How PBMs Work: The Mechanics Behind Your Prescription Costs

Most plan sponsors don't fully understand how pharmacy benefit managers actually operate. Yet these entities control prescription drug access and costs for millions of Americans. Understanding PBM mechanics reveals why traditional models consistently fail to deliver meaningful savings.

What Happens at the Pharmacy

When your plan member walks into a pharmacy, they present their card, receive medication, and pay a copay. The pharmacy then bills the remaining cost to the PBM according to a pre-negotiated contract.

Here's what most don't realize: PBMs never touch the actual medication. They manage contracts, pricing negotiations, and payment logistics between pharmacies, plan sponsors, and members. They are middlemen facilitating transactions without handling the physical product.

Price Variation

The same prescription costs dramatically different amounts depending on the pharmacy. A medication at CVS or Walgreens will cost significantly more than the identical drug at a grocery store chain pharmacy. This isn't random. It reflects fundamentally different contracting approaches.

Grocery store pharmacies and many hospital-owned pharmacies offer reasonable contract negotiations and competitive pricing. Smart PBMs direct members toward these lower-cost alternatives, even when the plan sponsor has no ownership stake in those pharmacies.

The Conflict of Interest Crisis

Traditional PBMs create inherent conflicts by owning their own mail-order pharmacies. They simultaneously set prices at various pharmacies and operate their own fulfillment operations.

A PBM can price a medication at hundreds of dollars through their mail-order pharmacy while the same drug costs seven dollars cash at an independent pharmacy. Yet members are forced to use the expensive mail-order option under the guise of efficiency.

Recent analysis of TRICARE pricing through Express Scripts revealed exactly these practices. Medications costing hundreds of dollars through the PBM-owned pharmacy were available for single-digit cash prices elsewhere.

The DisclosedRx Difference

As The Fiduciary and Fully Disclosed PBM®, we operate under a fundamentally different model. We don't own pharmacies, eliminating conflicts of interest. Our contractual obligation runs to our clients, not shareholders.

We direct members toward pharmacies offering the best pricing, regardless of ownership relationships. We operate with Full Disclosure. Clients receive 100% pass-through of all rebates and pricing, with complete visibility into pharmacy benefit costs.

Our revenue comes from one administrative fee and 25% of the savings we generate. Clients benefit from 75% of savings, creating a 200% ROI on their investment.

What This Means for You

When your PBM has financial incentives that conflict with your cost control objectives, achieving meaningful savings becomes impossible. The solution isn't more complex contracting or additional oversight.

The solution is partnering with a Fiduciary PBM that operates with Full Disclosure and contractual accountability to act in your best interests. When PBM success is measured by client outcomes rather than shareholder returns, both plan sponsors and members achieve better results.