4 hidden costs of pharmacy benefit managers— and how to stop overpaying.

Employer pharmacy costs are increasing nearly 8% year after year. Organizations often feel forced to accept these high prices, unsure of what’s driving them or how to stop the bleeding. While some believe their pharmacy benefit managers (PBMs) are doing their part in controlling costs, many are beginning to question their effectiveness. Despite promises of savings, costs continue to climb, leaving many wondering: are PBMs really working for them?

The truth is, traditional PBMs are part of the problem. They are structured to profit at your expense, prioritizing their bottom line over your organization’s well-being. Hidden fees, lack of transparency, and profit-driven practices are built into their models. While they claim to reduce costs, they’re frequently the ones driving them up—and your organization is paying the price. Here are four key ways traditional PBMs are taking advantage of your team.

1. Spread pricing.

Traditional PBMs use a tactic called spread pricing, where they charge an employer more for a drug than they pay the pharmacy, and pocket the difference. For example, the PBM might pay a pharmacy $100 for a drug but bill your plan $150, keeping the $50 “spread” as profit.

This practice directly incentivizes the PBM to maximize the spread, meaning employers and employees end up paying much more than necessary for their prescriptions. What’s worse, spread pricing is rarely disclosed, making it difficult to know just how much extra you're being charged. Further, traditional PBMs know that employers and government agencies are looking into spread pricing, so they have been finding new ways to hide these practices.

To avoid the impacts of spread pricing, it’s essential to work with a pharmacy benefits manager who uses a pass-through, transparent PBM model. In this model, all savings are passed directly to the plan; what you pay for a drug is the same as what the PBM pays the pharmacy. Regularly auditing your PBM’s pricing and reimbursement practices can help ensure compliance and reveal tactics like spread pricing, but it requires the PBM to provide straightforward reporting that an employer and their consultant can actually understand.

2. Rebate retention.

Rebates are often presented by PBMs as a cost-saving measure, but there’s a hidden catch: they encourage PBMs to push higher-cost drugs because they receive larger kickbacks from manufacturers, while the net price to the employer is still high. This is especially troubling when these drugs do not present any additional clinical efficacy. 

Some PBMs offer “rebate guarantees,” promising a set amount of rebate dollars back to the employer. In order to meet these rebate guarantees, PBMs prioritize more expensive drugs, inflating overall costs.

For example, a PBM might promote a brand-name medication over a generic alternative because the rebate is larger. While the employer receives a lucrative amount of rebate dollars back, the final cost of the pricier drug is still far more than an alternative with a lower rebate. 

To mitigate the impact of rebate-driven cost inflation, consider working with a PBM that passes 100% of all rebates back to the employer and makes formulary decisions based on clinical value, not rebate potential. This ensures that your plan prioritizes cost-effective medications rather than maximizing PBM profits.

3. Specialty drug mismanagement.

Although specialty drugs represent a small percentage of total prescriptions, they account for over 50% of overall drug spend. Originally, a specialty drug classification meant that the medication was part of a complex treatment protocol, had a high price, and/or required special handling. Today, there is very little oversight around the criteria required to categorize a medication as a specialty drug. PBMs exploit this lack of oversight to classify a wider and wider class of medications as specialty drugs because they can control how members fill these prescriptions and earn more money when patients fill these prescriptions at specialty pharmacies that the PBMs own.

Without sufficient clinical oversight, PBMs have little incentive to steer members toward cost-effective treatments. They may neglect to explore lower-cost alternatives or fail to evaluate whether the specialty drug is truly necessary, all while prioritizing profit over value.

To avoid this cost driver, it's essential for your PBM's speciality pharmacy management strategy to implement tighter utilization management and clinical programs that ensure the appropriate use of specialty drugs. This includes making sure your PBM regularly reviews prescriptions to identify lower-cost alternatives, like biosimilars and generics, and prioritizes member outcomes rather than profits.

4. Vertical integration.

PBMs are supposed to act as intermediaries, negotiating the best prices for employers and ensuring that members have access to affordable medications. However, when a PBM owns the pharmacy it directs members to, there's a clear conflict of interest. Instead of focusing on lowering costs, the PBM is incentivized to steer members toward its own mail-order or specialty pharmacies—even if cheaper or more convenient alternatives are available.

To avoid higher costs, employers should review contracts for incentives tied to PBM-owned pharmacies or select a PBM that has no conflicts of interest. Allowing employees to choose where they fill prescriptions—whether retail, mail-order, or specialty—ensures that decisions are driven by cost-effectiveness and convenience, not the PBM’s bottom line.

Pharmacy benefits don’t have to be a constantly expanding category of your budget. You don’t have to keep watching costs rise year after year while employee health outcomes decline. 

Rightway’s transparent and fully-aligned PBM model lets you deliver an industry-leading modern PBM benefit to your members while ensuring that your costs are not artificially rising. Rightway eliminates hidden fees, operates with full transparency, and focuses on both financial savings and improved health outcomes for your team. It’s time to move away from the traditional PBM model and choose a partner that truly works in your best interest—not against it.