News & Insights

Information Disadvantages Created by PBMs

March 2021

Challenges and Opportunities in Building a Sustainable Specialty Drug Benefit:
The Information Disadvantage

Nearly every employer is aware that skyrocketing specialty drug costs, if left unchecked, will threaten the financial viability of the entire health care benefit.1,2 However, most do not know that pharmacy benefit managers (PBMs), the organizations traditionally trusted by employers to make drug benefit decisions on their behalf,3 can be a major part of the problem of rising drug costs.4 In this paper, we summarize one of the three key deficiencies of the traditional employer-PBM business model. We explain why it has become dysfunctional, especially for specialty drug management, and why public attention to the problem has not translated into better service for employers. For this deficiency, we present alternative ideals—best practices to help employers achieve a drug benefit that is sensible, sustainable, and provides specialty drugs for patients who need them.

Traditional Business Model: Information Disadvantage
Ideal Business Model: Transparent Contracts and Reporting

Even contractual arrangements described by PBMs as “fully transparent” typically include undisclosed revenue sources and provisions that the employer would never have accepted—if it had known about them. Employers are rarely told about the following…49-52

  • Revenues PBMs receive from manufacturers that are not subject to “100% passthrough” contract terms;
  • PBM-owned purchasing organizations that may allow PBMs to collect and distribute rebates out of public view;
  • Effects of rebates on formulary decision making;
  • The amount of expected revenue for the PBM from spread arrangements;
  • Whether the “independent” advisor the employer hired to help negotiate the contract is actually receiving money from the PBM; and if so, how much.

Going hand-in-hand with lack of transparency in contracts is outdated reporting based on measures that, in the context of today’s complex benefit management tasks, provide little insight into the overall performance of the PBM in managing prescription drug costs. Like drug benefit management activities, drug benefit reporting should:

  • Be transparent, disclosing specific details using understandable terms and a user-friendly interface.
  • Cross over the benefits (i.e., pharmacy and medical) and sites of care, quickly identifying sources of waste so that the PBM and employer can work hand-in-hand to eliminate them;
  • Reflect the complexities of managing drugs today, such as complex dosing regimens, genetic mutations targeted by pharmacogenomic therapies, or markers of clinical response;

Summary: What Does This Problem Mean for Employers?

  • Typical PBM contracts omit the information necessary for employers to understand what, exactly, they are paying for and whether it is what they want for their members.
  • With today’s technology and the low cost of data warehousing, there is no excuse for failing to provide employers with specific, timely, and clinically appropriate information about sources of wasted expenditures and effectiveness of PBM interventions.
  • Information should be provided not only for the plan overall, but also at the claim or case level, so that the employer can audit/evaluate it and act on it. An employer cannot manage what it, or its PBM, does not measure.53

Action: What Should the Ideal PBM Arrangement Include?

  1. The employer should have the right to disclosure of rebate arrangements with manufacturers, drug by drug, so it can determine whether the PBM’s formulary decisions are in its best financial interests. This right is particularly important when the PBM’s formulary either allows or requires coverage of a more expensive brand drug over a less costly product or biosimilar.
  2. The employer should have performance metrics for PA and other clinical programs that go beyond summaries of approval and denial rates. Similarly, the right to audit should include not only discounts and rebates, but also the performance of the PA program and other PBM activities.
  3. The employer should require the provision of savings methodologies for each program and have the ability to validate those savings at the claim level.
  4. Finally, the employer should have the right to audit PBM business arrangements to verify that 100% of revenues come directly from client fees.

The Bottom Line

It is time to move PBM business intelligence out of the dark ages. “Smoke-filled room” contracts and antiquated reports should be replaced with transparent terms and calculations, linked to timely data access, to put control of the drug benefit back in the hands of the employer—the organization paying for the benefit.


In most employer-PBM business arrangements, the PBM has the upper hand—more control of the benefit, more information, and more opportunities to reap big financial rewards from prescription business. But it doesn’t have to be that way. Employers realize savings from the ideal PBM arrangements described here. Fully aligned, value-based, transparent benefits are possible—for PBMs willing to use them, and for employers that insist on them.



1. Inserro A. Employers say specialty drugs a factor behind rising costs. AJMC Center for Biosimilars. April 17, 2019. Available at:
2. Reed T. National Business Group on Health execs offer 2020 outlook on uptick in virtual care, impact of Amazon. FierceHealthcare. January 14, 2020. Available at:
3. Eickelberg HC. The prescription drug supply chain “black box”: how it works and why you should care. American Health Policy Institute. 2015. Available at:
4. Motheral BR, Fairman KA. Changes in PBM business practices in 2019: true innovation or more of the same? J Manag Care Pharm. 2020 Sep 1. doi:10.18553/jmcp.2020.20213. Online ahead of print.
49. Burns J. The slow reveal. Managed Care. September 18, 2019. Available at: Accessed May 1, 2020.
50. Begley K. PBM contracting: tips, pitfalls, and opportunities. Presentation to 62nd Annual Employee Benefits Conference. International Foundation of Employee Benefit Plans. November 2016. Available at: Accessed May 1, 2020.
51. Fein AJ. Drug Channels news roundup, May 2019: Express Scripts’ new GPO, more on Amazon/Pillpack, a BS update, and Vegas video. May 31, 2019. Available at: Accessed May 1, 2020.
52. Vela L. Reducing wasteful spending in employers’ pharmacy benefit plans. The Commonwealth Fund. August 30, 2019. Available at: Accessed May 1, 2020.
53. Motheral BR, Fairman KA. Specialty pharmacy: you can’t manage what you can’t measure. Employee Benefit Adviser. 2013;27(15):13-14.

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