The Limits of Transparency
When people hear “drug prices,” they often picture a tug-of-war between patients and pharmaceutical companies. But in the United States, much of what you pay at the pharmacy counter is shaped by contracts you never see — negotiated not only by manufacturers and insurers, but by pharmacy benefit managers (PBMs), the intermediaries that design formularies and bargain over rebates. These rebates can be enormous, yet they are typically hidden from the public and even from some buyers. So it’s not surprising that policymakers have rallied around a simple idea: if we make rebate flows visible, competition will improve and costs will fall.
The Hidden Role of Intermediaries
That intuition is compelling. Transparency feels like a “light-touch” solution: don’t set prices, just reveal information. In theory, once health plans can see what PBMs collect from manufacturers, they should be able to benchmark performance, renegotiate contracts and pass savings on to consumers. But markets don’t always work like textbooks — especially when a few powerful intermediaries sit in the middle and can shift margins in ways outsiders don’t observe.
In research using comprehensive administrative data from Medicare Part D, I study state laws adopted between 2019 and 2022 that required PBMs to disclose detailed rebate and fee information to health plans. These reforms created a natural experiment: the rules were introduced at different times across states, and they changed what was observable without directly regulating prices. That makes them a clean test of a big question: does disclosure alone reduce what patients pay?
The Effect of Transparency
In some markets, transparency of information can improve oversight, but it cannot be a substitute for deeper reforms
The answer is, mostly, no. After these laws took effect, premiums, deductibles and out-of-pocket payments in Medicare Part D remained essentially unchanged. The same is true for negotiated drug prices and the composition of formularies. In other words, more information did not translate into cheaper drugs or more generous insurance design — at least in this setting.
The most telling pattern appears across state borders. Many insurance contracts operate in multiple states, and when some states imposed transparency rules, costs in other, unaffected states rose for plans connected to the newly regulated markets. The implication is subtle but important: when regulation tightens one channel, intermediaries with national portfolios may respond by re-optimizing elsewhere. Transparency changed what could be monitored in one place — but not necessarily the overall incentives that determine what is paid.
Why does this matters?
First, it challenges a popular assumption in policy debates: that disclosure is an easy substitute for deeper reforms. Transparency can improve oversight, but it may not lower costs when bargaining power stays concentrated and when contracts allow profits to be preserved through other, less visible margins. Second, it highlights a practical risk of “partial” regulation in integrated markets: if rules differ across jurisdictions, firms may shift costs rather than eliminate them. For patients and taxpayers, that means a policy can look successful on paper — more reporting, more accountability — while leaving affordability unchanged.
In an era where “sunlight” is often presented as the best disinfectant, these findings are a reminder that information is not the same as competition. If we want lower drug spending, transparency may help us understand the system — but it may need to be paired with policies that change incentives, not just visibility.
