Stop Overpaying for Prescription Benefits: The Employer's Complete Guide to Pass-Through PBMs

Executive Summary

Self-funded employers are always under growing pressure to control pharmacy benefit costs while ensuring quality care for their employees. A Pharmacy Benefit Manager (PBM) is defined as a company that manages prescription drug benefits for health plans, employers, and insurers by negotiating drug prices, creating formularies, and processing claims. For Traditional PBMs, they often use complex pricing, including spread pricing and keeping part of rebates, which can obscure true costs and limit employer control. Pass-through PBMs offer greater transparency by passing 100% of rebates and discounts directly to employers and charging a clear, flat administrative fee. This aligns PBM incentives with employer goals (which employers are always looking for), encouraging cost-effective drug management costs and innovative plan customization. Larger employers tend to prefer pass-through PBMs for their transparency and data access, while smaller employers may choose traditional PBMs for simplicity and scale. However, not all small employers are choosing traditional PBMs in the modern era. This article explains these differences and helps employers understand which model might best fit their needs. Lets get into it!

What is a PBM?

Defined as A Pharmacy Benefit Manager, a PBM is a company that manages prescription drug benefits for health plans, employers, and insurers by negotiating drug prices, creating formularies, and processing claims.

Pass-Through vs. Traditional PBMs: The Basics

Traditional PBMs:

• Often use the term “spread pricing,” charging employers more than they pay pharmacies and keeping the difference.

• May keep a portion of rebates from drug manufacturers.

• Pricing and rebate flows can be complex and less transparent.

Pass-Through PBMs:

• Bill employers exactly what they pay pharmacies and no hidden markups.

• Pass 100% of manufacturer rebates and discounts directly to the employer.

• Charge a clear, flat administrative fee for their services, making costs predictable and easy to understand.

Why Employers Choose Pass-Through PBMs

• Direct Savings: All rebates and discounts go to the employer, not the PBM.

• Aligned Incentives: PBMs have no reason to favor higher-cost drugs, since their profit is not tied to drug prices.

• Customizable Plans: More flexibility to design benefits that fit the workforce’s unique needs.

• Better Control: Employers get clear data, empowering smarter decisions and improved vendor accountability.

Which Employers Choose Pass-Through PBMs?

Large Employers (5,000+ covered lives):

• More Likely to choose pass-through PBMs, with about 60-70% in that range size relying on this approach.

• They often seek that amazing full rebate pass-through with minimum guarantees, valuing the transparency and negotiating leverage that comes with a pass-though PBM.

• Larger employers typically have more resources that they can use to manage more complex contracts and benefit from detailed data provided by their pass-through models and information.

Small Employers:

• Use both pass-through and traditional models about equally, however more and more smaller employers are turning to pass-through PBMs.

• Less than half of small employers chose 100% rebate pass-through contracts in recent years

• Many small businesses value the flexibility of traditional PBMs, which offer simpler contracts or leverage their bargaining power and control to keep costs down/manageable.

• Small employers often prioritize ease of administrating a pass-through PBMs, and may be satisfied with partial rebate sharing if it keeps costs predictable and their benefits competitive in their market space.

• Pass-through PBMs are still a very competitive choice for smaller employers looking for innovative ideas to save on their health plans.

Key Comparison Table Pass-Through PBMs vs Traditional PBMs

Final Thoughts

Pass-through PBMs offer self-funded employers greater transparency, direct savings, and more control over their pharmacy benefits. These advantages are especially attractive to larger employers with the resources to manage and analyze detailed data. However, many small employers continue to value the flexibility and simplicity of traditional PBMs, especially when those models help keep costs predictable and administration simple. The best choice depends on each employer’s size, resources, and employee centered priorities. Employers, always be on the look out for innovative ideas like pass-through PBMs.

Have questions? Don’t hesitate to reach out to our team at Stumm.

Check us out here! https://stumm.com/

Happy Savings!

 About the Author

William Barnhart is a Employee Benefit Consultant for Stumm Insurance and a graduate from Iowa State University. In his role, William focuses primarily on the continued development of Stumm Insurance, expanding their current partnerships and enhancing the employee benefits value proposition through unparalleled benefits resources and advanced strategy implementation.

With multiple years of industry experience, William previously worked in the Medicare field helping Medicare and Medicaid recipients receive the plan that fits their needs, and bring crucial care to those who need it the most.

 References 

Here is a list of references for the PBM information provided above:

1. Capital Rx. “Affordable Pharmacy Benefits, Powered by Modern Infrastructure.” [cap-rx.com]

2. Innovative Rx Strategies. “Pharmacy Benefits Management Experts.” [innovativerxstrategies.com]

3. Capital Rx. “Setting a New Standard for the Future of Pharmacy Benefit Administration.” [cap-rx.com/insights]

4. Capital Rx. “About Us | Next Generation PBM.” [cap-rx.com/about]

5. Transformation Capital. “Market Mover - Transformation Capital.” [transformcap.com/company-newsletters]

6. Capital Rx. “Capital Rx Adds More than 80 New Partnerships in 2024 and Eyes Another Year of Record Growth in 2025.” [cap-rx.com/insights]

7. Access Market Intelli. “Capital Rx's Non-Traditional PBM Model Fueling Success.” [accessmarketintell.com]

8. Innovative Rx Strategies. “2024 Wrap Up: Key Trends in the Pharmacy Benefits Landscape.” [innovativerxstrategies.com]