Is Traditional PBM Pricing on Its Death Bed? Why Pass-Through Models Are Gaining Ground

Traditional Pharmacy Benefit Manager (PBM) Pricing is not dead.

But it might be fair to ask whether it is on its death bed.

The market has not reached a point where every PBM contract operates under a Pass-Through Pricing model. There is no universal deadline when Traditional PBM Pricing suddenly disappears, and different commercial, employer, Medicaid, Medicare, and state-regulated arrangements operate under different requirements.

But the direction of travel is becoming difficult to ignore.

Requestors want more visibility into PBM compensation. Employers and plan fiduciaries are asking harder questions about rebates, spread pricing, administrative fees, pharmacy reimbursement, guarantees, and retained revenue. Regulators at both the state and federal levels have increased their scrutiny of PBM economics. And Pass-Through Models have become increasingly appealing because they offer a simpler proposition: make the economics more explicit.

For health plans, coalitions, unions, specialty pharmacies, employer groups, and procurement teams, referred to as requestors moving forward, this is more than a debate about how PBMs get paid.

It is a market transition.

Traditional PBM Pricing developed for reasons. It created ways to bundle services, negotiate discounts, administer complex pharmacy benefits, absorb risk through guarantees, and generate revenue across multiple parts of the pharmacy benefit arrangement.

But markets change.

As greater transparency becomes an expectation rather than a differentiator, PBMs may need to rely less on pricing complexity and more on clearly stated compensation, operational performance, service quality, clinical expertise, and efficiency.

That does not mean the traditional model disappears tomorrow.

It does mean its vital signs are worth watching.

What Is Traditional PBM Pricing?

Traditional PBM Pricing is not one single contract structure.

The term generally refers to PBM arrangements in which compensation may come from several parts of the pharmacy benefit relationship rather than through one clearly stated administrative fee alone.

Depending on the contract, PBM revenue can potentially involve administrative fees, spread pricing, retained rebates or portions of manufacturer payments, pharmacy network economics, specialty pharmacy arrangements, guarantees, and other negotiated sources of compensation.

Not every PBM uses every mechanism. Not every traditional arrangement is identical. And a pricing model should be judged by its actual contract terms, not by a label alone.

Still, one of the defining characteristics of Traditional PBM Pricing is that the total economics may be distributed across several parts of the arrangement.

For years, that complexity was simply part of the market.

PBMs negotiated with manufacturers. They built pharmacy networks. They administered claims. They developed formularies. They offered rebate and discount guarantees. They provided clinical programs, specialty pharmacy services, mail service, reporting, implementation, and account management.

The economics supporting all of that could be complex too.

The question now is whether the market will continue to accept that same level of complexity when requestors, policymakers, and regulators increasingly want to know exactly who is paid, how much, and for what.

Why Did Traditional PBM Pricing Develop?

To understand why the model is under pressure, it helps to understand why it developed in the first place.

PBMs operate in an unusually complicated part of healthcare.

A single pharmacy benefit can involve drug manufacturers, pharmacies, wholesalers, health plans, employers, members, clinical programs, pharmacy networks, formularies, claims systems, specialty drugs, rebates, guarantees, and multiple forms of negotiated pricing.

PBMs became responsible for managing many of those moving pieces.

Traditional Pricing created flexibility.

A PBM could negotiate discounts with pharmacies, negotiate rebates with manufacturers, provide guarantees to requestors, and generate compensation through different parts of the arrangement. Some of those economics might allow the PBM to offer lower or minimal visible administrative fees while earning revenue elsewhere.

That model could be commercially useful to both sides.

But it also created a problem.

The more revenue flows through multiple channels, the harder it can become for a requestor to see the complete economics of the relationship.

What looked like a strong discount might depend on definitions and exclusions.

What looked like a high rebate guarantee might not reveal every underlying revenue stream.

What looked like a low administrative fee might tell only part of the compensation story.

That does not mean every Traditional PBM Pricing arrangement is inherently bad.

It means complexity can make comparison harder.

And the market is becoming much less patient with that difficulty.

Transparency Has Moved From Preference to Market Pressure

A decade ago, greater PBM transparency could be presented as a differentiator.

Today, it is increasingly an expectation.

Requestors want to understand questions such as:

• How is the PBM compensated?
• Are rebates passed through?
• Does the PBM retain spread?
• How does pharmacy reimbursement compare with what the plan pays?
• What administrative fees apply?
• What revenue comes from specialty pharmacy?
• What exclusions affect guarantees?
• What audit rights allow the requestor to verify performance?
• What data can the requestor actually access?

These are no longer fringe questions.

They are becoming central to PBM procurement.

That shift matters because Traditional PBM Pricing depends, at least in some arrangements, on economic flexibility across multiple revenue sources.

As requestors ask for more explicit disclosure, some of that flexibility becomes harder to preserve.

The issue is not simply that buyers want lower prices.

They increasingly want to understand how the price works.

Legislative and Regulatory Pressure Is Accelerating the Shift

The pressure on Traditional PBM Pricing is not coming from buyers alone.

PBMs are facing growing legislative and regulatory scrutiny at the state and federal levels.

The exact requirements vary significantly by market segment and jurisdiction, and there is no single national law that ends Traditional PBM Pricing across every commercial arrangement.

But the pattern is clear.

Policymakers have increasingly focused on spread pricing, rebate treatment, PBM compensation, pharmacy reimbursement, affiliated pharmacies, disclosure, auditability, and transparency.

That matters because regulation does not need to completely ban a pricing model to change its economics.

Disclosure requirements alone can change buyer expectations.

Restrictions on spread pricing can remove one source of compensation.

Requirements to pass through certain payments can alter revenue flows.

Greater audit rights can make previously difficult-to-see economics more visible.

Even where a rule applies only to one part of the market, it can influence expectations elsewhere.

Once requestors become accustomed to asking for clearer compensation in one context, it is difficult to persuade them that opacity is necessary in another.

Spread Pricing Has Become a Symbol of the Debate

Spread pricing is one of the best-known examples.

In a spread pricing arrangement, the PBM may charge the plan one amount for a prescription while reimbursing the pharmacy a lower amount and retaining the difference.

For PBMs, spread can represent a form of compensation.

For critics, it has become a symbol of the difficulty requestors face when trying to understand the full economics of a pharmacy benefit arrangement.

That distinction matters.

Traditional PBM Pricing is broader than spread pricing, and eliminating spread does not automatically create a fully transparent contract.

A PBM could still have other sources of revenue.

A Pass-Through PBM could still have complex fees, exclusions, specialty pharmacy economics, or contract terms that deserve careful review.

But spread pricing has become a focal point because it makes the transparency debate easy to understand.

The requestor pays one price.

The pharmacy receives another.

The difference goes somewhere.

Naturally, buyers increasingly want to know where.

What Is Pass-Through Pricing?

Pass-Through Pricing generally refers to a model in which certain drug costs, discounts, rebates, or pharmacy economics are passed through to the requestor, while the PBM receives more explicit compensation through administrative fees or other stated charges.

The exact definition matters.

A contract that calls itself pass-through should still explain:

• Which rebates are passed through?
• Are all manufacturer payments included?
• How are pharmacy claims priced?
• Is there any spread?
• What administrative fees apply?
• Are specialty pharmacy economics treated differently?
• What exclusions exist?
• What reporting supports verification?
• What audit rights are included?

The word “pass-through” should never replace due diligence.

But the appeal is understandable.

The basic premise is easier to explain.

The PBM provides services.

The requestor pays explicit compensation.

Certain negotiated economics are passed through according to the contract.

That is a model that fits naturally with a market demanding more visible economics.

Why Pass-Through Models Are Gaining Ground

Pass-Through Models address a simple problem: requestors increasingly want to see what they are paying for.

That does not guarantee that every Pass-Through PBM arrangement will produce the lowest total cost or the best service.

Transparent does not automatically mean inexpensive.

A clearly stated administrative fee can still be high. A pass-through rebate arrangement may still need careful definitions. Specialty pharmacy economics can remain complex. Network structure, formulary strategy, clinical programs, reporting, audit rights, and guarantees still matter.

But Pass-Through Pricing changes the starting point.

Instead of asking the requestor to uncover compensation hidden across multiple parts of the arrangement, more of the economics can be presented explicitly.

That makes the model easier to explain.

It can also make it easier to compare.

And comparison is becoming one of the most important problems in PBM procurement.

Is Traditional PBM Pricing Actually Dying?

Not yet.

Traditional PBM Pricing remains in use, and there is no single expiration date.

Some requestors may continue choosing traditional arrangements because they prefer particular guarantees, service models, risk structures, or economics. Some PBMs may continue offering them where permitted and commercially viable.

The better question is not whether Traditional PBM Pricing disappears tomorrow.

The better question is whether the forces supporting Pass-Through Models are getting stronger.

They are.

Buyer demands for transparency are growing.

Regulatory scrutiny remains active.

States continue regulating PBMs.

Federal policymakers continue focusing on compensation and disclosure.

Employers and plan fiduciaries are asking more detailed questions.

And the language of transparency has moved into the mainstream of PBM procurement.

Traditional Pricing does not need to die completely for the market to change.

It only needs to lose enough ground that PBMs must compete differently.

That process appears to be underway.

Greater Transparency Changes PBM Economics

This is where the transition becomes strategically important for PBM executives.

If more compensation becomes explicit, some sources of margin may become harder to preserve.

If spread is restricted, one revenue source may narrow.

If rebates must be passed through, retained manufacturer economics may change.

If requestors gain more visibility into compensation, they may negotiate more aggressively.

The logical result is not that PBMs should stop making money.

PBMs are businesses. They need sustainable economics to provide claims administration, network management, clinical programs, specialty pharmacy services, reporting, customer service, implementation, technology, and other capabilities.

The question is how profitability is generated.

In a more transparent market, efficiency becomes more valuable.

The less margin flexibility PBMs have inside complex pricing arrangements, the more important it becomes to control the cost of selling, procurement, implementation, proposal development, Subject Matter Expert involvement, and repeated custom work.

A PBM can change its pricing model and still carry the expense of a legacy procurement process.

That is a problem.

Transparency on the pricing side should be matched by efficiency on the procurement side.

A Pass-Through Market Still Has a Comparison Problem

Pass-Through Pricing does not solve every PBM procurement problem.

Imagine five PBMs all offering some form of pass-through model.

One uses one administrative fee structure.

Another uses a different fee structure.

One passes through all rebates under a particular contractual definition.

Another defines manufacturer revenue differently.

One includes certain clinical programs.

Another charges separately.

One has different specialty pharmacy economics.

Another has broader audit rights.

One has stronger guarantees but more exclusions.

The labels may be similar.

The offers may not be.

This is why standardization matters.

A market can become more transparent and still remain difficult to compare.

Requestors need structured information.

They need to see fees, rebates, networks, specialty pharmacy, formularies, clinical programs, reporting, audit rights, implementation expectations, guarantees, and exclusions in a format that makes meaningful differences easier to identify.

Otherwise, the market trades one form of complexity for another.

Why PfRs Fit a More Transparent PBM Market

Proposals for Requestors (PfRs) are built around transparency, security, speed, and structured comparison.

A PfR is a vendor initiated procurement offering made available to qualified requestors through a controlled online marketplace after access requirements are met. It is structured using standardized templates. It is not public sales collateral. It is not buyer initiated. It is not tailored to one particular requestor.

That model becomes especially relevant in a market moving toward Pass-Through Pricing.

If pricing is becoming more explicit, the procurement method should make those economics easier to present and compare.

A PBM can use a structured PfR to present available pricing models, administrative fees, rebate treatment, network options, specialty pharmacy arrangements, formulary structures, clinical programs, reporting, audit rights, implementation expectations, guarantees, and exclusions.

Qualified requestors can review available offerings without forcing every potential relationship to begin with a long custom RFP.

That matters for PBMs too.

If greater transparency puts pressure on margins, reducing repetitive proposal work becomes more valuable.

PBMs should not need to spend expensive internal labor rebuilding substantially similar responses every time a new requestor enters the market.

The knowledge should be structured once, reviewed when necessary, secured appropriately, and reused efficiently.

PfRs are built for that kind of market.

The Future of PBM Pricing Will Require More Than a New Label

It would be easy to reduce the conversation to a simple argument:

Traditional PBM Pricing is bad.

Pass-Through Pricing is good.

Reality is more complicated.

A pricing label cannot replace contract review.

A Pass-Through PBM can still have fees, exclusions, guarantees, network terms, specialty pharmacy arrangements, and service limitations that deserve careful evaluation.

Likewise, a traditional arrangement should be judged on its actual economics rather than dismissed because of its label alone.

But the broader transition is real.

The market increasingly wants clearer compensation.

Regulators increasingly want greater visibility.

Requestors increasingly expect to know how money moves through the arrangement.

And PBMs increasingly need to compete in an environment where transparency is becoming part of the baseline.

So, is Traditional PBM Pricing on its death bed?

Maybe not today.

But the room is getting crowded with doctors.

Pass-Through Models are gaining ground because they fit a market that increasingly demands clearer economics, stronger accountability, and easier explanation.

Traditional PBM Pricing may survive for years in some forms and some segments.

But survival is not the same as dominance.

The PBMs best prepared for the next phase of the market will not simply change what they call their pricing.

They will become clearer about how they are compensated, more disciplined about how they present their value, and more efficient in how they compete for business.

And as pricing becomes more transparent, procurement needs to become more transparent, secure, structured, and fast as well.

That is where PfRs fit.

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Rapid Request is building a structured marketplace approach to PBM procurement, designed around transparency, security, speed, and easier comparison of vendor-initiated PfRs.

In a market moving toward clearer pricing economics, procurement should become clearer too.