How to Read a PBM Contract Without Getting Burned

Pharmacy Benefit Managers (PBMs) play a major role in administering prescription drug benefits, but contracts can be difficult to navigate. Packed with dense language, vague rebate terms, and limited audit rights, PBM agreements often mask costs that erode employer budgets and limit control. If you’re self-funded or considering it, understanding how to read a PBM contract is critical to protecting your bottom line. 

Key PBM Contract Terms to Watch

Knowing what to look for in a PBM contract can help employers and advisors avoid surprises: 

1. Spread Pricing Provisions 
Spread pricing allows a PBM to charge the employer more for a drug than it reimburses the pharmacy, keeping the difference. Contracts should clearly state whether spread pricing is allowed and provide full transparency on pharmacy reimbursements.  

2. Rebate Definitions and Pass-Through Language 
PBMs often advertise “pass-through” rebates, but definitions vary. Be sure the contract specifies: 

• What constitutes a rebate (does it include administrative fees, manufacturer incentives, or discounts?). 
• The timeline and method of rebate payment.
• Whether 100% of rebates are passed through to the employer. 

3. Audit and Reporting Rights 
Contracts should include audit provisions that allow you to independently verify rebate flows, pricing, and claims data without excessive limitations. If audit rights are restricted or require PBM approval, that is a red flag. 

4. Formulary Control 
Ensure the contract discloses who maintains control of the formulary. PBMs may design formularies to maximize rebate revenue, not cost-effectiveness or clinical benefit. 

5. MAC (Maximum Allowable Cost) Lists 
These determine how much the PBM reimburses for generic drugs. Employers should request visibility into MAC lists and a right to challenge exclusions. 

Pharmacy Benefit Contract Tips 

• Benchmark Before Signing: Compare PBM contract terms to industry benchmarks. A third-party consultant or pharmacy benefit expert can help. 
• Avoid Auto-Renewal: Build in opportunities to renegotiate annually. 
• Clarify Carve-Out Options: Maintain flexibility to exclude or carve out medications based on necessity.  
• Document All Amendments: Any updates or exceptions should be clearly outlined in writing. 

The Role of PBM Audits 

Even well-written contracts require follow up. PBM audits help uncover discrepancies between what’s promised and what’s delivered. They can identify hidden fees, misapplied pricing, or neglected rebate payments. Routine audits are the best practice, especially for self-funded groups bearing the financial risk. 

SHARx: A Bolt-on Pharmaceutical Procurement Solution 

SHARx was built on the idea that employers should understand exactly where their pharmacy dollars go. We eliminate spread pricing and complex rebate structures altogether. Instead, SHARx offers straightforward prescription procurement with fully transparent pricing and sourcing. 

Employers using SHARx often discover up to $1,500 per employee per year in cost reduction potential—and far less friction when it comes to understanding where those savings come from.  

Final Thoughts 

If you’re managing a pharmacy benefit, don’t let complexity or industry jargon cloud your judgment. By knowing which PBM contract terms to scrutinize, conducting regular audits, and partnering with transparent vendors, you can avoid getting burned and take control of your healthcare spend. 

Want a second opinion on your current PBM contract? Let SHARx help you break it down—and uncover where opportunities for reinvestment may be hiding.