What does a transparent PBM contract look like?

A transparent PBM contract includes pass-through pricing (no spread), 100% rebate pass-through, transparent administrative fees, audit rights with access to actual pharmacy invoices, formulary design rights, and no exclusivity requirements for specialty pharmacy. Transparent PBMs like Navitus, Capital Rx, and RxBenefits offer these terms as their standard model.

What is pass-through pricing in a PBM contract?

Pass-through pricing means the PBM charges the employer exactly what it pays the dispensing pharmacy — no spread, no markup. The PBM earns revenue only through a transparent per-claim or per-member administrative fee. This eliminates the hidden profit that traditional PBMs earn by charging employers more than they pay pharmacies.

What audit rights should employers demand in a PBM contract?

Employers should demand the right to audit actual pharmacy invoices (not just claims data), rebate reconciliation reports, and administrative fee calculations. Audit rights should include access to the PBM's actual acquisition cost data, the ability to use an independent auditor, and a requirement that the PBM cooperate fully with audit requests. Many traditional PBM contracts limit audit rights to claims data only, which is insufficient to detect spread pricing.

What is MAC pricing and how does it affect employer costs?

Maximum Allowable Cost (MAC) pricing is the maximum amount a PBM will pay a pharmacy for a generic drug. PBMs set their own MAC lists and can charge employers more than the MAC rate, creating spread. Employers should demand that their contract defines MAC pricing transparently, requires the PBM to disclose its MAC list, and prohibits charging employers more than the MAC rate paid to pharmacies.

How do I know if my current PBM contract is transparent?

Request a claims audit comparing what your PBM billed versus what pharmacies were actually paid. If your PBM refuses or limits the scope of the audit, that is a red flag. Also review your contract for language about "ingredient cost," "dispensing fees," and "administrative fees" — vague definitions in these areas typically indicate a spread pricing model. A transparent contract will explicitly state that the employer pays exactly what the pharmacy is paid, plus a disclosed administrative fee.

Contracts

PBM Contract Transparency: What Employers Should Demand

Most PBM contracts are designed to obscure how the PBM makes money. A transparent contract eliminates hidden revenue streams and aligns the PBM's incentives with yours. Here's exactly what to demand.

The transparent PBM contract checklist

Pass-through ingredient cost pricing: The employer pays exactly what the PBM pays the pharmacy — no spread. The PBM charges a flat administrative fee per claim instead.

100% rebate pass-through: All manufacturer rebates are passed to the employer. The PBM charges a flat fee for rebate administration rather than retaining a percentage.

Audit rights: The employer has the right to audit PBM claims data, pricing, and rebate calculations at any time with reasonable notice.

Formulary control: The employer approves all formulary changes. The PBM cannot add, remove, or tier drugs without employer consent.

Specialty pharmacy flexibility: Employees can use any accredited specialty pharmacy — not just the PBM's owned specialty pharmacy.

Generic dispensing rate guarantee: The PBM guarantees a minimum generic dispensing rate (GDR) and pays a penalty if it falls below the threshold.

Transparent administrative fees: All PBM fees are disclosed as flat amounts per claim or PEPM — no percentage-of-spend fees that create incentives to increase drug costs.

Data ownership: The employer owns all claims data and can take it to any analytics vendor or successor PBM without restriction.

How to get a transparent contract

Traditional PBMs will resist transparent contracts — they're profitable precisely because of the opacity. Your leverage comes from running a competitive RFP that includes transparent PBMs alongside traditional ones. When a traditional PBM knows they're competing against Capital Rx or Navitus, they become more willing to negotiate.

Work with a benefits consultant or broker who specializes in PBM procurement and has experience with transparent contracts. The savings from a well-negotiated transparent contract typically far exceed the consultant's fee.

Related tools

PBM Contract IQ™

Upload your contract for an AI-powered review of spread pricing and rebate terms.

PBM Comparison Tool

Compare transparent PBMs against traditional contracts on key terms.

PBM Savings Calculator

Model the financial impact of switching to a pass-through contract.

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