Pharmacy benefits represent an increasingly significant piece of the healthcare benefits puzzle. The three largest PBMs DO NOT WORK FOR YOU. Their annual reports show that they are beholden to their own corporate profits to create shareholder value at your expense.



Traditional PBMs utilize pricing strategies that hide what they actually reimburse the pharmacy for your plan. 


Traditional PBMs are owners of or are owned by pharmacies. They are more concerned with their corporate profits than what is best for the plan.

MISCONCEPTIONS - Three misconceptions create confusion in pharmacy benefit management. These misconceptions are perpetuated by the fact that most consultants/trusted advisors receive a financial benefit torecommend the same PBMs that are costing plans $Millions.

1. PBMs negotiate drug prices. The PBM is the MIDDLEMAN, between the pharmacies that fill the prescriptions and the payers. THEY DO NOT NEGOTIATE DRUG PRICES with the manufacturers! They negotiate reimbursement rates with the Pharmacy.

2. PBMs save plans money based on their “purchasing power”. PBMs DO NOT PURCHASE DRUGS. THEY DO NOT HAVE PURCHASING POWER!

3. Coalitions/Collectives/Purchasing Groups created by Consultants and Associations save plans money based on the “collective” size of the group they reperesent. Consultants have been telling plan sponsors that they can save them money through the formation of these groups. It is not true. THESE GROUPS ARE NOT PURCHASERS. THEY DO NOT SAVE PLANS MONEY, because they do not purchase drugs!  THEY COST PLANS MONEY!



Critics charge that PBM ownership of mail order pharmacies creates several conflicts. A PBM may be incentivized to:

  1. Perform fewer generic substitutions;

  2. Switch patients to higher-cost therapeutic alternatives (“therapeutic interchange”); or

  3. Repackage drugs in a manner that could lead to increased costs to plan sponsors, while maximizing revenue for the PBM (“package size pricing”). -  See attached PDf, page 8.

When a PBM owns a mail order pharmacy, and is also responsible for building a retail pharmacy network -

  1. The PBM is responsible for negotiating contracts with entities that are competitors to the PBM’s mail order pharmacy.


1. SPREAD PRICING - Spread Pricing is the tactic that PBMs use to pocket large sums. It is the difference between what the PBM collects from the plan and what the PBM reimburses the pharmacy. PBMs never tell you what they pay the pharmacy.

2. RETAIL PHARMACIES - The PBM that is an owner of, or is owned by a pharmacy, steers plan members to their retail pharmacies to enhance their corporate profits and increase shareholder value.

3. MAIL ORDER PHARMACIES - PBM owned pharmacies repackage and re-label and create a new National Drug Code (NDC) for generics. This practice has eliminated the use of Average Wholesale Price (AWP), making AWP irrelevant.

4. SPECIALTY PHARMACIES - PBM owned specialty pharmacies are especially lucrative when the plan members are steered to the PBM-owned specialty pharmacy.

5. PBMs NEGOTIATE REBATES with manufacturers, for favorable placement of brand named drugs on their formularies. Recent awareness of this practice has provided more rebate dollars for plans and, supposedly less to the PBM. However, recent court proceedings have exposed how PBMs hide rebate dollars in the form of “Administrative Fees”, keeping more lucrative administrative fees and returning the smaller rebates to the plan. Express Scripts vs. Kaleo

6. COALITION/COLLECTIVES/PURCHASING GROUPS created by Consultants and Associations. As explained above, they do not save plans money. They cost plans money!


Spread pricing is a practice that is most common with generic drugs, which make up almost 90 percent of all prescriptions dispensed in the U.S. Generic pills often cost pennies on the dollar compared with brand-name versions, and promoting them has been the focus of U.S. efforts to keep drug costs under control - especially in insurance programs like Medicaid that provide care to millions of lower-income people.

Yet critics argue the practice of spread pricing may actually be propping up costs as middlemen divert fees and markups to themselves, undercutting the savings generics are supposed to offer.


Markups on these commonly prescribed generic drugs are growing, with huge markups on some well-known medicines, Bloomberg found. For the 90 drugs analyzed, which includes more than 500 dosages and formulations, PBMs and pharmacies siphoned off $1.3 billion of the $4.2 billion Medicaid insurers spent on the drugs in 2017.

Spread Pricing


PBMs do not purchase drugs from the manufacturer, however they do negotiate rebates with manufacturers, for favorable placement of the drugs on the formulary. Heightened awareness of this practice has resulted in less of the rebates going to the PBM and more going to the plan.

Legal proceedings, however, have exposed additional maneuvering by PBMs to hide rebates from the plan by adding an additional, administrative, fee (really a rebate) to the contract so that the PBMs keep the more lucrative administrative fee and return the smaller rebate amount to the plan.


The lack of regulation in the PBM market has allowed the major PBMs to form plans to use their own retail, mail-order and specialty pharmacies.  Substantial conflicts of interest arise when a PBM owns its own pharmacy operation.  Its incentives shift from negotiating the lowest cost method of drug distribution to driving profits from its own pharmacy operations, and thereby effectively forcing payors and consumers into using those PBM-owned pharmacies.  

Consumers strongly prefer dealing with a community pharmacist, and especially for specialty pharmaceuticals, the community pharmacist provides invaluable counseling and patient monitoring.  

In addition, PBM owned mail order pharmacies often increase utilization and costs by dispensing unnecessary drugs.  

Conflicts of interest deny consumers access to quality health care and increase the cost of overall health care to plans and consumers.

Rep. Buddy Carter (R-Ga.) said at a House Energy and Commerce Committee markup in June of 2017. “The most effective and quickest way that we can address escalating prescription prices is to address the middlemen that are involved,” “And we’re going to be doing that.”