Robert Frost’s poem “Mending Wall” opens in early spring. The frozen ground has heaved overnight, and gaps have opened in the stone wall separating two neighboring farms. Neither farmer is particularly fond of the other. But each spring they walk their respective sides of the wall, replacing the stones that winter has dislodged. The ritual is not about friendship. It is about maintenance — keeping a shared boundary in good repair so that both farmers know exactly where they stand.
Health care agreements work the same way.
The agreements that govern how drugs are covered, how hospitals are paid, and what employers and their workers pay for health coverage are not permanent settlements. They are maintained boundaries, reset to reflect conditions that have changed since the last round of negotiation. When people observe that a drug’s formulary status has shifted, or that hospital rates have risen, or that an employer’s benefit design looks different this year than last, they are not witnessing a breakdown. They are watching the wall being mended.
A system of agreements
American health care is governed by multiple negotiated relationships, each operating on its own cycle and reflecting its own balance of leverage.
Drug manufacturers and PBMs negotiate formulary placement and the financial terms tied to it, including rebates and discounts. A manufacturer wants its drug listed prominently, at a preferred tier where patient cost sharing is low and access is broad. The PBM wants value for the plans and employers it serves.
Health plans, in turn, negotiate with PBMs over the terms of the pharmacy benefit itself — administrative fees, rebate pass-through arrangements, and network access. This is a separate but connected negotiation. What gets settled between a manufacturer and a PBM shapes the financial terms available when a health plan and a PBM sit down together.
Health plans also negotiate with hospitals, physician groups, and other providers over the rates those providers will be paid for services delivered to the plan’s members. A large health system with dominant market share in a region negotiates from strength. A plan with a large, attractive membership base has its own leverage. The outcome — the contracted rate — becomes the financial foundation on which both parties plan for the coming year.
Then there is the employer. Large employers often work with benefits consultants who bring more than negotiating skill to the table — they bring market intelligence. A consultant who works across dozens of employer clients knows what comparable organizations are paying, what benefit designs are available, and where plans have room to move. Armed with that information, employers solicit bids, evaluate responses, and negotiate benefit design, network configuration, premium levels, and administrative arrangements. Large self-insured employers sometimes contract directly with PBMs as well, bypassing the health plan on pharmacy benefits entirely. Smaller employers follow a similar process with broker assistance, though typically with less leverage and fewer options.
Beyond the commercial market, health plans participating in Medicare Advantage and Medicaid managed care also negotiate — or submit bids — with CMS and state Medicaid agencies over rates and benefit requirements. These arrangements are more heavily regulated than their commercial counterparts, but they, too, reset each year to reflect updated costs, utilization patterns, and policy priorities. And while employees rarely think of themselves as negotiating parties, the contribution split — how much of the premium the employer covers versus the worker — is itself set annually, and in unionized workplaces, collectively bargained. The terms settled between a manufacturer and a PBM shape what a health plan can offer an employer, which in turn shapes what an employee pays.
Why agreements have to be revisited
Frost’s observation is not that the wall fell because something went wrong. Walls come under stress from many directions. The frozen ground heaves; hunters leave their own damage behind. It is not a single event but a recurring condition.
Health care agreements are subject to the same kind of recurring strain. Some of the most important pressures are familiar:
New technologies emerge. When a novel therapy enters a therapeutic class — a new GLP-1, a biosimilar, a first-in-class treatment for a condition that previously had few options — the formulary structure negotiated before its arrival no longer fits.
Care migrates. A treatment delivered in a hospital outpatient setting moves to a physician office, an infusion center, or the home. The rates negotiated against one site of care no longer reflect where care is actually happening.
Markets consolidate. A health system acquires a competitor and suddenly controls a larger share of regional inpatient capacity. Its leverage is not what it was the year before. The balance shifts, and agreements made before the consolidation no longer reflect who holds the stronger position.
Regulators act. A federal rule changes prior authorization requirements. A state law mandates coverage of a new category of services. Regulatory changes alter the rules under which these agreements operate, and the agreements must adapt.
Consider what is now happening with drug rebates. For decades, manufacturer–PBM contracts have been built around rebates — payments tied to formulary placement and often calculated as a percentage of list price. That structure is now under pressure from multiple directions at once. Federal and state regulators have intensified scrutiny of rebate practices. Legislation has been proposed — and in some programs enacted — requiring PBMs to pass rebates through entirely to plan sponsors rather than retaining a share as compensation. Some PBMs have begun voluntarily moving toward flat administrative fee models in place of rebate-based arrangements.
Each of those changes forces parties across the system to revisit existing agreements. If rebates are passed through entirely, PBMs must replace lost revenue — most likely through explicit service fees that will need to be negotiated freshly into plan–PBM contracts. Health plans, whose financial models have long incorporated rebate offsets, must recalculate what they can offer employers at a given premium. Employers, whose benefit budgets assumed rebate revenue flowing back through PBM or plan arrangements, must revisit those assumptions. Formulary design logic itself changes: rebates historically gave PBMs a financial incentive to prefer higher list price drugs, since those generated larger rebate checks. Remove that incentive, and formulary positioning negotiations shift fundamentally.
Renegotiating those agreements is not a sign of dysfunction. It is what happens when old terms stop fitting current conditions.
What these agreements provide
Yet Frost’s farmers both show up each spring. The reason is not sentiment. It is that a mended wall, whatever its terms, gives each side something to plan around. They know where the line is.
This is precisely what health care agreements provide — not fairness, not equality, not consensus, but a known boundary. That boundary may still be contested, but it gives parties something concrete to plan around.
A manufacturer may not be pleased with a product’s formulary tier, but it knows what the tier is and can project revenue accordingly. A hospital may find its commercial rates inadequate relative to its costs, but it builds its operating budget around a figure it knows. An employer may wish its premium renewal were lower, but it can communicate benefit changes to employees and set contributions for the coming year. These agreements do not eliminate tension between the parties. But they do replace uncertainty with predictable rules, and in a system as complex and financially interdependent as American health care, those rules are foundational.
A renegotiated agreement also reflects something real: where market and regulatory forces have pushed the parties. The outcome of each renegotiation is not a moral judgment about what is fair. It is a record of who had more leverage at a particular moment — a dominant drug with no therapeutic equivalent, a health system without which a plan’s network would be inadequate, an employer large enough to command a custom benefit design, a benefits consultant whose market knowledge shifts the information balance at the table. That does not make the outcome fair. It means the agreement reflects the balance of leverage at that moment — and gives both sides a known line to plan from until conditions change again.
The next walk
What Frost captures in the poem is that mending the wall is part of the cycle. The frozen ground will heave again next winter, stones will fall, and in the spring the neighbors will walk their respective sides and put them back.
So it is with health care agreements. Renewing them does not guarantee fairness or satisfaction. But it does replace uncertainty with predictable rules, giving the parties a clearer sense of where they stand and terms they can plan around.
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