Pharmacy’s New Reality: Tariffs, PBM Battles, and the Rise of In-House Specialty Services
A staggering $51 billion. That’s the projected annual increase in U.S. drug costs should proposed tariffs on pharmaceutical imports reach 25%, according to Ernst & Young. But tariffs are just one piece of a rapidly shifting landscape for pharmacies, hospitals, and patients. The first half of 2025 has been marked by escalating regulatory battles, economic pressures, and a strategic pivot towards in-house specialty pharmacy services – trends that will fundamentally reshape how medications are priced, distributed, and accessed in the years to come.
The 340B Program Under Fire
The 340B drug pricing program, designed to stretch scarce federal resources as far as possible, remains a central battleground. President Trump’s executive order aiming to lower drug prices by revisiting Medicare payment cuts for 340B-eligible outpatient drugs has ignited a fierce debate. While some, like Chip Kahn of the Federation of American Hospitals, see it as a correction of past legal missteps, others, including Bruce Siegel of America’s Essential Hospitals, warn of potential destabilization for safety-net providers who rely on the program to serve vulnerable populations.
Adding fuel to the fire, a Senate investigation led by Sen. Bill Cassidy uncovered instances where health systems – including Bon Secours Mercy Health and Cleveland Clinic – accumulated substantial 340B savings without significant direct patient discounts. This scrutiny, coupled with an HHS proposal to shift program oversight to CMS, signals a period of tighter federal control and increased accountability for 340B participation. The future of the program hinges on balancing cost savings with equitable access, a challenge that will likely dominate healthcare policy discussions for the foreseeable future.
States Push Back Against PBM Power
While the federal government grapples with 340B, states are taking direct action against pharmacy benefit managers (PBMs). Arkansas led the charge in April, becoming the first state to ban PBMs from owning pharmacies, citing anti-competitive practices and concerns about patient access. Governor Sarah Huckabee Sanders aptly labeled PBMs “drug middlemen” inflating costs and restricting care.
This momentum is spreading. North Carolina is considering legislation to ban spread pricing and mandate minimum pharmacy reimbursements, while the Senate bill focuses on supply chain transparency. Iowa recently joined over 30 states with PBM oversight measures, banning cost-sharing schemes that favor larger chains – a direct response to the closure of 34 rural pharmacies last year. These state-level reforms represent a growing recognition of PBMs’ influence and a desire to restore balance to the pharmaceutical supply chain. The National Conference of State Legislatures provides a comprehensive overview of these evolving state laws.
The Impact of Vertical Integration
The core of the PBM backlash centers on vertical integration – PBMs owning pharmacies, insurers, and even drug manufacturers. This consolidation creates conflicts of interest and limits competition, ultimately driving up prices for patients and payers. Expect to see continued legislative efforts aimed at breaking up these integrated entities and promoting greater transparency in PBM practices.
Tariffs and Supply Chain Vulnerabilities
President Trump’s tariff policies have injected significant volatility into the healthcare supply chain. While pharmaceuticals weren’t initially targeted, they are subject to the base 10% tariff on all U.S. imports, and a Section 232 investigation looms, potentially leading to even higher levies. Hospitals like Providence Health estimate tariff-related cost increases of $10-$25 million annually, and industry groups warn of potential drug shortages, particularly for generic sterile injectables.
The temporary reduction of tariffs on Chinese imports to 55% offers some relief, but the underlying uncertainty remains. Healthcare organizations are actively exploring strategies to mitigate tariff impacts, including diversifying suppliers, negotiating contracts, and advocating for exemptions. The long-term consequences of these trade policies will depend on ongoing negotiations and the evolving geopolitical landscape.
The Rise of Health System-Owned Specialty Pharmacies
Amidst these challenges, health systems are increasingly turning to specialty pharmacies as a strategic solution. Cottage Health, Lurie Children’s Hospital, and UVA Health are all investing heavily in these specialized services, aiming to improve medication access, lower costs, and enhance patient care. UVA Health’s $17 million central pharmacy facility, equipped with automation and AI, exemplifies this trend.
Specialty pharmacies focus on complex, high-cost medications for chronic conditions like cancer, rheumatoid arthritis, and multiple sclerosis. By bringing these services in-house, health systems can gain greater control over the supply chain, improve medication adherence, and capture revenue that might otherwise flow to external pharmacies. This represents a significant shift in the pharmacy landscape, with health systems taking a more active role in medication management.
What does this all mean for the future? Expect continued regulatory scrutiny of the 340B program and PBMs, ongoing tariff-related disruptions, and a further acceleration of the trend towards health system-owned specialty pharmacies. Navigating this complex environment will require agility, innovation, and a relentless focus on patient value.
Share your thoughts: How will these changes impact your organization or your patients? Let us know in the comments below!
