PBM Contracts for Employers: Rebates, Pass-Through and Audit Rights
The PBM contract decides who keeps the rebates and whether you can check the claims. This guide covers pass-through and traditional models, rebate terms and audit rights, and links to CFH’s guides on each.
What to know.
A pharmacy benefit manager runs a plan’s prescription drug benefit. For the plain definition, start with our guide to what a PBM is. This page is about the contract: PBMs earn money through administrative fees, retained rebates and the difference between what a plan pays and what a pharmacy is paid, and which of those apply depends on the terms you sign. Pass-through models bill the plan for actual costs plus a disclosed fee, while traditional models may keep part of the difference.
Employers on self-funded plans usually have the most say over PBM choice and contract terms; fully insured employers get the carrier’s PBM. The main levers are contract type, audit rights, rebate terms and formulary design, and each of the guides below takes one of them further.
Where to look next.
What Is a PBM?
The plain-English definition and how a PBM works.
PBM Options Compared
Pass-through, traditional and other models.
PBM Contract and Rebate Audits
Verify what your PBM is delivering.
What to ask for in the contract before you sign it.
A PBM contract is mostly defined by what it lets you see. Terms that sound similar can produce very different results, so the useful questions are specific: how rebates are defined and who receives them, whether pricing is based on the pharmacy’s actual cost or a list price, how a drug is classified as brand or generic and whether the plan can audit the claims behind the invoices.
Audit rights deserve the most attention because they are the hardest to add later. A right that exists on paper but limits which claims can be reviewed, how far back or by whom may not help much in practice. If you are on a self-funded plan, ask your advisor to read the contract language against these points before renewal, and ask your attorney to review the final terms.
Common questions on this topic.
Four questions to settle before you rely on it.
How do PBM contracts make money?
Through administrative fees, retained rebates, spread pricing and sometimes pharmacy ownership. Which apply depends on the contract.
Is a PBM the same as the insurance carrier?
No. A carrier may own or contract with a PBM, but the PBM is a separate company that administers the drug benefit.
What is a pass-through PBM?
One that passes negotiated discounts and rebates through to the plan and charges a disclosed fee.
Can an employer choose its own PBM?
Self-funded employers often can. Fully insured employers generally use the carrier’s PBM.
Who should review a PBM contract before we sign?
Your benefits advisor can review it for pricing, rebate and audit terms, and your attorney should review the legal language. Employers on fully insured plans generally do not negotiate the PBM contract, since the carrier’s own arrangement applies.
How often can a PBM contract be renegotiated?
That depends on the term and the termination or amendment provisions in the contract itself. Many employers revisit it at the end of the contract term or when the plan is remarketed, so it helps to track the date well ahead of time.
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General information, not legal or tax advice. Plan-specific questions belong with your counsel or CPA, and we will bring them in.
Related guides.
Pharmacy Benefit Consulting
How CFH supports the pharmacy benefit.
Judi Rx (Formerly Capital Rx)
One PBM, explained.
Compliance Services
How CFH supports the compliance side of your plans.
PBM Fee Disclosure Proposed Rule (ERISA Section 408(b)(2))
The proposed DOL rule on PBM fee disclosure for self-insured plans.
Selecting And Monitoring Health Plan Service Providers
The fiduciary process for choosing and monitoring plan vendors.
Where the Rules Come From.
The laws and rules named on this page link to the statute or regulation they come from. This is general information, not legal or tax advice, and rules change, so check the current text.
ERISA Fiduciary Responsibility (29 U.S.C. 1104)
The prudence duty that applies to plan fiduciaries.
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