3 PBM Contract Provisions Every Employer Should Demand
Pharmacy costs have become one of the biggest drivers of healthcare spending in the United States.
In fact, prescription drugs now account for more than one out of every five healthcare dollars spent. As costs continue to rise and new therapies enter the market, employers are finding it increasingly difficult to understand where their pharmacy dollars are going—and whether they are getting the value they expect.
At the center of the pharmacy ecosystem sits the Pharmacy Benefit Manager (PBM). PBMs play a critical role in managing prescription drug benefits, negotiating with manufacturers, building formularies, and coordinating pharmacy networks. However, the complexity of the pharmaceutical supply chain can create opportunities for hidden costs and misaligned incentives, which is why many organizations turn to experienced partners for pharmacy benefits consulting to help evaluate contracts, identify savings opportunities, and navigate an increasingly complex marketplace.
While there is no single solution to controlling pharmacy spending, one of the most important places to start is with the PBM contract itself.
A well-structured contract can provide employers with greater transparency, accountability, and confidence that their pharmacy program is operating in their best interest. When evaluating a PBM arrangement, there are three provisions every employer should prioritize.
WATCH: Three Things That Must Be Included In Your PBM ContracT
1. Full Transparency
Transparency is the foundation of an effective PBM relationship.
Historically, many PBM arrangements have operated as "black boxes," making it difficult for employers to understand how money moves through the pharmacy supply chain. Without visibility into pricing, rebates, fees, and administrative costs, employers may struggle to determine whether they are receiving competitive pricing or whether unnecessary costs are being added along the way.
A transparent PBM contract should clearly outline:
How the PBM is compensated
What fees are being charged
How rebates are handled
What financial arrangements exist within the pharmacy supply chain
When employers have access to this information, they are better positioned to make informed decisions and hold their vendors accountable.
2. Pass-Through Pricing
Pass-through pricing helps align the interests of the PBM and the employer.
Under traditional spread-pricing models, PBMs may charge the employer one amount for a prescription while reimbursing the pharmacy a lower amount, keeping the difference as profit. While this practice can be difficult to identify without detailed reporting, it can significantly increase pharmacy costs over time.
A pass-through arrangement eliminates this pricing spread by requiring the PBM to pass the actual pharmacy cost directly to the employer, typically charging a clearly defined administrative fee instead.
The result is a more straightforward financial arrangement that allows employers to better understand what they are paying for and why.
Pass-through pricing does not automatically guarantee the lowest overall cost, but it does provide a higher level of transparency and alignment than many traditional pricing models
3. Full Audit Rights
Even the most transparent contract is only as effective as an employer's ability to verify what is happening.
That is why comprehensive audit rights are essential.
Audit provisions allow employers—or their consultants—to conduct a full PBM contract analysis at any time, where claims data, financial transactions, rebate arrangements, and contract performance is reviewed to ensure the PBM is meeting its obligations.
Strong audit rights can help employers:
Verify contract compliance
Validate rebate payments
Identify discrepancies in pricing
Confirm that agreed-upon terms are being followed
Without audit rights, employers may have limited ability to confirm whether the contract is operating as intended.
Why These Three Provisions Matter
The pharmacy landscape is constantly evolving. New medications, specialty drugs, alternative purchasing models, and innovative solutions continue to reshape how prescription benefits are delivered and financed.
As the marketplace changes, employers need more than just a PBM relationship—they need confidence that their pharmacy strategy is built on a solid foundation.
Transparency, pass-through pricing, and full audit rights won't solve every pharmacy challenge. However, together they create a framework that helps employers better understand their pharmacy spend, improve accountability, and reduce the likelihood of hidden costs.
The Importance of Expert Guidance
The reality is that pharmacy benefits have become increasingly complex. New solutions and market entrants are continually emerging, and evaluating those opportunities requires specialized expertise.
That's why at Caravus, we believe having a trusted advisor who understands the pharmacy landscape can be invaluable. An experienced consultant can help employers evaluate PBM contracts, identify opportunities for millions of dollars in prescription drug savings, and navigate the ongoing changes that impact pharmacy costs.
When it comes to pharmacy benefits, asking the right questions—and ensuring the right contract provisions are in place—is often the first step toward achieving better outcomes for both employers and employees.