In my first piece, I laid out the five revenue streams that run through every PBM contract. In this one, we’re going to discuss the first stream and the reform that is needed to spread pricing.
As a reminder, spread pricing is the gap between what the plan sponsor (usually an employer) pays the PBM for a prescription and what the PBM pays the pharmacy that fills it. You may wonder, how is this different from a business that charges retail to a customer and pays the wholesale price to its supplier. This is considered an honest business practice as long as the customer knows the markup is there. Here is the difference, the plan sponsor never sees the markup and the contract is written intentionally to keep it that way.
Inside a PBM contract, the plan sponsor agrees to reimburse the PBM for each prescription based on an agreed upon pricing schedule. For generic drugs, this is usually based on a Maximum Allowable Cost (MAC) list. PBMs often create multiple MAC lists that are used at different retail pharmacies. The prices are set by the PBM and are revised at will. This is an area where a PBM can generate a significant amount of spread pricing by paying as little as possible to a pharmacy for a generic drug and then charging the plan sponsor a considerably higher price. The PBM is the only party in this scenario that sees both ends of the transaction, knowing what was paid to the pharmacy and what was charged to the plan sponsor. The plan sponsor is not allowed to see the pharmacy-to-PBM contract as it is considered proprietary and subsequently, the plan sponsor-to-PBM contract is also considered proprietary. These proprietary walls create the real barriers to any true transparency.
The Five Revenue Streams That Run Through Every PBM Contract — and Five Needed Reforms
PBMs generate revenue from multiple sources simultaneously, allowing profits to shift from one channel to another whenever reforms target a single practice.
The Federal Trade Commission (FTC) documented this in its January 2025 staff report. The FTC found that the three largest PBMs generated an estimated $1.4 billion from spread pricing by billing plan sponsors more than they reimbursed pharmacies, across specialty generic drugs over a six-year window. This is just one documented example of what is a common daily practice in this industry.
The FTC recognizing this is a good start toward a better place but recognition is not the same as prohibition. There were two federal actions that came forward within days of each other in early 2026 that each were marketed as PBM transparency reform. Neither one of them makes spread pricing illegal. The first proposed rule from the Department of Labor (DOL) was published on January 30, 2026 and if finalized as written would impact calendar year plans starting January 1, 2027. This rule only applies to self-funded ERISA plans and it requires PBMs to disclose the direct and indirect compensation they collect, including manufacturer rebates, spread pricing, and pharmacy clawback. It also allows plan sponsors of ERISA plans to audit PBM records. While it requires disclosure of spread pricing, it does not prohibit it.
The PBM Lobby Has Launched the Biggest Advertising Campaign in Its History
Americans should ask themselves why an industry that says it lowers costs and protects patients feels compelled to spend so much money persuading policymakers and the public that it does.
The second action is the Consolidated Appropriations Act (CAA) of 2026, signed into law in February 2026. The PBM provisions do not go into effect until January 2029. The CAA applies to all health plans and requires rebates to be passed through 100% as well as periodic drug level reporting of spread pricing. Disclosure – not prohibition – is the tool used in this reform. There is still a structural problem that is not addressed by either of these rules. Remember that spread pricing is the difference between what the PBM charges the plan sponsor and what it pays the pharmacy. Both of these new rules require the PBM to disclose its own compensation, which means plan sponsors have to trust that what the PBM is reporting is actual spread and they haven’t shifted the money to some place where there are no disclosure requirements.
In my view, the only way to eliminate this is either through a complete ban on spread pricing or by requiring the payments to pharmacies be disclosed alongside the charges to the plan sponsor. That is the only real way that true transparency will occur.
Spread pricing hides one number, the next revenue stream hides something larger. This involves vertical integration where the pharmacy filling prescriptions is also owned by the PBM. The next article will discuss this in greater detail.
Ginny Crisp, PharmD specializes in providing self-funded employer health plans with actionable insight into the plan’s prescription benefit performance. She comes with more than 15 years of experience working with employers to identify cost-saving strategies while maintaining member access to important drug therapies.
I worked on contract for a few months at Prime Therapeutics. They bragged that their markup was half that of the pharmaceutical companies -- the pharmaceutical companies marked up 600%, and Prime Therapeutics was ONLY 300%!
I remember thinking, "Your mothers must be very proud."
I have a question about medicine that docs use during in office treatment. For example, my husband’s doc claims he is being charged $5000 for “PAVBLU Biosimilar (Prefilled syringe), 1mg”. My husband has traditional Medicare, which paid $1287.95 of the “Medicare Adjustment”, which is $3,357.21. This leaves us with roughly a $300 bill every month which we cannot afford. The doc is not interested in helping make this more affordable and basically told me my husband will go blind without the treatment. So…we are faced with blindness because we cannot afford the treatment that will stop it. Blindness or bankruptcy…aside from talking to my state and federal representatives, what can be done? It is a form of torture to watch my husband go blind knowing there is a treatment out there for rich people that we can’t have.