TransparencyJanuary 30, 2026

Pass-Through PBM Pricing vs Traditional Spread Pricing: The Math You Need Before Switching

The $218,000 Surprise: What a Manufacturer Found After a PBM Audit

A 900-employee Midwest manufacturer called me in after their CFO flagged a $218,000 gap between expected and actual pharmacy claims costs. Their PBM contract quoted “average discounts” off AWP, but when we audited their claims, actual ingredient costs on generics were marked up by $3 to $8 per fill compared to what pharmacies were paid. The PBM was pocketing the difference, a textbook spread pricing scenario. The CFO’s first question: “Should we move to a pass-through model?” My answer: Not always. The math isn’t as simple as swapping pricing models. What matters is how these models play out in your real claims data.

How Spread Pricing and Pass-Through Change the Fee Equation

Traditional spread pricing means your PBM charges you one rate, say, AWP minus 85% for generics, then pays the pharmacy a lower rate, keeping the “spread” as profit. Most big PBMs like CVS Caremark, Express Scripts, and OptumRx offer spread pricing as their default. Pass-through pricing, popularized by independents like Capital Rx, Navitus, EmpiRx, and RxBenefits, means you pay exactly what the PBM reimburses the pharmacy, plus a fixed admin fee.

In theory, pass-through is more transparent. You see exactly what drugs cost, with no mystery margins. But in practice, spread deals can sometimes yield lower overall PMPM if the PBM takes on more risk or leverages better network rates. The important thing is to run the numbers on your historical claims data, don't assume pass-through always lowers your spend.

Run the Math: A 500-Employee Plan Scenarios Both Ways

Take a 500-life group running $1.2M in annual pharmacy spend, translating to about $200 PMPM before rebates. Their traditional PBM charges AWP-85% for generics and AWP-20% for brands, adds a $4 per script dispensing fee, and returns $225,000 in rebates. Their audit shows the PBM keeps an average $7 per generic script in spread, totaling $84,000 a year. However, their admin fees are minimal, around $2 per member monthly.

A pass-through PBM proposal offers AWP-84% for generics (slightly worse on paper), AWP-18% for brands, no spread, and a higher admin fee at $7 PMPM. Rebates are slightly improved at $240,000.

Here's how this breaks down over a year:

Spread model: $1,200,000 ingredient + dispensing fees, minus $225,000 in rebates, plus $12,000 admin fees = $987,000 net cost
Pass-through model: $1,220,000 ingredient + $0 spread + $240,000 rebates, plus $42,000 admin fees = $1,022,000 net cost

The pass-through model is more transparent, but the higher admin fees and slightly weaker discounts mean net costs rise by $35,000. In this particular scenario, switching would not pay off. But if you see a higher spread or the pass-through PBM has materially better discounts due to network strength, the result swings the other way.

Small differences in discount rates and admin fees add up fast. The real win comes from auditing your claims files through a PBM intelligence tool, or having your consultant model both options line by line. Don’t rely on summary “discount guarantees” in proposals. Ask for a full disruption analysis, especially for high-cost specialty scripts.

What Pass-Through Really Fixes (and Where It Doesn’t)

If your concern is transparency and clean ERISA compliance, pass-through contracts make it easy to see PBM profits, regardless of your group size. This has become a bigger deal since CMS Transparency in Coverage rules and DOL scrutiny of “hidden” fees. HR and finance teams can justify their PBM as a true service provider, not an opaque middleman.

But pass-through pricing is not a cure-all for high pharmacy spend. For companies with heavy specialty drug use, think 50% or more of spend on drugs like Humira, Enbrel, or Ozempic, the biggest gains often come from formulary management, biosimilar adoption, and clinical programs, not the pricing model. For example, moving 15 Humira patients from reference to a biosimilar at a 60% discount can cut $450,000 annually for a 1,000-life group. That dwarfs the $30,000 swing you’d see from changing PBM fee structures alone.

I’ve seen small employers get burned by pass-through contracts with high admin fees or weak pharmacy networks that drive up ingredient costs. Conversely, some mid-sized groups found big savings after uncovering six-figure spreads on generics, especially those with high mail-order utilization. The lesson is that context matters.

Don’t Miss These Pitfalls When You Switch

Over the years, I’ve seen several mistakes repeat with employers moving to pass-through contracts. The most common: assuming “transparency” means “cheaper.” Sometimes you’re just trading the devil you know for higher fees you only discover after the first year.

Another issue pops up in rebate guarantees. Spread PBMs often guarantee a set dollar rebate per script, even if the drug mix changes. Pass-through PBMs usually pay you the actual rebates collected, good for visibility, but trickier for budgeting. Scrutinize the rebate language. Ask the PBM to show historical rebate receipts, not just projections.

Also, double-check your pharmacy network and disruption report. Some pass-through PBMs run smaller networks or “steer” members to preferred pharmacies, which can upset employees used to chains like Walgreens or CVS. Poor network coverage can spike your ingredient costs and erode any potential savings. Always model the network impact before you commit.

Finally, make sure your stop-loss carrier is fully on board. Some carriers scrutinize pass-through contracts carefully, especially if you’re carving out pharmacy from medical. Loop your stop-loss broker in early and ensure your contracts align.

How to Decide: Practical Steps for Benefits Managers

Start with a candid audit of your current PBM’s actual spread, admin fee structure, rebate pass-back, and network rates. Use six months of real claims data, not just summary reports. Bring in a pharmacy benefits consultant if you don’t have in-house analytic depth.

Next, build a side-by-side comparative model, including all fixed and variable fees. Look beyond generic discount rates to mail-order, specialty, and network disruption. If you’re a 250-life group with $120 PMPM pharmacy spend, switching to a pass-through PBM could mean $9,000 in annual savings, or $18,000 in extra cost, depending on the contract terms.

Finally, don’t let “transparency” become the decision’s only driver. The best contract is the one that ties costs to claims reality, minimizes member noise, and aligns incentives between you and your PBM. Sometimes that’s pass-through, sometimes it’s a tightly negotiated spread deal with strong auditing rights. The math, on your claims, with your population, is what counts.