A pharmacy benefit manager (PBM) is the intermediary that administers the prescription drug benefit for your health plan — processing claims, negotiating drug prices with manufacturers, managing the formulary, and contracting with pharmacy networks. The three largest PBMs (CVS Caremark, Express Scripts, and OptumRx) manage the majority of U.S. prescription claims. They matter to employers because prescription drugs now represent 25–30% of total medical plan spend and are the fastest-growing cost category. How your PBM contract is structured determines whether those costs are transparent and controllable — or opaque and inflated.

Spread pricing is the practice of charging the plan sponsor more for a drug than the PBM actually pays the pharmacy, and keeping the difference — the “spread” — as undisclosed profit. For example, a PBM might reimburse a pharmacy $12 for a generic drug but charge the employer’s plan $40, pocketing the $28 difference. Because this spread is embedded in the per-claim transaction rather than disclosed as a fee, most employers never see it. Pass-through or transparent PBM contracts eliminate spread pricing by requiring the plan to pay exactly what the PBM pays the pharmacy, with the PBM’s compensation disclosed as an explicit administrative fee instead.

Drug rebates are payments pharmaceutical manufacturers make to PBMs in exchange for favorable formulary placement — essentially, payments to keep a branded drug preferred over competitors. These rebates can be substantial, particularly on specialty and brand-name drugs. In traditional PBM contracts, rebates flow to the PBM and are only partially passed back to the plan — if at all. Employers are entitled to 100% rebate passthrough under a transparent contract, but most standard contracts don’t provide it. An independent PBM audit typically reveals the gap between rebates earned and rebates actually returned to the plan, which is often significant.

Less directly — in a fully-insured arrangement, the carrier bears the drug cost risk and manages the PBM relationship. However, opaque PBM practices contribute to higher overall plan costs, which flow through to your renewal premiums. Employers who transition to self-funding or level-funding gain direct exposure to PBM contract terms and the most to gain from transparency strategies. That said, fully-insured employers with large groups may have negotiating leverage to request better PBM contract terms from their carrier, and understanding what’s in those contracts is still valuable at renewal.

An independent PBM audit is a transaction-level review of your plan’s pharmacy claims against your PBM contract terms. It examines whether the PBM is billing in accordance with the contract, what spread is being retained, what rebates were earned versus passed through, how generic substitution is being handled, and whether network access and formulary management are aligned with your plan’s interest. Audits frequently uncover material discrepancies — billing errors, retained rebates, and spread that should not exist under the contract terms. The findings become the basis for contract renegotiation or PBM replacement.

A pass-through (or transparent) PBM contract structures the PBM’s compensation as explicit, disclosed fees rather than embedded spread. The plan pays the actual cost of each drug at the pharmacy (ingredient cost plus dispensing fee), rebates are passed through 100% to the plan, and the PBM’s administrative fee is a separate, visible line item. This model makes pharmacy spend fully auditable and aligns the PBM’s financial incentives with the plan’s — there’s no profit motive to steer toward higher-cost drugs or retain rebates. Pass-through contracts are standard in the independent PBM market and increasingly available from larger PBMs under the right contract terms.

Specialty drugs — biologics, oncology treatments, and other high-cost therapies — now account for a disproportionate share of pharmacy spend despite representing a small fraction of total prescriptions. Managing specialty costs requires a combination of strategies: specialty carve-out (routing specialty drugs through a dedicated specialty pharmacy rather than the PBM’s own), manufacturer copay assistance programs, step therapy protocols requiring generic or biosimilar trials before branded approval, site-of-care optimization (infused drugs administered in lower-cost settings), and prior authorization management. Without an active specialty management strategy, a single high-cost claimant can materially impact a self-funded plan’s stop-loss position.

PBM contracts typically run two to three years, but the right trigger for a review is whenever your pharmacy spend is growing faster than claims volume, when you’re approaching a contract renewal date, or when you’ve transitioned to self-funding and haven’t renegotiated the PBM terms that came bundled with your carrier. Most employers who have never had an independent PBM analysis have significant room for improvement — the initial audit almost always finds something. Starting the review 12 months before contract expiration gives enough runway to audit, negotiate, and if necessary, run a competitive RFP and transition to a new PBM without disrupting the plan year.

We start with an independent analysis of your current PBM contract and claims data to establish what you’re actually paying versus what you should be paying. From there we identify whether the path forward is contract renegotiation with your current PBM, a competitive RFP to alternative PBMs, a specialty carve-out, or a combination of strategies. We don’t represent any PBM — our recommendations are based solely on what delivers the best outcome for your plan. We manage the process through implementation and provide ongoing monitoring to ensure contract terms are honored and pharmacy costs remain in line with benchmarks.