This is the second part of a two-part series. Find part one, which explains the background of PBMs, transparency solutions and how to understand profitability
PBMs are evolving to be better aligned with plan sponsor needs, and pharmacy benefit consultants walk help benefit leaders and advisers through the details that will
Traditional PBMs and disruptor pass-through models
Traditional PBMs rely on spread pricing, retained rebates and specialty margins as foundational elements of their business. Their contracts often provide attractive guarantees but include complex definitions and caveats that allow the PBM to recover lost revenue through other mechanisms. While these organizations have scale, established networks and familiarity, their incentives are fundamentally misaligned with the sponsor's objective of lowering net cost. The PBM's revenue tends to increase as drug spending increases, creating an inherent conflict.
In contrast, newer pass-through or "transparent" PBMs seek to eliminate or minimize spread pricing pass through rebates fully, and earn revenue through clearly defined administrative fees. Their model separates the PBM's margin from the price of drugs, which produces a
These PBMs typically provide far greater visibility into claims data and are more receptive to independent audit and oversight. However,
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Strategic levers and potential savings
A plan sponsor's success in managing pharmacy spend depends less on which PBM model it selects and more on the rigor of its contracting, governance and oversight. Several levers consistently generate meaningful savings.
Clear contractual definitions and strong audit rights form the foundation of effective oversight. When contracts precisely define ingredient cost, dispensing fees, specialty classification, rebates and administrative charges, the PBM's ability to obscure profit diminishes sharply. Full claims-level data access, including pharmacy-level reimbursements, is essential for validating performance and detecting spread. Sponsors that move from spread-based arrangements to true pass-through pricing, particularly for specialty, may achieve material reductions in net cost.
Rebate and formulary strategy also play a decisive role. Plans that prioritize lowest net cost over highest rebates frequently achieve better financial outcomes. Tightening exclusions within rebate guarantees, demanding clarity on manufacturer fees and ensuring formulary decisions reflect clinical value, rather than PBM revenue interests, lead to significant improvements. As biosimilars and alternative therapies enter the market, data-driven formulary management becomes even more critical.
Specialty channel oversight is another high-value lever. Scrutinizing the PBM's specialty pricing model, evaluating alternative distribution channels, optimizing site of care and reinforcing clinically appropriate utilization controls can materially reduce specialty spending. Because specialty often accounts for half or more of total pharmacy cost, relatively small improvements generate substantial savings.
Clinical program oversight further enhances outcomes. When prior authorization, step therapy, and quantity limits are based on clinical appropriateness rather than guarantee protection, plans achieve better patient outcomes and avoid unnecessary utilization. Programs that lack measurable return on investment should be re-evaluated or discontinued.
International sourcing has emerged as another strategic lever for plan sponsors seeking relief from escalating specialty and brand-name-drug costs. When implemented with appropriate legal, clinical and regulatory safeguards, international sourcing can provide access to FDA-approved equivalents at significantly lower prices than those available through domestic channels. Although this approach is not suitable for every plan, every member or every medication, it can meaningfully reduce net spend for selected therapies — particularly for chronic, high-cost specialty brands lacking competitive alternatives.
The key is to evaluate international programs with care, ensure they adhere to robust compliance standards and integrate them thoughtfully within the broader pharmacy strategy so that cost savings do not introduce unnecessary operational or clinical risk.
Collectively, these levers can reduce total pharmacy spending by double-digit percentages, depending on the plan's starting point and benefit structure. Plans that implement disciplined governance, regular auditing and contractual enforcement typically see the strongest results.
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Emerging forces reshaping the PBM market
Several developments are likely to reshape the PBM marketplace in the coming years. These include increasing regulatory scrutiny of PBM pricing practices, the growing influence of biosimilars and specialty therapies, employer demand for transparent contracting models and potential shifts in rebate structures as manufacturers explore alternative pricing strategies.
At the same time, new entrants and alternative procurement models – including transparent PBMs, specialty carve-outs and international sourcing programs – are creating additional options for plan sponsors seeking to manage pharmacy costs more effectively.
As these dynamics evolve, plan sponsors will increasingly need robust data analytics, disciplined procurement strategies and clear governance structures to navigate the changing market landscape.
The role of a trusted pharmacy benefits consultant
Given the complexity of PBM contracting, pricing structures and operational practices, most plan sponsors benefit from engaging an independent pharmacy benefits consultant who understands PBM economics, contract language, market conditions and clinical program design. Such advisors help level the playing field by deciphering opaque terms, identifying hidden revenue streams and guiding the sponsor through competitive procurement processes that prioritize net cost, operational and administrative compatibility and long-term alignment rather than headline guarantees.
A capable consultant provides governance beyond implementation. This includes routine monitoring of financial and clinical performance, reconciliation of rebates, verification of guarantees, review of specialty channel arrangements and assessment of emerging market developments such as GLP-1 therapies or biosimilar launches.
Independence is essential in this role. Advisors should operate free from PBM incentives, marketing agreements, referral fees or financial relationships that could influence recommendations. Their responsibility is to advocate solely for the plan sponsor's interests and support accountability throughout the PBM relationship.
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In summary
PBMs operate within a complex and often opaque segment of the healthcare marketplace. Their primary revenue streams – including spread pricing, retained manufacturer rebates and specialty pharmacy margin – allow them to profit from the very expenditures they are tasked with managing. Although newer pass-through PBM models offer greater transparency, no model delivers optimal results without disciplined contracting, rigorous oversight and continuous governance.
Meaningful pharmacy cost management requires that plan sponsors understand their claims data, enforce contractual protections and maintain clear authority over formulary strategy, specialty drug management, rebate structures and clinical program design. Independent oversight can play an important role in this process by helping sponsors evaluate PBM proposals, interpret complex contract language, identify hidden revenue streams and ensure guarantees and financial arrangements operate as intended.
When supported by strong analytics, informed procurement strategies and ongoing governance, plan sponsors can bring significantly greater transparency and accountability to their pharmacy benefit programs. In doing so, they can better align the PBM relationship with the plan's financial objectives and clinical priorities while reducing unnecessary or hidden costs within the prescription drug supply chain.
