What Spread Pricing Is
A PBM sits between your health plan and the pharmacy where your employees fill prescriptions. When an employee picks up a medication, the pharmacy gets reimbursed by the PBM. And the PBM bills your plan for that same prescription.
In a spread pricing model, those two numbers are different and the PBM keeps the difference.
The mechanics are straightforward: a PBM might pay a pharmacy $80 for a prescription but charge your plan $100. The $20 difference is the spread. The PBM retains it as profit without disclosing it to you. On a single prescription, it looks trivial. Across tens of thousands of prescriptions per year, it adds up to something that can run into six figures for a mid-size employer and much more when specialty medications are involved, where the spread on a single drug can be hundreds of dollars per fill.
The FTC launched an investigation into this practice in 2022 and has published interim findings confirming that the country's largest PBMs, CVS Caremark, Express Scripts, and OptumRx, have enormous influence over drug pricing and have used it in ways that benefit themselves at the expense of employers and patients. A bipartisan PBM Reform Act was introduced in Congress in July 2025, specifically targeting spread pricing in Medicaid and requiring 100 percent rebate pass-through. Multiple states have passed or are considering similar legislation, though ERISA preemption has limited the reach of state laws on self-funded plans.
Meanwhile, employers are voting with their feet.Use of alternative PBMs increased by roughly 19 percent from 2024 to 2025, while reliance on the three largest PBMs declined by about 11 percent over the same period.
Why It's Hard to Detect
The reason most employers don't know whether their PBM contract uses spread pricing is that PBM contracts are not designed for clarity. Drug categories are loosely defined and can be reclassified by thePBM without notice to the employer. The amount paid to pharmacies is typically not disclosed. The language used to describe pricing structures is often technical enough that most HR directors and CFOs can't parse it without outside help.
A common example: a contract may describe it self as "pass-through" while containing carve-outs that allow spread on certain drug categories, specific pharmacy networks, or compound medications. Technically pass-through. Functionally not.
There's also the rebate question. PBMs negotiate manufacturer rebates, discounts paid by drug companies for preferred formulary placement, and a portion of those rebates may or may not be passed back to your plan. In a traditional spread pricing model, the PBM retains a portion of rebates as additional profit. Even contracts described as pass-through may route rebates through group purchasing organizations where a fee is retained before anything reaches the employer.
The cumulative effect of spread on drug costs and rebate retention on pharmacy income can be substantial. And because it's all embedded in pricing structures rather than disclosed as line-item fees, it's genuinely invisible without a dedicated audit.
What Pass-Through Pricing Actually Means
The alternative to spread pricing is a pass-through model. In a pass-through arrangement, the PBM charges your plan exactly what it paid the pharmacy, no markup, no spread. The PBM's compensation comes from a disclosed, flat administrative fee per claim.
This sounds simple. In practice, the term"pass-through" is used loosely enough that it requires scrutiny. A genuine pass-through contract should specify that the amount billed to the plan equals the amount paid to the pharmacy for every claim, across every drug category and every pharmacy network. Any contract that limits pass-through to certain categories, excludes certain networks, or allows undisclosed administrative margins in any form is not fully pass-through regardless of what it's called.
The FTC and independent analyses have documented cases where drugs priced at thousands of dollars per fill under a traditional PBM model were available for a fraction of that cost through transparent pricing arrangements. One well-known example involves a cancer medication priced at $8,900 under a traditional model that was available for $57 through a transparent PBM. These aren't typical cases, but they illustrate the range of what spread pricing can obscure.
How to Audit Your PBM Contract
The most direct thing a self-funded employer can do is conduct an independent PBM audit, a line-by-line review of what your PBM is billing versus what it's paying pharmacies, conducted by an advisor with no financial relationship with the PBM.
A proper audit will identify the pricing model your contract uses, quantify the spread retained on generic and brand medications, document rebate flows and identify any amounts retained by intermediaries, and compare your effective drug costs to transparent market benchmarks.
Many employers who have gone through this process have found meaningful discrepancies — in some cases exceeding $300,000 annually for plans with 800 or more employees. That figure isn't universal, but it reflects what's consistently findable when someone is looking carefully.
Beyond the audit, there are contract-level changes worth pursuing regardless of your current PBM. Push for explicit disclosure of the amount paid to pharmacies versus the amount billed to the plan on every claim. Require 100 percent rebate pass-through with documentation of the full rebate received before any GPO fees are deducted. Negotiate the right to audit PBM pricing on an ongoing basis, not just at contract renewal. And define drug categories precisely in the contract language so the PBM cannot reclassify medications unilaterally.
If your current PBM resists these provisions, that's information. A PBM operating transparently has no reason to object to audits or disclosure requirements. Resistance to transparency is a reasonable proxy for the presence of practices that don't survive scrutiny.
What This Means for Your Benefits Strategy
Pharmacy is now roughly 25 to 35 percent of total healthcare spend for most self-funded employers and that share is growing, driven by specialty drugs, GLP-1 medications, and a pipeline of high-cost biologics. The PBM is your primary lever for managing that spend. If the lever isn't actually pulling in your direction, the pharmacy budget will keep drifting upward regardless of what else you do to manage your plan.
Most benefits brokers don't audit PBM contracts proactively. It's not part of the standard renewal workflow, it requires specialized expertise, and in commission-based brokerage arrangements there's no financial incentive to surface a problem that might require renegotiating a vendor relationship.
Root cause benefits consulting is different. PBM transparency is one of the first places we look, because it's one of the most consistent sources of recoverable cost in self-funded plans. For many employers, a PBM audit produces meaningful savings without changing a single employee benefit or shifting any cost to the workforce.
It's also one of the clearest illustrations of the difference between managing your plan and watching it.
Want to know if your PBM contract is working against you? Contact us for a complimentary benefits strategy assessment. We'll show you what a PBM audit looks like and what it's found for employers in your size range.
About the Author: Genesys Health specializes in root cause benefits consulting for self-funded employers. We work with organizations of all shapes and sizes — from manufacturers and family offices to PE-backed companies and beyond — helping them transform benefits from a line item into a strategic asset.
