PBM and Plan-Sponsor Whistleblowers: What the Contract Promised and the Report Left Out

A PBM whistleblower working in rebate operations, or an actuary at a plan sponsor, may see drug costs reported to Medicare that leave out money the business kept. You may know which contract promised the discount, where the payment went or why a rebate became a service fee in the annual report. The employee who reconciles those amounts can explain a difference that disappears in the companywide total.

Pharmacy benefit managers negotiate pharmacy prices and manufacturer rebates, process prescriptions and help manage drug utilization. A Medicare Part D sponsor uses their information to report costs to Medicare. Contracting, rebate operations, finance and actuarial teams therefore see different parts of the same transaction: what was promised, what was paid and what the government was told.

What Does 100 Percent Pass-Through Cover?

Pass-through covers what the contract calls a rebate. That definition determines which manufacturer payments the PBM must return to the plan, including money received by an affiliate. Spread pricing concerns a separate amount: the difference between what the sponsor is charged and what the pharmacy is paid. A later adjustment to meet the contract’s promised rate can change that final accounting.

Minnesota’s Caremark agreement effective in 2021 includes specified administrative payments in its rebate definition but excludes described pharmacy purchasing discounts and specialty service revenue. The Caremark agreement in Iredell County’s public packet includes certain group purchasing organization receipts but excludes other manufacturer services. Returning all defined rebates can still leave other receipts outside the promise.

For the fee-for-service and experience-rated HMO federal employee and postal plans it covers, the Office of Personnel Management’s updated transparency letter reaches broader manufacturer-payment and rebate-aggregator categories. It also requires audit access to pharmacy contracts, claims, manufacturer payments and invoices. Its manufacturer-payment standards have a specific exception for contracted Medicare Part D arrangements where the sponsor bears the risk.

Rebates also affect different people differently. The Government Accountability Office’s 2023 Medicare Part D report explains that rebates can reduce plan costs and premiums while a beneficiary’s cost sharing is calculated from the drug’s price before rebates. The rebate lowers the plan’s cost. It does not lower the price used to calculate the patient’s share at the counter.

When Rebate Money Stops at an Aggregator

The Office of Personnel Management’s inspector general followed that money in its Compass Rose audit of Express Scripts’ pharmacy administration. The federal employee plan’s contract reached manufacturer payments collected by the PBM or another entity on the plan’s behalf. The auditors compared manufacturer agreements with the rebates the plan received and found that Ascent had retained part of the money through lower percentages agreed internally with Express Scripts.

After accounting for payments to meet the promised rebate minimum, the auditors identified $9,524,945 in retained rebates. The carrier confirmed that Express Scripts wired that amount back and that it was returned to the federal program. The same audit included a separate retail-pricing dispute: the carrier disagreed with the auditors’ interpretation of pharmacy discounts. An auditor’s contribution includes the contract language, payment reconciliation and response to each finding, with each issue kept distinct.

The Actuary Who Saw the Cost Shift Between Books

An actuary in Aetna’s Medicare department brought the Caremark whistleblower case after comparing Aetna’s Part D drug prices with competitors’ prices. The court’s findings show how that pricing question reached the contracts and year-end reconciliation behind the reports. The case concerned conduct from 2010 through 2016.

Caremark’s pharmacy agreements with Walgreens and Rite Aid committed Caremark to an average reimbursement rate across both commercial and Medicare Part D purchases. If Caremark’s payments fell short of the promised average, it owed the pharmacy a year-end payment to make up the difference.

The offset provisions connected the books. Caremark paid more on Part D purchases and less on commercial purchases relative to the promised average. The excess on the Medicare side reduced the amount Caremark owed to settle the commercial shortfall. Higher Part D prices helped pay down Caremark’s commercial obligation.

Caremark gave Aetna and SilverScript the individual pharmacy prices for their Medicare reports. Those sponsors’ prescription drug event records and annual direct and indirect remuneration reports left out the effect of the contractual average prices. The court found that the offsets were reportable price concessions even though the pharmacies did not send Caremark a separate refund check.

The court found $95 million in damages, then tripled that amount and added civil penalties. In August 2025, it entered a $289,873,500 judgment against Caremark. The successful claims concerned the Walgreens and Rite Aid arrangements in 2013 and 2014.

The Audit Checked the Counter Price and Stopped There

Caremark’s case also shows why audit scope matters. Aetna’s outside audit confirmed that the prices charged to Aetna matched the prices Caremark paid at the pharmacy counter. It excluded direct and indirect remuneration reporting, the annual DIR reports covering later discounts and concessions. The court found that the audit did not answer whether the offset provisions created reportable concessions.

The evidence reached beyond that audit: reconciliation workbooks, pharmacy contracts, internal pricing slides and certifications sent to the sponsor. A Caremark finance officer certified the reporting without reviewing the pharmacy contracts or reconciliation spreadsheets. The court found that Caremark had looked away from what the documents showed.

We find that striking: the person certifying the reporting had not examined the documents that explained the price. For a finance or audit employee, the gap between the certification and the work behind it can be the most revealing part of the story.

When a Manufacturer Rebate Becomes a Service Fee

Elixir’s rebate case concerned a different reporting decision. The government alleged that manufacturer rebates were kept out of Medicare’s annual reconciliation by calling them bona fide service fees. Elixir Insurance Company was the Part D sponsor. Elixir Rx Options and Elixir Rx Solutions were the PBMs.

The settlement agreement describes the government’s allegations for 2014 through 2020. It alleged that the companies retained rebates without the manufacturers’ knowledge and reported the retained money as service fees in Elixir Insurance’s DIR reports. Those reports supplied information Medicare used to determine the final payments due to the plan or the government.

The government alleged that the accounting basis changed during the scheme. From 2014 through 2019, the retained amount was 20% of estimated manufacturer rebates. In 2020, it was 5.5% of the wholesale acquisition cost of rebateable drugs. One percentage used rebates as its base. The other used a drug-price benchmark.

The former employee’s complaint went directly at the paperwork used to justify the service-fee label:

That allegation puts the valuation documents beside the manufacturer agreement and actual services. Rebate operations may know what the manufacturer paid for. Finance may know who decided to classify part of that payment as a service fee. Sponsor reporting staff may know how the classification reached the annual return.

The case began with a former Rx Options employee, and the government joined it. In its July 2024 settlement announcement, the Justice Department said Rite Aid and Elixir Insurance agreed to pay $101 million.

What Each PBM and Plan-Sponsor Role Can Show

PBM and plan-sponsor staff can explain where a price changed, where money was allocated or how costs reached a government health care program. A negotiator knows the offset terms, while a reconciliation analyst sees how those terms become the year-end payment.

Contracting and Reconciliation

The negotiator knows which purchases count toward the promised rate, whether commercial and government business share it, and what an offset clause permits. The reconciliation analyst sees how those terms become the year-end payment. In Caremark, the pharmacy agreements and workbooks supplied that connection.

Rebate Operations and Finance

Rebate staff can connect a manufacturer agreement to utilization, the rebate invoice, cash received and the amount allocated to the sponsor. An aggregator or affiliate may receive the payment before the sponsor sees it. Finance records then show which receipts became rebates, service revenue or payments to meet a contractual minimum. The Elixir allegations and Compass Rose audit make those allocations concrete.

Actuarial and Sponsor Reporting

An actuary can compare expected drug costs with reported experience and the prices available to competing plans. Sponsor reporting staff can explain how the PBM’s pricing information entered prescription drug event records, DIR reports and the certifications behind them. Medicare used the plan’s drug costs after discounts to calculate its subsidy. Leaving a concession out made the reported cost too high.

Audit and Compliance

Audit and compliance staff may know what the reviewer was asked to examine, what supporting records were available and how management answered an exception. Caremark’s counter-price audit and the Compass Rose responses show why the scope and response belong beside the finding. A certification can make a broad statement about accuracy while the supporting review answers a much narrower question.

The transaction itself begins earlier. Prescription and authorization records connect to dispensing and delivery, then the original claim, any reversal or rebill, and the pharmacy’s final payment. We connect that transaction to the later adjustments, the sponsor’s report and the people who decided what it would say.

A Formulary Deal Can Put the Discount on Another Drug

A manufacturer-side whistleblower may see why a payment was made before the PBM or sponsor decides how to report it. In the whistleblowers’ complaint against AstraZeneca, the allegation was that Nexium’s preferred placement on Medco’s formulary was supported by discounts on other products. The complaint alleged that Nexium discounts were disguised as Prilosec discounts to reduce what AstraZeneca owed government purchasers and Medicaid.

An internal email attached to that complaint addressed another product’s commercial and Part D bids. Its instruction was unusually direct:

For someone working on rebates or contracting, those allegations pose a recognizable question: did the product receiving the discount match the business the payment was meant to win? The agreement, product allocation and internal explanation can connect a formulary decision to the price reported elsewhere.

What a PBM Whistleblower Case Can Pay

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. We work with you on the connection between the contract, the money and the Medicare report. Confidentiality and your own role in preparing those reports are issues we work through with you.

You Know How the Numbers Got There

If you work with PBM contracts, rebate accounts or plan pricing and recognize a gap between the money and the report, speak with our whistleblower experts about what you know. We build the case with you and bring in PBM fraud whistleblower lawyers who understand rebate classifications, pharmacy pricing and Medicare reporting. You have a partner through the whole process, from explaining the transaction to pursuing the government’s recovery and your share.