The Next Wave of Scrutiny: Will Pharmacy Benefit Decisions Be Next?

By: Naga Vivekanandan, Esq.

Claim denials are having a moment, and it’s not a comfortable one for the health insurance industry. A recent analysis of external appeals in New York found that the share of denials overturned on external review rose from 38% in 2019 to nearly 53% in 2025. Results varied by claim type, but one finding stands out for self-funded plans: More than half of the prescription drug denials reviewed were overturned.

That study is part of a larger conversation about prior authorization, utilization review, automated decision-making, and whether plans and insurers get coverage decisions right the first time. Most of that conversation has focused on medical claims, but pharmacy ones belong in it too. As drug costs keep pressuring self-funded plans, sponsors lean heavily on pharmacy benefit managers (“PBMs”) and utilization management tools to control spending. Prior authorization, step therapy, formulary management, quantity limits, and specialty pharmacy requirements all serve legitimate purposes, but each one also decides whether, and under what conditions, a participant can get a particular medication. That makes pharmacy a natural next target for scrutiny.

Plans rely on pharmacy management for good reason. The dollars at stake can be enormous, especially for specialty drugs, and the PBM industry itself remains under heavy regulatory pressure. The FTC’s ongoing PBM inquiry, including its January 2025 interim report, has flagged substantial markups on certain specialty generics dispensed through PBM-affiliated pharmacies, along with sharp increases in what plan sponsors and patients pay. Still, paying every prescription presented to the plan isn’t a realistic option. Sponsors must manage plan assets, and they need to uphold ERISA fiduciary duties of prudence and loyalty. Those duties don’t disappear just because pharmacy administration is delegated to a PBM. The Department of Labor has long treated hiring and monitoring service providers as itself a fiduciary function.

The concept of prior authorization helps to illustrate the tension. From the plan’s side, it confirms medical necessity, meets clinical criteria, and rules out cheaper alternatives. From the participant’s side, it can mean waiting for a medication their doctor already prescribed, and appealing if the request is denied. Federal attention to this tension is growing: In April 2026, CMS proposed expanding its prior authorization requirements for drug coverage to include more specific denial reasons, defined decision timeframes, electronic prior authorization, and public reporting of drug PA metrics. These proposals don’t reach every self-funded ERISA plan directly—the main “impacted payers” are Medicare Advantage organizations, Medicaid/CHIP programs, and certain Marketplace issuers, though separate HIPAA transaction standard provisions may sweep in a broader set of covered entities handling electronic PA transactions. Either way, the general direction shows faster decisions, clearer denial reasons, an increased number of electronic processes, and more public visibility into outcomes. Pharmacy benefit administration is unlikely to move the other way.

This is where PBM oversight matters most. A plan sponsor may delegate prior authorization criteria, formulary management, clinical review, and appeals to the PBM, while having little day-to-day involvement in any one participant’s prescription. But to the participant, it is still the employer’s plan denying the drug, and if that denial is appealed, litigated, or subjected to external review, the plan needs to be able to explain the basis for the decision. For example, if a PBM denies coverage for an expensive specialty drug under a step therapy requirement, the decision may appear routine, but the plan still needs confidence that the requirement is supported by the plan terms, based on current clinical criteria, applied consistently, and communicated clearly. The plan also needs assurance that any exception request or appeal was reviewed appropriately and that the PBM can document how it reached the outcome.

To be clear, a high reversal rate doesn’t mean every initial denial was improper. Appeals often bring new information, criteria may be satisfied later that weren’t met at the outset, and reviewers can reach different, reasonable medical judgments. The New York study also only looked at external appeals in one state, not every denial nationwide. Even so, a high reversal rate begs the question, why did it take an appeal to get the right answer? That question matters most in pharmacy, where decisions run through highly structured PBM protocols. If many denials get reversed for missing information, the initial process may need work. If exceptions continue to be granted on appeal, the underlying criteria may need review. If participants can’t understand why they were denied, the notice process needs attention. The goal should be to make the decision right the first time.

None of this information means sponsors need to personally review every prior authorization, but it does mean they need to understand how their pharmacy benefits actually work. Plans should know what authority the PBM holds, what utilization management programs are in use, and whether those programs match the plan’s written terms. They should understand who sets clinical criteria, how often those criteria change, how exceptions work, and what happens when a participant appeals. They should also look at their own data, namely how many pharmacy PA requests get denied, the most common denial reasons, and how often denials get reversed, internally or externally. Certain drugs, conditions, or utilization programs could potentially generate a disproportionate share of appeals, and this data tells a plan far more than the dollar amount the PBM reports as “savings.”

PBM contracts deserve the same attention, as audit rights, access to claims and clinical data, reporting obligations, delegated discretionary authority, appeal responsibilities, performance guarantees, and the plan’s right to information about coverage decisions are all important considerations once a denial is challenged. Additionally, a utilization management program only works if the governing plan documents actually support it. Formulary restrictions, prior authorization requirements, step therapy, specialty drug rules, exclusions, and exceptions need to be spelled out clearly enough for both participants and administrators to understand how coverage actually works.

The pressure on self-funded plans is not easing any time soon. Employers must manage increasingly expensive benefits while protecting plan assets and giving participants meaningful access to care. PBMs are expected to control drug spending, and participants and providers expect faster decisions, clearer explanations, and real opportunities to challenge denials. These goals are not necessarily conflicting, but it is getting more difficult to for plans to defend simply handing pharmacy administration to a PBM and treating the resulting decisions as someone else’s problem.

The recent scrutiny of medical claim denials is a preview of what may be coming for pharmaceutical benefits. The questions are the same. Who made the decision? What criteria applied? Was it consistent with the plan? Could the participant understand why the claim was denied? What happened when it was challenged? None of this means abandoning prior authorization, step therapy, formulary management, or other cost containment tools, since these are still essential when it comes to responsible pharmacy benefit management, but it does signify that plans should understand why and how pharmacy benefit decisions are made. As regulators, policymakers, participants, and providers pay closer attention to pharmacy decisions, plans should certainly be ready with an answer.