in November 2020, when the Department of Health and Human Services finalized a rule that would remove the Anti-Kickback Statute "safe harbor" that had been protecting manufacturer rebates paid to PBMs and Medicare Part D plans. In plain terms: the rule aimed to eliminate traditional back-end rebates and replace them with point-of-sale discounts passed directly to patients, along with fixed, transparent service fees paid to PBMs.

If that had happened, the rebate game — as it had been played for over a decade — would have been over.

But as they often do, the big PBMs got creative. Beginning as early as 2019, when the rule was first proposed, each of the major PBMs created new subsidiaries structured as group purchasing organizations (GPOs) that could serve as rebate aggregators operating at arm's length from the PBM itself. Cigna's Express Scripts launched Ascent Health Services in 2019, registered in Switzerland. CVS Health created Zinc Health Services in 2020, registered in the U.S. UnitedHealth Group's OptumRx formed Emisar Pharma Services in 2021, registered in Ireland.

What I found out when I started asking around

I spent nearly a decade negotiating drug contracts, and when these GPOs started appearing I knew there was more to the story than the official line. So, I called colleagues across the industry and confirmed what I suspected. The GPOs were negotiating more than half of the rebates coming from manufacturers, leaving the PBM arm to negotiate the remainder. One colleague estimated that up to 70% of rebates were now being negotiated by the GPOs.

So…when a PBM stood in front of an employer client to proudly declare that they provide 100% pass-through of rebates, I would roll my eyes. Technically true. Practically misleading. The employer was getting 100% of the drug rebates that the PBM negotiated, usually less than 50% of the total. The majority of the rebates were being negotiated and captured upstream, through their GPO, under a different contractual structure that the pass-through guarantee didn't touch.

That is how you tell a client you're being completely transparent while showing them only part of the picture.

Now there's a lawsuit — and it has receipts

The new class action that Bernstein Litowitz Berger & Grossmann filed in late February against Express Scripts, Cigna, and Evernorth puts what I just described into a federal complaint, with a former executive's damning words in the record. The suit was brought on behalf of the Plumbers' Welfare Fund of Chicago's Plumbers Local 130 — a union fund that provides healthcare benefits to working tradespeople and their families — and it alleges that ESI used Ascent not merely as a negotiating vehicle, but as a mechanism to reclassify manufacturer payments as "fees" rather than rebates, specifically to avoid contractual obligations to share them with clients.

Data fees. Administrative fees. Clinical fees. The categories multiplied, the definitions stayed conveniently vague, and the money stayed in Switzerland. A former executive cited in the complaint described the arrangement plainly: through Ascent, you could "double, triple dip on fees." Rarely does alleged corporate fraud arrive with such a helpful tutorial from the inside.

ESI's own marketing copy makes this all particularly rich. The company told clients it "exists to lower the cost of medications" and assured them that "rebates are not secret or hidden payments." Meanwhile, Ascent was doing exactly the job those words said wasn't happening — from an office in Zurich.

What makes this lawsuit worth celebrating — genuinely — is who brought it. The Plumbers' Welfare Fund is not a hedge fund gaming the system in reverse. It is a union trying to stretch member dues into real healthcare coverage for real families. When a PBM allegedly siphons off money that should have reduced those members' drug costs, the injury doesn't stay abstract. It lands on a pipefitter standing at a pharmacy counter, deciding whether to fill a prescription.

This isn't just an Express Scripts story

ESI and its parent companies will fight this hard, and the case has a long road through the courts. But the filing itself matters beyond the outcome. The Ascent structure — and structures like it — operated for years on a comfortable assumption: that clients either couldn't follow the money or couldn't prove what they suspected. That assumption is now being tested under oath, with subpoenas attached. That is a different kind of pressure than a regulatory inquiry or a critical op-ed.

And it would be a mistake to read this as a story about one bad actor. Ascent was Cigna's invention, but OptumRx has Emisar in Ireland and CVS Caremark has Zinc here at home. The creativity with which each of the major PBMs has found ways to extract value from every layer of the system — from manufacturers, from clients, from pharmacies — is not coincidental. It is the business model.

Pull up a seat and grab your popcorn. This might actually get interesting.