Pharmacy Benefit Manager Strategy
Your PBM is you probably keeping more than you think.
Prescription drugs now account for roughly 25–30% of total medical plan spend — and it’s the category growing fastest. If you’re self-funded and still using a bundled, opaque PBM arrangement, you’re almost certainly paying more than you should through spread pricing, withheld rebates, and formulary design that favors manufacturer incentives over your plan. JS Benefits Group helps self-funded employers carve out their pharmacy benefit, move to transparent pass-through PBMs, and take ongoing control of Rx cost.
25–30%
Of Total Plan Spend Is Now Rx
50%+
Of Rx Spend Often Driven by Specialty
Pass-Through
The PBM Structure JSBG Recommends
THE PBM PROBLEM
The PBM industry is built on what you can't see.
Traditional PBMs make money in ways that aren’t obvious on your invoice. For self-funded employers, the result is that the plan sponsor — the one actually paying the claims — ends up with the smallest share of the pharmacy dollar. Here’s what’s actually happening.
THE PBM PROBLEM
How PBMs extract value quietly.
In the fully-insured world, your carrier negotiates with PBMs and the complexity is hidden. In the self-funded world, you are the payer — which means every PBM revenue stream comes out of your claims budget, whether you see it itemized or not.
The three largest PBMs — CVS Caremark, Express Scripts, and OptumRx — process roughly 80% of U.S. prescription claims. Each is owned by or tightly integrated with a major health insurer, specialty pharmacy, and mail-order operation. That vertical integration creates multiple points where the PBM can earn margin on your plan’s prescription drug spend, often without explicit disclosure to the plan sponsor.
The core issue: In a traditional bundled PBM contract, the PBM’s interests are not aligned with your plan’s interests. Higher drug prices often mean more rebate revenue for the PBM. You pay more; they make more. Transparent pass-through PBM contracting is specifically designed to eliminate this misalignment.
This isn’t about painting PBMs as villains — it’s about understanding that the contract structure determines the outcome. A traditional bundled PBM contract, even with a household-name carrier, is structured around PBM profit extraction. A transparent pass-through contract is structured around auditable pricing with limited mark-up. Same industry, different mechanics, very different plan cost.
WHERE THE MARGIN HIDES
Five ways PBMs profit on your plan
1
Spread pricing
PBM charges your plan one price for a drug, pays the pharmacy a lower price, keeps the spread. Invisible on your invoice.
2
Rebate retention
Manufacturer rebates are often only partially passed through. “Guaranteed minimum rebates” can let the PBM keep upside above a low floor.
3
Formulary design bias
Formularies sometimes prefer higher-rebate brand drugs over lower-cost generics or biosimilars because the rebate revenue exceeds the plan savings.
4
Specialty Rx mark-ups
Specialty drugs (roughly 50%+ of many plans’ Rx spend) are often dispensed through PBM-owned specialty pharmacies with limited price transparency.
5
Administrative & clinical fee bundling
Fees for prior authorization, utilization review, clinical programs, and data analytics can be bundled in ways that obscure true per-script cost.
TRADITIONAL VS. TRANSPARENT
The contract structure is the strategy.
Most PBM cost problems are contract problems, not pricing problems. A well-structured transparent pass-through PBM contract eliminates the conflicts that drive cost up in bundled arrangements. Here’s the structural difference.
→ Traditional Bundled PBM
What's typical in the market
-
Opaque pricing
PBM sets both the price charged to the plan and the price paid to the pharmacy — with no contractual requirement to show the spread. -
Partial rebate pass-through
"Minimum guaranteed rebate" language lets PBM retain rebate dollars above the floor. What looks like 100% pass-through in marketing often isn't in the contract. -
Proprietary formulary
PBM designs the formulary with manufacturer rebate revenue as a factor. Higher-cost brand drugs can rank above cheaper generics if rebates justify it for the PBM. -
Specialty pharmacy capture
Specialty Rx is often routed to PBM-owned specialty pharmacy with limited auditing rights for the plan sponsor. -
Limited audit rights
Plan sponsor's ability to audit claims, rebates, and pricing is restricted by contract terms and data access limitations. -
Broad exclusions
Rebate guarantees, pricing benchmarks, and performance metrics often contain exclusions that quietly undercut the stated terms.
→ Transparent Pass-Through PBM - the JSBG Approach
The structure we recommend
-
Cost-plus or pass-through pricing
Plan pays pharmacy acquisition cost plus a disclosed, limited PBM administrative fee. Spread pricing is contractually eliminated. -
100% rebate pass-through (all dollars)
Every manufacturer rebate dollar — formulary, base, access, market-share — flows to the plan sponsor, not the PBM. Contractually defined and auditable. -
Plan-designed formulary
Formulary built around lowest net cost to the plan, not rebate optimization for the PBM. Biosimilars and generics prioritized where clinically appropriate. -
Specialty pharmacy flexibility
Plan can source specialty Rx from multiple pharmacies with transparent pricing. International sourcing and patient assistance programs leveraged where appropriate. -
Full audit rights
Plan sponsor retains contractual right to audit claims-level data, rebate flows, and pricing benchmarks — with real teeth, not a paper right. -
Clear performance guarantees
Pricing guarantees, generic dispensing rate, mail-order penetration, and clinical program performance all measured against defined benchmarks with financial recourse.
PBM MANAGEMENT STRATEGIES
Eight levers that actually move pharmacy cost.
There’s no single silver bullet in PBM management — but there are eight levers that, applied in combination, consistently reduce pharmacy cost by meaningful amounts without compromising member experience or access. These are the strategies JSBG deploys for self-funded clients.
Strategy 01
Pharmacy carve-out
Separate your PBM contract from your TPA or medical carrier relationship. Bundled arrangements almost always cost more — the carrier’s negotiated PBM terms reflect their block of business, not yours. A standalone PBM contract opens the door to every other strategy on this list.
TYPICAL IMPACT
Foundation for all other strategies — opens contractual flexibility
Strategy 02
Transparent pass-through contracting
Move from traditional bundled or “traditional transparent” contracts to a true pass-through structure with cost-plus pricing, 100% rebate flow, and contractual elimination of spread pricing. This is the single biggest structural lever in PBM cost management.
TYPICAL IMPACT
Meaningful reduction in net Rx cost with same benefit design
Strategy 03
Formulary optimization
Redesign the formulary around lowest net cost to the plan, not manufacturer rebate maximization. Prioritize generics and biosimilars, use step therapy on high-cost brand drugs where clinically appropriate, and carve out high-cost categories where clinical alternatives exist.
TYPICAL IMPACT
Significant category-level savings on high-cost therapies
Strategy 04
Specialty Rx management
Specialty drugs often drive 50%+ of plan Rx spend despite being used by 2–3% of members. Strategies include alternate specialty pharmacy sourcing, patient assistance program coordination, international sourcing where appropriate, site-of-care steering, and copay accumulator/maximizer programs where applicable.
TYPICAL IMPACT
Often the single largest category-level opportunity
Strategy 05
Rebate aggregation & audit
Even with “pass-through” contracts, rebate reconciliation often surfaces discrepancies — missed formulary rebates, timing issues, rebate-eligible claims misclassified. Annual rebate audits conducted by independent firms routinely recover dollars. The PBM won’t audit itself.
TYPICAL IMPACT
Recovery of rebate dollars missed in normal processing
Strategy 06
Mail-order & 90-day optimization
Mail-order and 90-day retail programs reduce per-script cost on maintenance medications. Plan design adjustments — copay tier differences, mandatory mail for maintenance drugs, 90-day retail partnerships — shift utilization without restricting access.
TYPICAL IMPACT
Per-script cost reduction on maintenance Rx categories
Strategy 07
Clinical program oversight
Prior authorization, step therapy, utilization management, and clinical edits should be designed to ensure appropriate use — not to generate PBM revenue. Periodic review of clinical program performance, member impact, and exception rates keeps these programs aligned with plan goals.
TYPICAL IMPACT
Prevents inappropriate utilization; protects member experience
Strategy 08
Ongoing contract management
PBM contracts aren’t set-and-forget. Market benchmarks shift annually, new therapeutic categories emerge, pricing guarantees expire. Annual contract review, three-year competitive remarket cycles, and quarterly performance monitoring keep the plan from drifting back into uncompetitive terms over time.
TYPICAL IMPACT
Sustains savings over time — prevents contract drift
THE ECONOMICS
Three numbers that define the Rx opportunity.
Pharmacy cost is the fastest-growing category in most self-funded health plans. Understanding the scale of the opportunity is the first step toward capturing it.
30%
RX SHARE OF PLAN SPEND
Prescription drugs routinely account for 25–30% of total medical plan spend — and it’s the fastest-growing category. A well-managed PBM strategy doesn’t just reduce this line, it also dampens the rate of increase year over year.
50%+
SPECIALTY RX CONCENTRATION
Specialty medications — biologics, oncology, rare disease, autoimmune — often represent half or more of total Rx spend despite being used by 2–3% of members. This is where the highest-leverage cost-containment strategies live.
3yrs
COMPETITIVE REMARKET CYCLE
PBM market terms shift enough over a three-year window that a plan not actively remarketing is almost certainly paying above-market. JSBG recommends formal competitive reviews at minimum every three years, with annual performance audits in between.
HOW WE WORK
From PBM audit to executed contract.
A PBM engagement isn’t a one-size-fits-all product — it’s a structured process that starts with understanding your current plan and ends with a contract actively managed against performance. Here’s how JSBG runs it.
Current PBM audit
Full review of your existing PBM contract, claim-level data, rebate reporting, formulary, clinical programs, and fee structure. We identify where value is leaking, which guarantees are underperforming, and where the contract terms don't match the market. Deliverable: written audit memo with specific findings and opportunity sizing.
Pharmacy strategy design
Based on the audit, we design the target PBM arrangement — pass-through structure, formulary philosophy, specialty sourcing strategy, clinical program design, member cost-share framework. The strategy is tailored to your workforce claims profile and plan objectives, not off-the-shelf.
Competitive RFP & negotiation
Formal RFP issued to transparent pass-through PBMs, evaluated on pricing, rebate terms, formulary alignment, specialty approach, clinical programs, technology, and service. We benchmark responses against market data and negotiate terms — including performance guarantees with real financial teeth. Deliverable: finalist evaluation, negotiated contracts, and recommended selection.
Implementation & member communication
Contract execution, data migration, formulary transition planning, member communications, disruption analysis and mitigation, pharmacy network confirmation, and go-live coordination. We manage disruption to members actively — formulary changes, prior authorization transitions, and specialty Rx continuity.
Quarterly reviews & annual audits
PBM performance against guarantees reviewed quarterly; full rebate and pricing audits performed annually. We monitor generic dispensing rates, mail-order penetration, specialty cost trends, new-drug pipeline impact, and market competitive position — and take action when performance drifts. This is the work that sustains the savings over time.
★ THE SPECIALTY RX OPPORTUNITY
The single highest-leverage lever in pharmacy cost.
Specialty drugs — biologics, oncology agents, rare-disease therapies, autoimmune treatments, certain cell and gene therapies — now drive the majority of pharmacy spend in most plans. A single specialty claim can exceed $100,000 per year. Without active management, specialty Rx can become the uncontrolled cost category that consumes every other savings initiative.
The good news: specialty Rx is also where the highest-impact cost-containment strategies exist. Alternate pharmacy sourcing, patient assistance program coordination, international sourcing pathways, site-of-care steering, copay assistance maximization, and biosimilar preferencing each meaningfully reduce specialty spend when applied thoughtfully — and almost every plan has room to move.
50%+
of total Rx spend driven by specialty in most plans
2–3%
of members typically drive 50%+ of Rx spend
$100K+
annual cost per patient common for complex specialty therapies
WHO BENEFITS MOST
PBM management strategies are highest-leverage for these employers.
Every self-funded employer benefits from active PBM oversight. But the return on effort is highest when certain conditions are in place.
Currently self-funded or transitioning
PBM management strategies require the contractual flexibility that self-funding provides. Fully-insured employers are largely limited to what the carrier's PBM offers.
PBM contract bundled with TPA or carrier
If your PBM arrangement comes bundled with your TPA or medical carrier, you're almost certainly leaving savings on the table. A pharmacy carve-out opens the full strategy set.
Rx spend at or above 25% of plan cost
When pharmacy is a meaningful share of total plan spend, the ROI on PBM management intensifies. Small plan-level percentages compound into large dollar impacts at scale.
One or more specialty claimants in the plan
A single specialty member can exceed $100K/year. When specialty therapy is present in the plan, specialty Rx management alone can justify a PBM strategy overhaul.
PBM contract older than 3 years
Market terms shift enough over three years that an older contract is almost always uncompetitive. If your contract hasn't been competitively remarketed recently, that's a strong signal.
Leadership committed to active plan management
PBM strategies reward ongoing attention — quarterly reviews, annual audits, periodic remarkets. Clients who treat pharmacy as a managed line capture far more value than clients who view it as a vendor contract.
Common Questions
PBM FAQs
A pharmacy carve-out means you contract directly with a PBM rather than receiving pharmacy benefits bundled through your medical TPA or carrier. In a bundled arrangement, the TPA/carrier resells you PBM services with an intermediary margin and limited contractual leverage. In a carve-out, you have a direct contract, full transparency into the pricing mechanics, and the ability to choose a PBM optimized for your plan — not the one the carrier happens to partner with.
The terminology is slippery. Traditional PBMs use spread pricing and retain portions of rebates. “Traditional transparent” PBMs disclose some mechanics but still use bundled pricing with limited pass-through. True pass-through PBMs contractually eliminate spread pricing, pass through 100% of rebates, charge a disclosed per-script administrative fee, and provide full audit rights. The structural test: if the PBM’s revenue can grow when drug prices rise, the incentives aren’t aligned.
Pharmacy carve-outs work for self-funded employers typically at 100+ enrolled employees, though some transparent PBMs accept groups smaller. The economics improve as group size grows because fixed administrative costs spread across a larger claim base. Below 100 enrolled, level-funded or bundled arrangements may be more practical — but the underlying principles still apply.
Some disruption is unavoidable — formulary transitions, prior authorization re-establishment, specialty pharmacy changes, and ID card redistribution all touch members. But well-managed transitions minimize member impact through advance communication, smart effective-date selection, continuity-of-care provisions, and specialty Rx transition protocols. JSBG manages disruption actively — it’s part of every PBM transition we run.
Modern transparent pass-through PBMs typically offer equivalent clinical programs — prior authorization, step therapy, utilization review, specialty management, and disease management. The difference is the contract structure and transparency, not the clinical capability. Evaluation of each PBM’s clinical depth, technology, and service quality is part of every competitive RFP we run.
At minimum every three years, with annual performance audits in between. PBM market terms shift meaningfully over that window — new entrants, pricing compression, formulary strategies, specialty sourcing options. A plan that hasn’t been competitively remarketed in 4+ years is almost certainly paying above market. Three years is the balanced cycle for most plans.
A rebate audit is an independent review of your PBM’s rebate flow — comparing what rebates were contractually owed against what was actually paid. Even plans with “100% pass-through” contracts routinely find discrepancies — missed formulary rebates, misclassified claims, timing issues. We recommend annual rebate audits for all self-funded clients with meaningful Rx spend. The audit typically pays for itself many times over.
Plan on 6–9 months from initial audit to effective date: audit and strategy design (1–2 months), RFP and negotiation (2–3 months), contract execution and implementation planning (1–2 months), and member communication and transition management (1–2 months before go-live). Rushed transitions create member disruption and leave value on the table.
THE JSBG APPROACH
Pharmacy is where plan management pays off.
Most benefit brokers quote a PBM once, write the contract, and move on. We don’t work that way — and for self-funded employers with growing Rx spend, that passive approach has become the most expensive decision in the plan.
Pharmacy is a managed line, not a procurement event. Market terms shift. New therapies emerge at higher price points. Specialty spend compounds. Rebate flows get complicated. The employer who actively manages the PBM relationship — audits it, benchmarks it, remarkets it on a disciplined cycle — consistently outperforms the employer who signs a multi-year contract and lets it run.
We work with self-funded employers who want to treat pharmacy as a strategic category, not as a vendor invoice. If that matches how you think about it, we’d like to talk.
NEXT STEP · PBM AUDIT
What's your current PBM actually costing you?
A focused audit of your current PBM contract, claims data, rebate flows, formulary, and specialty management — with a written findings memo and opportunity sizing. No sales pitch, no commitment. If your current arrangement is competitive, we’ll tell you. If it’s not, we’ll show you what’s possible and what it takes to capture it.
