Many Pharmacy Benefit Manager contracts include hidden costs—like spread pricing, rebate retention, and complex formularies—that can inflate drug bills and reduce benefits. Employers must demand transparency, use PBM consulting expertise, and explore pass-through PBM models to safeguard both savings and employee access.
Introduction
You may think you know what’s in your PBM contract, but most employers don’t. These complex agreements often contain hidden markups, rebate schemes, and restrictions that quietly jack up costs. With drug prices rising—pharmacy benefit spending surged 8% in 2024—lack of PBM transparency isn’t just deceptive, it’s costly.
This article will highlight what typically hides in PBM contracts and outline how PBM consulting and transparency-first models can help you protect your bottom line and your people.
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What’s Really in Your PBM Contract?
1. Spread Pricing
PBMs may pay pharmacies a lower price and charge employers more, keeping the difference. This markup often goes undisclosed.
2. Hidden Rebate Fees
Although PBMs negotiate rebates with manufacturers, they often keep a portion—charging employers administrative or “rebate admin” fees with opaque definitions.
3. Complex Formularies
Formularies determine drug coverage but are often convoluted, favoring high-rebate brand-name drugs—even when cheaper generics work just as well.
4. Opaque Outsourcing
Some PBMs sub-contract services to affiliates or big-chain pharmacies, creating conflicts of interest and even more hidden kickbacks.
Read more: Top Skills Every Pharmacy Benefit Manager (PBM) Should Master
Why Employers Should Care
A. Inflated Costs & Reduced Benefits
Hidden fees and markups drive up drug spending, forcing employers to either subsidize more or pass costs to employees .
B. Fiduciary Risk
ERISA requires plan sponsors to act in employees’ best interest. Overpaying due to PBM structures can lead to liability.
C. Employee Frustration
Employees face higher out-of-pocket costs and confusing formularies—leading to dissatisfaction and retention issues.
How PBM Consulting & New Models Help
1. Contract Review & Negotiation
Experts uncover hidden clauses, define metrics, and renegotiate terms—often saving employers 5–10% annually .
2. Shift to Transparency / Pass‑Through Models
Move to flat-fee, 100% rebate pass-through models with no hidden markups. These are gaining traction amid regulatory pressure.
3. Regular Audits
Ongoing checks ensure transparency in rebates, fees, and drug utilization—preventing surprises.
4. Fiduciary Oversight
Consulting firms add a layer of accountability—helping ensure your plans align with legal obligations and employer goals .
FAQ
What is spread pricing in a PBM contract?
It occurs when PBMs charge more to employers than they reimburse pharmacies—retaining the difference.
Are there PBMs that are fully transparent?
Yes—pass-through PBMs disclose fees and rebates and don’t mark up prices—offering true alignment of interests.
How much can consulting boost savings?
Employers using PBM consulting often achieve 5–10% in cost savings annually through negotiation and audits .
Is it legal to keep PBM rebates?
Legally yes, but ethically questionable—especially when employees pay higher premiums for undisclosed PBM revenue .
Are new transparency laws coming?
Yes—a 2025 Executive Order and federal bills (e.g., PBM Transparency Act) are promoting clearer fee disclosure.
