Meet the Connectors

This article appears in the December 2025 issue of The American Prospect magazine. Subscribe here.

Cole William Schmidtknecht was about to turn 23 last year, when he went to Walgreens on a cold January day in Appleton, Wisconsin, to pick up some medicine. He expected his Advair Diskus inhaler to cost what it always had under his prescription drug plan, between $35 and $66.86. But when he got to the counter that day, the pharmacist told him insurance no longer covered it and that there was no alternative, though the lawsuit his parents brought showed a generic version should have been covered. His options were to pay $539.19, a 700 percent increase, or leave. So he left.

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For the next 120 hours, Cole suffered slow, constant torture. He repeatedly struggled to draw breath. He tried to use an outdated “rescue” inhaler. It didn’t work. He texted his dad Bil, a fellow asthmatic, saying he couldn’t breathe. He began to asphyxiate. By the time his roommate drove him to the emergency room, Cole was “unconscious, pulseless, and appeared blue.” Medical staff gave him two rounds of adrenaline and performed two rounds of CPR, a four-minute race against time to wake him up. They lost.

Cole remained unconscious, his throat so constricted that workers strained to intubate him, his brain starved of oxygen. For six days, he lingered on a ventilator in the intensive care unit “until doctors finally informed his parents … that he was beyond help.” Cole was pronounced dead 11 days after his trip to Walgreens. The immediate cause of death: asthma.

“Cole was forced to choose between his medication and his rent. He chose to pay his rent,” Rep. Jake Auchincloss (D-MA) told Congress almost a year later.

But who forced him? Who decided his inhaler was no longer covered? Not UnitedHealthcare, his $448 billion insurance company, nor the drug company. Cole’s grieving parents pieced it together: The decider was Optum Rx, a UnitedHealthcare subsidiary.

Optum is less well known than UnitedHealth but enormously powerful; it’s one of just three pharmacy benefit managers (PBMs) that control almost 80 percent of about 6.6 billion prescriptions nationwide. It manages drug transactions for insurance plans, negotiating prices with drug manufacturers and reimbursing pharmacists. And it controls the formulary, the list of drugs that get covered. When Optum drops a drug for whatever reason, people like Cole Schmidtknecht suffer.

PBMs are a particularly rapacious type of middleman, just one of many responsible for turbocharging America’s affordability crisis. As the Federal Trade Commission (FTC) put it last year: PBMs “profit at the expense of patients and independent pharmacists” by hiking up drug prices and imposing “unfair, arbitrary, and harmful” contracts on independent pharmacies.

When we think about our family budgets, we don’t factor in the intermediaries who take a profit by sitting in between the things we need and want and the companies that produce them. Middlemen can enable critically important transactions to proceed across time zones and geographical borders. But in the process, said Columbia Law School professor Kathryn Judge, middlemen “acquire a whole host of advantages that they very often systematically exploit to their own advantage and to the disadvantages of the parties they’re trying to connect.” They are the spine running down the entire global economy.

If you want to understand why things have gotten so expensive, you need to understand middlemen, and why they may have too much power.

SOME MIDDLEMEN ARE OBVIOUS, their greed easy to spot. Take real estate agents who secure homes for people. California Attorney General Rob Bonta sued agents for price-gouging during ongoing wildfires; the problem is so rampant he’s sent agents more than 750 warning letters. Or meatpacking giants Cargill, Hormel Foods, JBS, and Tyson Foods, which take in livestock from farmers and ranchers, process the meat, and sell it to grocery stores. Concentration and collusion in the industry lead to bulging profits for the middlemen; in October, the leading meatpackers settled two separate price-fixing lawsuits for a total of $295.5 million, raising beef and pork prices on at least 36 million people.

Wall Street is home to a host of intermediaries, like asset managers, which are allowed to charge mutual fund investors a “12b-1 fee” for “distribution.” In the common tongue: These middlemen charge you for the advertisements they direct at you. Sometimes, they charge millions more than they’re allowed, as the Securities and Exchange Commission found in a long-running investigation a decade ago. Artificial intelligence has produced new permutations, such as the AI bots hedge funds use as middlemen to execute trades. Studies show that these bots invariably begin to work in sync, acting as an allegedly unintentional price-fixing cabal.

Technology has given rise to yet more middlemen seeking their share of your money. Platforms like Amazon and eBay are middlemen for e-commerce. Real estate broker websites Realtor.com, Redfin, and Zillow compete against their human counterparts. Then there are the middlemen that purport to make life easier by exploiting cheap labor to add even more distance between you and your food, like DoorDash, Instacart, FreshDirect, and Uber Eats. These services can increase the price of an item by 75 percent, as Streetsblog NYC reported in August.

OpenAI has spun visions of building God in a machine and improving every aspect of daily life. But the company’s real aspiration is to join the middleman legion. At a Wall Street Journal tech conference in November, OpenAI chief financial officer Sarah Friar is reported to have indicated that the company is seeking creative commercial deals, like demanding a revenue share of profits from any pharmaceutical company that discovers new products using ChatGPT. OpenAI plans to also take a cut from any Walmart or Shopify sale made after a ChatGPT search.

Some middlemen are success stories, Judge said. Etsy, for example, makes it possible for artists and craftspeople to scale up their small businesses and find new customers. Yet it too is extractive, making it possible for CEO Josh Silverman to draw compensation of nearly $18 million last year, about 84 times the pay of the median employee, according to the company’s most recent proxy statement. Now add to that the $62,856 the company spent on his security services, the $9,900 match for his 401(k) plan, and the multimillion-dollar base, bonus, security, retirement, and travel payments for the other four top executives. The company even paid $15,028 for former chief operating and marketing officer Raina Moskowitz’s tax preparation last year.

These are entities in need of reform, especially as more Americans struggle to pay their bills and maintain shelter. In this, lawmakers and regulators have failed. Many middlemen have powerful lobbyists to sway elected officials in their favor. They also hold all the information, Judge said, allowing them to manipulate lawmakers and the general public, who lack the expertise to fact-check them.

In 2005, for example, when various states realized that there was a rise in predatory lending and sought to implement rules to protect people against them, intermediaries worked overtime to put out the message that restraints on their conduct were bad for Americans. This would make it harder to securitize loans, which makes them better and cheaper, their argument went. Lawmakers backed off, securitization continued—and then 2008 came around.

“Intermediaries understand so well their domain, they are oftentimes able to spin out stories about what looks good for the consumer is actually bad for the consumer,” Judge said.

The convoluted economy of health care is designed to make it a breeding ground for graft and middlemen. They usually come promising discounts or pledging to simplify the system. Take Payer Matrix, a middleman offering patients “alternative funding” for high out-of-pocket costs, which can leave them exposed to losing approvals or coverage. Or group purchasing organizations, which buy medical supplies in bulk on behalf of hospitals. They take such a big cut from medical suppliers that few can afford to make the low-margin supplies without winning one of their contracts. As a result, the U.S. faces an ongoing epidemic of drug shortages, an example of the risk that middlemen present even beyond higher prices.

Beyond simply failing to regulate PBMs, some lawmakers collude with them. The FTC accused GPOs last fall of joining those quintessential middlemen in making insulin unaffordable.

THE MAIN BENEFICIARY OF PBMS is PBMs, which pay their executives millions while denying people like Cole the medicine they need to live. They are a uniquely American enterprise; the U.S. runs virtually the entire $609.13 billion global PBM market, all but 3 percent, according to consultancy Fortune Business Insights. The market is expected to grow to $898.77 billion in the next seven years, more than the gross domestic product of Sweden or Taiwan. Why? Because the patient population is locked into contracts with private health insurance companies, and because of “favorable government regulations supporting PBMs,” the consultancy said.

The PBM that denied Cole’s inhaler, Optum Rx, is run by Patrick Conway, who just a few years ago resigned from his job as the CEO of BlueCross BlueShield of North Carolina, after cops arrested him in Raleigh for driving drunk, crashing into a tractor trailer, and endangering his two young daughters who were in the car with him. During the encounter, Conway was “absolutely belligerent,” cussed out the cops, threatened to call the governor, refused a breathalyzer, and began kicking and pounding on the holding cell, to which officers responded by slapping him in shackles. BlueCross board members reportedly sought to cover it up, but when they failed it didn’t really matter because the rules don’t apply to high-placed individuals in the U.S. and it takes much more than two child abuse misdemeanors and a careless and reckless driving charge to bring them down, or even require they serve jail time. So while Conway had to quit his CEO gig, which paid him $3.59 million in his last year on the job, the practicing pediatrician focused on “self-care” and quickly got a new position. Now his paycheck is even bigger, “a little north of $4 million” as of 2023, he told Congress.

A few years back, all the leading PBMs joined forces with insurance companies. Optum Rx is part of a huge parent company, in this case $300 billion colossus UnitedHealth Group. Express Scripts is part of Cigna; one way it makes money is by rejecting claims without ever looking at them, ProPublica found. Another is by overcharging the U.S. military’s health insurance an average of $484 per generic drug compared to other pharmacies, according to a recent investigation by The Lever. CVS Caremark, the third of the Big Three PBMs, is a subsidiary of the nearly $100 billion CVS Health, as is insurer Aetna. The family of companies also includes the pharmacy CVS; all PBMs own mail-order pharmacies as well. Executives self-deal with ease, steering the prescriptions managed by their PBM to their ubiquitous drugstores.

Optum expects revenue growth this year of $18 billion, or 13 percent, Conway said in UnitedHealth’s most recent earnings call. What accounts for such great wads of money? “At Optum Rx, client retention remains high and consistent with past years,” he told investors.

That is because PBMs are a cartel. Their clients are private insurers, drug manufacturers, and pharmacies, all of which sign secret contracts with terms the other clients do not get to see. The rest of us don’t get to see them, either. But we can understand how they work by decoding the euphemistic language typical of industries that want your eyes to glaze over.

Drug manufacturers pay PBMs secret “rebates” and other fees to put their drugs on the insurer’s formulary. Another word for “rebate” is “kickback.” (Another word for “kickback” is “bribe.”) The formulary is the list of drugs the insurer will cover. By 2018, the total cost of drug kickbacks was $153 billion. Now, it’s $356 billion.

The amount of money PBMs pay the drug manufacturer is the “manufacturer net price.” They might give part of the kickback to the health plans, or to lower patient costs, which is the whole promise these middlemen make. But they can keep it if they want, and they don’t have to tell the health plan or patients how much it was.

Usually, kickbacks are a percentage of a drug’s list price. That means pricier drugs give PBMs a bigger payout, which is why PBMs inflate drug prices. The median annual list price for new drugs was $370,000 last year, according to a Reuters analysis this spring, up from $300,000 in 2023 and $222,000 in 2022. A much bigger survey, led by Harvard Medical School assistant professor Dr. Benjamin N. Rome, found prices for new drugs increased by 20 percent every year between 2008 and 2021, and that “even after drugs are marketed, manufacturers routinely increase prices over time.” Most countries negotiate prices with drug companies directly at launch, but we are the exceptional nation.

PBM contracts disfavor independent pharmacies so severely that they are closing across the country, as the Prospect’s David Dayen has reported. Yet they control so many transactions that pharmacies can’t survive without them. To get into a PBM’s network, pharmacies must agree to a take-it-or-else contract where the PBM reimburses them for every drug sold, a payment called the “maximum allowable cost” that is a secret between the PBM and the pharmacy. The health plan is then required to reimburse the PBM for that amount. But the PBM can demand more and keep the difference, and they don’t have to say that’s what they’re doing.

The secret contracts between PBMs and pharmacies are designed to hide vital information from customers. They forbid pharmacists from telling customers about lower-priced drug options, on the threat of kicking the pharmacist out of their network. PBMs force pharmacists to charge secret “co-pays” on some drugs, Dayen reported in 2017, except they aren’t co-pays. They’re a fee for the PBM.

To blame PBMs solely for drug price-gouging would be selling the problem short, said Antonio Ciaccia, president of Three Axis Advisors, a consultancy and researcher that exposes problems in the prescription drug supply chain. But “what makes PBMs uniquely problematic is that the system relies upon their purity. They are intended to be the counterweight in the environment.” He likened PBMs to a firefighter in the gasoline business. The system relies on them being good, he said, without incentives for them to be good.

PBM EXECUTIVE THUGGERY WAS on public display not long ago. Throughout the spring and summer of 2023, the House Oversight Committee listened to drugmakers, pharmacists, and doctors like oncologist Miriam J. Atkins describe how PBMs controlled what treatments she provides to patients, when, and how, remarking that she spends “countless hours” fighting with them “to get my patients evidence-based, lifesaving treatment they need.” She described a 63-year-old woman with metastatic gastrointestinal stromal cell cancer who was “required to pay a $1,500 a month insurance co-pay to her PBM” to get a lifesaving drug, even though the doctor’s own practice could provide it for $128 a month. “In essence, PBMs are practicing medicine without a license or regard for my patients,” Atkins said. “It is simply all about their profits and not my patients.”

Drug industry trade group Pharmaceutical Research and Manufacturers of America (PhRMA) COO Lori Reilly said in the hearing that typical PBM kickbacks from drug companies are more than 50 percent of the cost of the drug, that they limit patients’ access to lower-cost drugs, deny and limit access to biosimilar and generic medicine, and refuse to put cheaper insulin and lower-priced hepatitis C drugs on their formulary list. Reilly referenced a GAO report finding that patients paid four times more than their insurance company in 79 of the top 100 most frequently rebated drugs. “This happens nowhere else in the healthcare system,” Reilly said. “If you go to the hospital or the doctor’s office, you pay the negotiated rate, not the high list price.”

At some level, this finger-pointing from the drug industry is an attempt to deflect blame for high prices. And yes, it can be entertaining to watch mafiosi bicker. But in this case, what their spin seeks to hide is not just executives’ complicity in our affordability crisis, but a pile of dead bodies. Also in that hearing was “JC” Scott, president and CEO of the PBM lobbyist Pharmaceutical Care Management Association (PCMA). PBMs represent “only six percent of the drug dollar,” he whined. Reilly corrected him, referring to a Nephron Research study showing that 42 cents of every prescription dollar goes to PBMs. “The six cents that was quoted by Mr. Scott actually neglects to include the profits that they receive from specialty pharmacies, which is one of the largest drivers of profit that they receive,” Reilly said.

Then in July, lawmakers came for the dons, demanding leaders of the Big Three explain themselves. CEOs from Optum, CVS, and Express Scripts stonewalled their way through the hearing. They gestured right back at the drug companies, blaming them for jacking up prices. But they wouldn’t commit to capping generic drug price markups to no more than 885 percent. The answers were so outrageous that as they were speaking, “dozens of pharmacists” texted committee chair James Comer (R-KY) to accuse them of falsehoods, prompting him to remind the executives that they were under oath.

The following month, Comer told the three men they had lied during the hearing and directed them to correct their statements or risk up to five years in jail plus hundreds of thousands in fines. They refused. None of the companies responded to requests for comment on their executives’ performance before Congress.

“Pharmacy benefit managers today are the worst kind of middlemen. You stop competition, you prevent transparency, you manipulate markets, and you make our health care system more complicated,” said former Rep. Katie Porter (D-CA) in the hearing.

Federal lawmakers across party lines have proposed multiple laws to stop PBM price-gouging. A bipartisan reform, the result of years of negotiations, was inserted into a year-end spending package in 2024, which would have required PBMs to share rebates with patients, prevented upselling to costlier branded medications, and stopped steering to PBM-affiliated pharmacies. It appeared that Congress would finally crack down on this middleman. But in the middle of the night, Boer trillionaire and Trump frenemy Elon Musk sent a tweet attacking the spending bill, essentially for being too long. Lawmakers radically edited it and took out PBM reform.

A few days later, Musk quote-tweeted a Tucker Carlson Show clip explaining how 30 percent of a prescription’s cost is a kickback to a PBM. If Ozempic costs $1,000 a month, $300 is going to middlemen, Carlson’s guest said. Musk responded: “What is a ‘pharmacy benefit manager’?”

EVEN SMALL CHANGES TO PBMS would be meaningful, said pharmacist Benjamin Jolley, who runs an independent pharmacy in Salt Lake City, Utah, and is a fellow with the American Economic Liberties Project. “If we could split out the distribution networks from three giant companies to as few as six, I think that would change the market a lot,” he said, with the potential to dramatically change market dynamics.

But PBMs are opposed to any changes and are spending record amounts to stop them. Thirteen of the 15 most-lobbied bills in Congress in 2024 were connected to PBMs. Seven focused on them directly. So far this year, PBM lobbyist PCMA has spent nearly $10.5 million on lobbying, according to OpenSecrets. Last year, it spent $17.5 million.

With the fight against the PBM cartel in Washington sputtering, some states have taken up the cause, with varying degrees of success. Twenty-four states last year enacted 33 PBM reform bills, and as of this spring, lawmakers had proposed 1,250 more. Ohio and Kentucky actually created public PBMs for their state Medicaid programs, eliminating the middleman. The states saved hundreds of millions of dollars in the first couple of years, while increasing dispensing fees to pharmacists and improving access for patients. Several other states have plans to move to public PBMs.

In Wisconsin, Senate Bill 203, a proposal lawmakers are calling “Cole’s Act,” would only allow PBMs to remove a drug from the list of covered medicines when someone renews their insurance coverage, among other protections. PCMA sent two lobbyists to speak against the new law, Cole’s father Bil told me, but “the Senate didn’t fall for their bullshit” and it is still under consideration.

The lawsuit Bil and his wife Shanon brought is another way the fight continues. Bil has dedicated his life to the “David vs. Goliath” battle, quitting his job, founding Patient Protector to advocate for those who have been harmed by PBMs, and becoming for a time the director of patient experience at AffirmedRX, a public benefit corporation he says provides the type of service, transparency, and care that middlemen should. But the company laid him off when it was forced to cut costs, yet another symptom of PBMs’ death grip on the market. Bil also appeared in a Modern Medical Mafia documentary about PBMs, which UnitedHealthcare forced Prime Video and Vimeo to take down, a move The New York Times characterized as part of “an aggressive and wide-ranging campaign to quiet critics.” It is still up on YouTube, which Bil worries may not last long.

The Schmidtknechts’ lawsuit is against Optum Rx, Walgreens Boots Alliance, and the Walgreens Pharmacy on West Northland Avenue in Appleton. It alleges that the pharmacist told Cole his inhaler was no longer covered, even though Wisconsin law requires Optum Rx to give patients 30 days’ notice about those kinds of changes.The pharmacist did not contact Cole’s prescribing physician about three other more affordable alternatives as they were supposed to, provide any work-arounds, offer a generic alternative, or call OptumRx to request an exception, or any other steps to help, it says.

Optum Rx’s response was to say the situation was sad but not their fault, because ERISA preempts the plaintiffs’ wrongful death claim. A judge rejected that argument in July, so the case will proceed.

Asked for a comment regarding Cole’s death, an Optum Rx spokeswoman blamed Cole himself, saying he had not filled a prescription for his Advair Diskus inhaler using his pharmacy benefit “in nearly two years.” She shifted the blame to his job, too, saying the inhaler “was no longer covered on the formulary due to a health plan change made by his employer.” Besides, she said, Optum had informed the pharmacy that three other medications were covered, “each for a $5 copay.”

THE STORY OF MIDDLEMEN IN AMERICA is about more than commerce. As Judge points out in her book Direct: The Rise of the Middleman Economy and the Power of Going to the Source, while middlemen do raise prices, the disconnect between buyers and sellers robs us of the meaningful relationship that comes from organizing ourselves differently. Knocking back the supremacy of economic middlemen is “a structural challenge,” Judge said, “so that means we have to fight it and then we have to fight it again.” She described the need for a broader dialogue about who the economy really serves, and how the ever-lengthening supply chain reflects American’s growing sense of disconnection and alienation.

“When people are dealing directly in person,” Judge said, “you’re more likely to trust them and go away with good feelings, and there’s a real value in that.”

Dr. Harriet Fraad, a psychotherapist who examines how capitalism affects our personal lives, said that arranging the economy so that nothing is clear and everything is a possible scam goes far beyond making life more expensive, and carries real political implications. It arrests Americans’ ability to trust other people, she told me, which undermines our ability to organize against rising fascism. When every interaction is a possible shakedown, “you withhold your belief in connecting with other people to make life better,” Fraad said. “That is a real enemy of the kind of unity for people to make change.”

And while the practice of buying directly may not apply to the acquisition of pharmaceuticals in the same way it might to buying produce directly from a farmer, that spark of connection is still alive at independent pharmacies, where pharmacists are more likely to have time to speak with their clients and care about their well-being.

Proof of that came to Bil and Shanon in the days after Cole’s death. Bil worked at the same company as Cole, was on the same insurance, and uses the same inhaler. When Shanon went to pick it up, the pharmacist said it was no longer covered. But because she had gone to an independent pharmacy, the pharmacist stayed after hours to figure out how to get Bil his medicine, and Shanon walked away with a new prescription.

Had Cole likewise gone to an independent pharmacy, “he’d probably be here, and that’s what just pisses me off beyond belief,” Bil said. When he and Shanon put the pieces together after she came home that night, they stood in the living room, weeping, hugging, and decided then that “this just fucking can’t happen again,” Bil said. “No one else needs to die.”

This article appears in Dec 2025 Issue.