In the commercial sector, employers are still being told that pharmacy benefits are too complex to fully understand, too specialized to directly manage, and too entrenched to meaningfully change. That story falls apart the moment you look at Caterpillar.

More than 20 years ago, Caterpillar decided the prescription drug supply chain was bloated, conflicted, and wasting money. Instead of accepting the usual PBM talking points, the company did what too few employers have done since. It followed the money, challenged the middlemen, and redesigned the purchasing model around transparency, direct accountability, and measurable value.

That is what makes the Caterpillar story so relevant today. It is not a tale about a clever contract tweak. It is proof that large employers have had a workable blueprint for fixing pharmacy benefits all along. Most just chose not to use it.

According to Todd Bisping’s 2010 account, Caterpillar’s prescription drug spend had been rising about 14% per year from 1996 through 2004. Brand drug prices had doubled since 2004. After the company began actively managing generic utilization, formulary strategy, and the supply chain, it reported that by 2009 total drug costs were 6.8% lower than in 2004 and per-member-per-year costs were 13.8% lower, even while employee and retiree copayment tiers generally remained unchanged from 2002 levels.

Read that again. Lower costs. Stable member cost sharing. No magical innovation. No AI dashboard. No new law required. Just an employer refusing to tolerate waste. Caterpillar’s leadership started with a simple but powerful observation.

Their internal analysis suggested that 10% to 25% of the prescription drug supply chain contained waste, some of it driven by conflicts of interest. They specifically pointed to the fact that some consultants advising plan sponsors on PBM selection were also receiving broker fees from the PBMs being evaluated. That is not alignment. That is a rigged purchasing process dressed up as expert guidance.

So Caterpillar attacked the problem at its root.

The company pushed for transparency standards through the HR Policy Association coalition, then treated transparency not as the goal, but as the starting point. That distinction matters. Transparency by itself does not save a dime. It only gives an employer the ability to see where the waste lives and who is benefiting from it. Caterpillar then used that visibility to do what the market said could not be done: directly negotiate with major pharmacies outside the standard PBM pricing structure.

Its goals were straightforward. Find major pharmacy partners willing to contract directly. Preserve non-exclusive arrangements. Replace average wholesale price with a more rational pricing method. Ensure true price transparency. Caterpillar struck deals with Walmart and Walgreens that were built around those principles.

The most important part of the model was the pricing methodology. Caterpillar rejected AWP and moved to a cost-plus framework based on actual invoice cost, overhead, and margin. In plain English, the company wanted to know what the drug really cost, what it reasonably took to dispense it, and what profit the pharmacy would earn. That is how serious buyers purchase almost everything else. Employers should ask themselves a blunt question: why has pharmacy been allowed to operate under looser rules than office furniture, freight, or industrial supplies?

Caterpillar also insisted on audit rights. That may be the most underappreciated part of the story. Any vendor can promise transparency. A serious buyer builds in the right to verify it. Caterpillar understood that a pricing method without audit rights is just another act of faith.

Then came the network strategy. With two-year contracts effective January 1, 2010, Caterpillar said Walgreens and Walmart provided geographic access to more than 90% of participants. The company built a preferred network around those pharmacies, kept copays unchanged there, and imposed higher cost sharing outside the preferred network. Over the term of those contracts, Caterpillar expected savings “well into 8 figures.”

This is where many employers still get lost. They assume disruption means taking something away from members. Caterpillar showed the opposite. If you remove waste from the supply chain, you can improve the economics without immediately shifting more burden to employees. That is what disciplined purchasing looks like.

So why did Caterpillar solve this problem years ago while so many employers remain stuck in the status quo?

Part of the answer is convenience. The traditional PBM model asks employers to outsource difficult thinking. It packages complexity into glossy reports, benchmark language, rebate guarantees, and contract terms that sound protective but often preserve the same structural conflicts. Employers are told they are buying expertise when in many cases they are buying opacity.

Another part is fear. Many plan sponsors have been conditioned to believe that direct contracting, transparent pricing, or fiduciary oversight is too disruptive, too niche, or only feasible for unusually large employers. Caterpillar disproved that assumption. The company did not eliminate every intermediary. It redefined their role. It kept partners that added value and challenged those that extracted value without earning it.

That distinction matters even more now because the broader market has started catching up to what Caterpillar recognized years ago. The FTC’s July 2024 interim report found that the six largest PBMs managed nearly 95% of prescriptions filled in the United States and said increasing vertical integration and concentration enabled PBMs to profit while inflating drug costs and squeezing independent pharmacies. The FTC’s January 2025 second interim report said the big three PBMs marked up many specialty generic drugs significantly.

In other words, the concerns Caterpillar acted on in 2004 are no longer dismissed as fringe complaints. They are now being validated by federal investigators.

That should be a wake-up call for every employer in the commercial market.

The future of pharmacy benefits will not belong to employers who negotiate the best rebate story. It will belong to employers who build plans around transparent net cost, aligned incentives, and independent oversight. The market is moving, although not fast enough. Employers that wait for perfect regulation or unanimous consultant support will remain trapped in a model designed to reward middlemen more than plan sponsors and members.

Here is what employers should be doing now.

1. They should stop judging PBM performance primarily by discounts, rebates, and guarantees that can be manipulated within an opaque system. Those metrics often distract from the real question: what is the total net cost after all revenue streams, spread, fees, and channel steering are accounted for?
2. They should demand contract language that identifies every source of PBM compensation and every affiliated entity touching the claim. If money changes hands anywhere in the arrangement, the employer should know who received it, why, and whether it reduced plan cost.
3. They should require pass-through economics, independent audit rights, and a pricing model tied to verifiable acquisition cost wherever possible. A vendor that resists transparency is telling you more than enough.
4. They should revisit pharmacy network strategy. The commercial sector has more leverage than it acts like it has. Employers can steer volume, reward efficient channels, and contract with organizations willing to compete on price and service instead of relying on black-box arrangements.
5. They should also rethink advisor alignment. A consultant cannot credibly represent the employer’s interest while receiving compensation tied to the vendor being evaluated. That is not a technical flaw. That is the flaw.
6. Most of all, employers need to adopt a fiduciary mindset. That means treating pharmacy benefits as a managed asset, not a mysterious carveout. It means asking harder questions, accepting less marketing theater, and refusing to tolerate compensation models that depend on concealment.

Caterpillar did not fix every problem in pharmacy benefits. But it proved something that still unsettles the status quo: employers have far more power than they are led to believe. The lesson for the commercial sector is not that Caterpillar was unusually bold. It is that too many others have been unusually passive.

The next era of pharmacy benefits will be defined by inherent transparency, fewer conflicts of interest, and tighter employer oversight. The employers that prepare now will be in position to lower costs without gutting benefits. The ones that do not will keep paying for opacity and calling it strategy.

How We Can Work Together

Whether you’re a plan sponsor trying to get control of pharmacy spend, or a broker guiding clients through PBM decisions, education is the fastest way to improve outcomes. If you want a focused, high-value session your team can actually use, here are several ways we can work together.

Option 1: Get Certified

American College of Benefit Specialists (ACoBS) equips benefits professionals with practical knowledge across pharmacy, medical, retirement, and voluntary benefits. Organizations working with ACoBS-certified consultants gain better plan oversight, stronger vendor accountability, and more disciplined cost control. The certification signals a clear commitment to fiduciary guidance and protecting plan assets.

Option 2: Book a Webinar

A clean, educational session for employers, brokers, or TPAs. We’ll cover the most common PBM profit tactics, how to spot contract red flags, and what a fiduciary standard of care looks like in pharmacy benefits. Great for client education and thought leadership.

Option 3: Join the Virtual Roundtable

Bring your internal team (HR, Finance, and Benefits) or your broker group. I’ll lead a live discussion focused on PBM oversight, cost drivers, and what to ask your PBM right now. You’ll leave with a short action list you can use immediately.

Option 4: Get a Quote

Pharmacy benefits now rival medical spend for many plans. Yet most are still governed by contracts few have fully read and pricing models few can clearly explain. That is a fiduciary risk, not just a cost issue.

If you want lower spend, tighter oversight, and alignment you can defend in front of a board or audit committee, act with intent. Certify your team. Educate your clients. Pressure test your PBM.