Pass-Through Pricing

Pass-through pricing is a PBM contract model where the plan pays exactly what the pharmacy was paid for the drug, plus a stated administrative fee, and receives every rebate dollar the manufacturer paid. There is no spread between what the PBM pays the pharmacy and what it charges the plan, and no retained rebate. The PBM's income is the fee on the invoice, and nothing else.

The alternative, called a traditional or spread model, is how most PBM contracts worked for 30 years. The PBM charged the plan one price and paid the pharmacy a lower one, and the difference was never itemized. A 2018 Ohio Medicaid audit found the state's PBMs had kept $224 million in spread in one year, about 8.8 percent of the drug spend, on top of admin fees. When employers move to pass-through, the invoice often looks worse at first, because the admin fee is now visible at $3 to $8 per member per month, while the old fee looked like $0. Total spend is what counts, and in the audits I have seen, net drug spend under pass-through typically comes in 10 to 20 percent lower once the spread and retained rebates are gone.

The takeaway: a low admin fee is not the same as a low cost. Ask any PBM proposal to show you three numbers side by side: what the pharmacy is paid, what you are billed, and what rebates come back. Under pass-through, the first two are the same.