2 Must Haves Every Employer Should Have in Their PBM Contract

If you’re responsible for managing your company’s pharmaceutical spend, your Pharmacy Benefit Manager (PBM) contract may be one of the most important—and overlooked—tools in your entire benefits strategy.

The role of PBMs in the U.S. healthcare system continues to evolve, and while their services are critical for managing prescription drug plans, the lack of transparency in pharmacy benefits often leads to higher costs and missed opportunities for employers.

Let’s explore two contract provisions that can have a major impact on your plan’s bottom line—and why every employer should take a closer look at how their PBM contract is structured.

Watch: Why Your PBM Contract Could Be Costing You More Than You Think

1. Demand Transparency in Your PBM Contract

Transparency isn’t just a buzzword, it’s the foundation of a fair pharmacy benefits strategy. In your PBM contract, transparency refers to how pricing and payments are disclosed, including what your PBM pays pharmacies versus what your plan is charged.

Let’s break it down:

  • A PBM might set a price of $100 for a medication on your plan’s formulary.

  • Behind the scenes, they’ve negotiated a reimbursement rate of $85 with the dispensing pharmacy.

  • That $15 difference? It’s kept by the PBM—without you, the employer or plan sponsor, ever seeing it.

Without transparent pricing, these hidden margins can quietly drive up your pharmaceutical costs. A transparent PBM contract ensures you know exactly what you’re paying for—and why.

2. Insist on a Full Pass-Through PBM Model

You’ve likely heard the term “rebates” in discussions about pharmacy benefits. These are payments made by drug manufacturers to PBMs as incentives for preferred placement on formularies.

In a pass-through PBM contract, every dollar from manufacturer rebates, incentives, or other fees flows through the PBM and back to the plan sponsor—not into the PBM’s bottom line. This model ensures:

  • Rebates help reduce employer and employee costs

  • You retain control of the funds to offset future pharmaceutical expenses

  • The PBM acts as a true partner, not a profit center

While pass-through contracts may involve paying slightly higher administrative fees to the PBM, the long-term benefit is clear: you gain alignment, accountability, and a clearer path toward controlling pharmacy costs.

Why This Matters for Employers

Your PBM should be your advisor, not your adversary. By securing a transparent and pass-through agreement, you’re inviting your PBM to sit on your side of the table—to navigate, consult, and collaborate in finding meaningful cost-saving solutions.

As pharmacy costs continue to rise, these two contract elements—transparency and pass-through pricing—can have a measurable impact on your organization’s healthcare spending and employee satisfaction.

What to do next?

Understanding and optimizing your pharmacy benefit manager contract isn’t a one-time task—it’s an ongoing process. Over the next few weeks, we’ll continue to explore strategies to improve PBM performance, reduce pharmaceutical spend, and bring clarity to one of the most complicated aspects of employee benefits.

Need help evaluating your PBM agreement or exploring pass-through options?

Let us do a complete no-obligation PBM-contract analysis for you.

Alyssa Johnson