Behind the Curtain: The Unethical Practices of Traditional PBMs

Even experienced benefits consultants and brokers admit that despite decades of expertise in complex healthcare negotiations, PBM operations remain frustratingly opaque.

This opacity isn't accidental. It's intentional.

Traditional PBMs have built a system of pricing manipulation and profit schemes that systematically harm plan sponsors and members. Understanding these practices is essential for protecting your pharmacy benefit investment.

Spread Pricing: The Core Manipulation

Spread pricing represents the most straightforward PBM profit scheme. A PBM contracts with a pharmacy to pay $10 for a medication. The member pays their copay, and the pharmacy buys the drug for $6.

That same PBM charges the plan sponsor $470 for that identical prescription, pocketing hundreds of dollars as pure profit.

Claims data reveals even more disturbing patterns: different members filling the same medication at the same pharmacy through the same PBM face vastly different charges. Pricing changes arbitrarily based on the PBM's discount guarantee management rather than actual costs.

Average Wholesale Price Manipulation

Traditional PBMs exploit Average Wholesale Price (AWP) discount structures through multiple tactics:

Guarantee Management: PBMs promise contractual guarantees like "AWP minus 24%" for brand medications. They manipulate monthly pricing to hit these guarantees exactly, inflating some prescriptions while deflating others to maximize profits.

NDC Gaming: By selecting different National Drug Codes for the same medication, each with different AWP starting points, PBMs create artificial discount appearances. They choose NDCs with inflated AWPs, then discount to standard prices while claiming superior negotiating.

Arbitrary Pricing: The same plan sponsor sees dramatically different pricing for identical prescriptions at the same pharmacy because PBMs adjust prices to manage discount guarantees across their entire business.

The High-Deductible Member Trap

High-deductible health plan members face the most severe impact of pricing manipulation. Consider a cancer patient requiring Imatinib, a specialty generic medication. Under traditional PBM pricing, this member could face paying $6,000 in January to meet their deductible, with the health plan covering an additional $4,000. Total monthly cost: $10,000. And then the health plan will continue to pay the $10,000 monthly throughout the year for this off-patent generic medication.

On the other hand, through ethical pricing, that same medication costs approximately $130 per month. That’s $1,300 annually instead of $120,000.

And unlike other healthcare services where patients can negotiate payment plans, pharmacies require immediate payment. Members facing these inflated prices must pay thousands upfront or they could go without life-sustaining medications.

Built-In Conflicts of Interest

Traditional PBMs operate with conflicts that would be unethical in other industries. Major PBMs own mail-order pharmacies they direct prescriptions toward, specialty pharmacies for high-cost medications, healthcare facilities competing with their clients, and insurance companies competing for the same membership.

When a PBM owns the pharmacy fulfilling prescriptions, they control both pricing and dispensing, creating unlimited opportunity for profit manipulation with minimal oversight.

Why Industry Veterans Remain Uninformed

PBM operational opacity isn't accidental. It's a carefully constructed barrier preventing scrutiny. Experienced consultants who negotiate complex contracts often lack visibility into PBM pricing because:

PBMs use intentionally complex formulas that obscure true costs, contract language deliberately obscures profit mechanisms, pricing data is aggregated to prevent individual transaction analysis, and the industry maintains that PBM operations are necessarily complex and proprietary.

Demanding Better

When PBMs profit from higher drug costs and pricing opacity, they have no motivation to control expenses or provide honest pricing.

Health plan sponsors deserve Full Disclosure of all costs, rebates, and pricing mechanisms. They deserve contractual guarantees that their PBM operates as a fiduciary, bound to act in their best interests.

As The Fiduciary and Fully Disclosed PBM®, we are commitment to eliminating the profit schemes plaguing traditional PBM relationships. When you're ready to escape the manipulation, we're ready to show you how ethical pharmacy benefit management works.