Traditional vs. Pass Through PBM Contracts: Why Transparency Matters

Traditional vs. Pass‑Through PBM Contracts: Why Transparency Matters

As pharmacy benefit costs climb and rebate flows remain murky, employers are under pressure to regain control. A significant impact on controlling plan costs is selecting the best PBM contract structure for the plan.

While traditional PBM contracts rely on spread pricing and hidden revenue sources, pass-through models offer employers a more straightforward, cost-aligned path forward.

Traditional PBM Contracts

Most traditional PBM contracts are built around spread pricing. Often, plans pay more than they receive in rebates for the same drug. These contracts may also:

• Retain some or all manufacturer rebates
• Embed administrative fees
• Limit employer access to underlying cost data

The result is misaligned incentives: PBMs often benefit more from high-cost drugs with larger rebates, regardless of what's clinically or financially best for the plan.

In fact, recent reports from the Federal Trade Commission show that middlemen in the prescription chain can significantly inflate drug costs, calling attention to “outsized influence” and limited transparency.

Pass‑Through PBM Contracts

By contrast, pass-through PBMs operate on a flat-fee basis. They:

• Pass 100% of rebates and discounts directly to the employer
• Eliminate spread pricing entirely
• Offer contract-level visibility into fees, costs, and performance

As scrutiny mounts, more employers are demanding this level of clarity. A June 2025 industry analysis shows a shift toward pass-through and modular PBM models, especially in response to spread pricing bans and employer frustration with rebate misalignment.

Traditional vs. Pass-Through at a Glance

• Spread Pricing
  • Traditional PBM: Yes
  • Pass-Through PBM: No
• Rebate Transparency
  • Traditional PBM: Partial or unclear
  • Pass-Through PBM: 100% disclosed
• Admin Fees
  • Traditional PBM: Hidden in cost
  • Pass-Through PBM: Flat per-claim or PMPM
• Plan Alignment
  • Traditional PBM: PBM-driven incentives
  • Pass-Through PBM: Employer-aligned strategy
• Forecast Ability
  • Traditional PBM: Low
  • Pass-Through PBM: High

PBM contract structures aren’t just operational; they’re strategic.

In a climate of rising costs and regulatory reform, plan sponsors need clarity, not complexity. When evaluating their contract structure, plan sponsors should be asking their PBM partners:

• Can we audit rebate flows and verify retention?
• Are all admin fees disclosed and not buried in unit cost?
• Do we have access to net cost by drug class?
• Is our contract aligned with lower-cost, clinically appropriate prescribing

Pass-through models provide predictable budgeting, auditable savings, and a framework that’s easier to explain to both internal stakeholders and employees. Choosing transparency today means better control tomorrow.