Spread Pricing: Pharmacy Benefit Managers (PBM)

Posted on: February 26, 2024

Spread pricing is a practice commonly associated with pharmacy benefit managers (PBMs) in the healthcare industry. It refers to the difference between what a PBM charges a health plan sponsor (such as an employer or insurer) for pharmacy services and what the PBM reimburses pharmacies for dispensing medications to patients.

Here’s how spread pricing typically works with Pharmacy Benefit Managers: ( and why it matters to employer plans) 

1. Negotiation with Health Plans: PBMs negotiate contracts with health plan sponsors to manage their pharmacy benefits. These contracts outline the terms, including pricing arrangements, reimbursement rates, and administrative fees.

2. Pharmacy Reimbursement: When a member of the Health Plan fills out a prescription at a pharmacy, the pharmacy submits a claim to the PBM for reimbursement. The PBM reimburses the pharmacy for the cost of the medication, plus a dispensing fee.

3. Plan Sponsor Charges: Meanwhile, the Pharmacy Benefit Managers charges the health plan sponsor a contracted rate for providing pharmacy benefits. This rate often includes various components, such as administrative fees, clinical services, and the cost of medications.

4. Difference in Pricing: The difference between what the Pharmacy Benefit Managers charges the health plan sponsor and what it reimburses pharmacies for dispensing medications is the spread. In some cases, PBMs may retain a portion of this spread as profit.

Key Considerations and Controversies:

1. Lack of Transparency: One of the primary concerns surrounding spread pricing is the lack of transparency. Health plan sponsors may not always be aware of the extent of the spread or how it impacts their overall pharmacy benefit costs.

2. Financial Impact: Spread pricing can significantly affect the financial performance of health plan sponsors, particularly if the spread is substantial. It can also influence the affordability of medications for patients, especially those with high deductibles or copayments.

3. Regulatory Scrutiny: In recent years, spread pricing practices by PBMs have faced increased regulatory scrutiny. Some states have implemented regulations requiring greater transparency and disclosure of pricing arrangements between PBMs and health plan Sponsors.

4. Alternative Pricing Models: In response to concerns about spread pricing, some health plan sponsors have explored alternative pricing models, such as pass-through pricing, where the PBM charges a transparent administrative fee and reimburses pharmacies at the actual cost of medications.

Conclusion:

Spread pricing with Pharmacy Benefit Managers (PBMs) has become a topic of debate and scrutiny within the healthcare industry due to concerns about transparency, affordability, and financial impact. As stakeholders seek to address these issues, there is growing momentum for greater transparency and accountability in pharmacy benefit management practices. By promoting transparency and exploring alternative pricing models, stakeholders can work towards ensuring that pharmacy benefits are managed in a manner that is fair, cost-effective, and aligned with the best interests of patients and plan sponsors alike.