When it comes to managing pharmacy costs, one of the most complex areas for employers is understanding how their Pharmacy Benefit Manager (PBM) structures contracts and fees. PBMs play an essential role in administering prescription drug programs, but the lack of transparency in many PBM arrangements often leaves employers questioning whether they are truly getting the value they deserve.
As renewal season approaches, it’s critical for employers to ask the right questions and take a closer look at rebate arrangements, spread pricing practices, and hidden fees that could be driving up plan costs without adding real value.
The Importance of Transparency in PBM Relationships
Pharmacy spending continues to be a top cost driver in health plans. According to the American Journal of Managed Care, drug costs now account for nearly 20% of total healthcare spending in the U.S., and employer-sponsored plans are feeling the squeeze more than ever. [external link to AJMC: }
Yet many plan sponsors don’t realize that PBM contracts are rarely as straightforward as they appear. Rebates may not be fully passed back, “spread pricing” could inflate costs, and service fees are sometimes buried in fine print. Employers who take these terms at face value may miss opportunities to improve both financial outcomes and employee access to medications.
Rebates: Who Really Benefits?
Drug manufacturers often provide rebates to PBMs in exchange for preferred formulary placement. While these rebates can help lower the cost of certain medications, the key question is whether those savings are fully passed along to the employer and their members.
Some PBMs retain a portion of rebates, which means plan sponsors aren’t reaping the full benefit of these manufacturer payments. Employers should ask for 100% pass-through rebate guarantees and clear documentation of how rebates are applied.
Spread Pricing: The Silent Cost Driver
Spread pricing occurs when a PBM charges a plan sponsor more for a prescription than it reimburses the pharmacy – keeping the difference as profit. For example, a PBM may bill the plan $100 for a medication while paying the pharmacy $85, pocketing the $15 “spread.”
This practice not only drives up employer costs but also hides the true economics of drug spending. More employers are now insisting on pass-through pricing models that eliminate spread pricing altogether.
Hidden Fees Lurking in the Contract
Beyond rebates and spread pricing, PBM contracts can include fees that add unnecessary costs, such as:
- Administrative fees layered on top of existing charges
- Performance guarantees tied to vague metrics
- Clinical program fees that duplicate services already provided by the employer or health plan
During renewal prep, it’s worth reviewing the fine print with an experienced advisor to ensure that fees align with measurable value.
Questions Employers Should Be Asking Today
To ensure your PBM contract is aligned with your organization’s goals, ask these critical questions:
- Are 100% of rebates being passed through to the plan?
- Is spread pricing included, or is the model fully transparent?
- What service and administrative fees are embedded in the contract?
- How does the PBM define and measure performance guarantees?
- How often will I receive reporting on rebates, fees, and true net costs?
Highlights: Rebates, Spread Pricing, and PBM Transparency
✅ Ask whether rebates are 100% passed through to the plan
✅ Review PBM contracts for hidden administrative fees
✅ Understand how spread pricing can silently drive costs
✅ Insist on clear reporting and measurable performance guarantees
✅ Work with an advisor to ensure your PBM model aligns with renewal goals
How MSI Benefits Group Helps
At MSI Benefits Group, we know that PBM conversations can be daunting – especially during renewal prep when so many moving parts demand attention. Our team specializes in bringing transparency to the table, helping employers cut through the jargon and identify real savings opportunities.
We’ve guided clients through carve-outs when they made sense, and we’ve negotiated PBM terms that prioritize both financial savings and employee access to medications. For example, you can learn more about our approach in Carving Out Pharmacy Benefits: When It Makes Sense – and When It Doesn’t and see how Pharmacy Benefits Manager partnerships help mitigate Rx costs. Additionally, you can explore our insights on how to customize benefits for your unique workforce.
Bottom Line
If you’re heading into renewal season, now is the time to ask tough questions about rebates, spread pricing, and hidden fees. Don’t wait until costs spiral out of control. Let MSI Benefits Group help you create a PBM strategy that works for your business and your employees.
Contact us today to schedule a consultation and ensure your PBM contract is working for you, not against you.