PBM Spread Pricing: When the Plan’s Charge and the Pharmacy’s Payment Diverge

PBM spread pricing fraud centers on what a PBM told a health plan about the difference between the plan’s charge for a prescription and the pharmacy’s payment. An insider may see a pass-through promise in the contract and a retained margin in the billing records. The client invoice shows what the plan paid. The pharmacy’s reimbursement shows what reached the dispenser. The contract tells us what the PBM promised to do with the difference. The plan pays the higher bill while the pharmacy receives the lower amount. When that bill reaches a government health care program, taxpayers pay too.

Do Pharmacy Benefit Managers Have a Role in the Prescription Drug Supply Chain?

Yes. Pharmacy benefit managers stand between prescription-drug plans and dispensing pharmacies. They process claims, negotiate pharmacy contracts, manage access to covered drugs and negotiate manufacturer rebates. An employer or insurer hires a PBM to administer the benefit and control drug spending. The same business can influence which drug is covered, which pharmacy dispenses it and how that pharmacy is paid.

The payment arrangements run in different directions. The plan pays the PBM under its contract. The PBM pays the pharmacy under another contract. A manufacturer may pay a rebate in exchange for a place on the formulary, the plan’s list of covered drugs. That rebate generally arrives after the pharmacy sale.

Those arrangements put the intermediary in a position to see money that the other participants see only in part. A pharmacy employee knows the reimbursement received. A benefits employee knows the charge on the plan’s invoice. Bringing those views together is where a spread-pricing inquiry begins.

A PBM Spread Claim: Paid to the Pharmacy Versus Billed to the Plan

The comparison joins the pharmacy reimbursement to the plan charge for the same prescription. The spread is the difference the PBM retains. The price the pharmacy paid its wholesaler is a further comparison, with a different purpose: it shows the pharmacy’s acquisition cost.

Pharmacy reimbursement often follows a maximum allowable cost list. PBMs commonly develop their own MAC lists, and the pharmacy’s contract determines how the list applies. The plan’s contract separately determines what the PBM can charge the plan. A reimbursement schedule based on MAC can sit beside a plan invoice based on a discount from average wholesale price.

A 2004 commentary in the American Journal of Health-System Pharmacy, Examining the value of pharmacy benefit management companies, described that mismatch. It explained how different pricing formulas in the pharmacy and employer contracts create spread. Its proposed comparison was specific: the drug ingredient costs on the payer’s monthly PBM invoice against the amounts paid to the pharmacy.

That gives the employee looking at a discount a better question. A discount from which price, paid to whom? An attractive discount on the plan’s invoice can coexist with a lower payment to the pharmacy. The promise in the plan’s contract determines what the client was supposed to receive.

Average wholesale price fraud concerns the benchmark itself: manufacturers allegedly supplied inflated published prices and marketed the difference between reimbursement and the actual selling price. The PBM comparison follows the charge and payment under separate contracts. Both can involve a spread, but they put different records and decisions at the center of the inquiry.

What a Pass-Through Promise Covers

A pass-through promise has to identify the money being passed through. Pharmacy reimbursement, manufacturer rebates and administrative fees each need their own treatment in the contract. A promise to pass manufacturer rebates to the plan answers a different question from a promise to bill the plan the amount paid to the pharmacy.

The Government Accountability Office’s review of Medicare Part D service agreements found arrangements that paid PBMs through fees for processed claims, monthly fees based on membership, or a combination. It separately examined provisions requiring manufacturer rebates to reach plan sponsors. The service fee and the rebate promise occupied different parts of the business arrangement.

For an insider, the consequential comparison is the promise against the bill. If a contract calls for pharmacy cost plus a disclosed fee, the reimbursement and fee records should explain the client charge. If the promise concerns rebates, the manufacturer payment and the amount credited to the plan become the relevant pair. We examine those promises with the records of what was retained and what the client was told.

A 2020 Oregon Law Review paper argued for separating administrative compensation from drug list prices. Its proposed approach made the service, rather than the drug’s price, the basis for the fee:

That is a policy proposal with a practical insight for reviewing a contract. The amount charged for administering a prescription can move with the drug’s price even when the described service stays the same. A contract’s fee formula makes that incentive visible.

Ohio Medicaid Spread Pricing

Ohio’s 2018 Medicaid pharmacy audit measured $224.8 million in spread over one year in Medicaid managed care, a spread rate of 8.9 percent. The measurement compared payments by managed care plans with pharmacy reimbursements. It put a dollar amount on the gap between the public program’s spending through those plans and the money reaching pharmacies.

The auditor described spread as compensation retained in place of a set fee for administrative functions. That makes the contract central to understanding the number. How much did the plan agree to pay for administration, how was that compensation calculated, and what did the PBM disclose about it?

A state measurement shows how the mechanism works at scale. An employee’s records can show how it worked for a particular client.

Medicare Part D and Commercial Plans Pay Differently

Medicare Part D and commercial plans can compensate PBMs differently, even when the same intermediary serves both. The Government Accountability Office’s July 2019 report found about $300,000 in reported Part D spread revenue for 2016. Officials from three PBMs told GAO that they generally earned more from spread pricing and rebate retention in commercial plans than in Part D.

The report also found that PBMs retained $74.3 million from approximately $18 billion in manufacturer rebates they negotiated for Part D plans that year. They passed 99.6 percent through to plan sponsors.

The Government Accountability Office also explained why the reporting category matters. Under the Part D rules it examined, a plan could pay its PBM a higher price than the pharmacy received. The difference increased the plan’s bid and could increase beneficiary premiums. Where that margin went in the accounting therefore affected more than the PBM’s income. An employee who prepares plan reports may see the same retained amount described as drug spending in one place and administrative compensation in another. We examine that classification alongside the underlying prescription payment and the service agreement.

The Government Accountability Office’s September 2023 report found $103 million retained by PBMs within $62.1 billion in Part D rebates and other price concessions for 2021. It separately described pharmacy fees and bonuses tied to performance measures. A pharmacy may pay a performance fee after dispensing the prescription. That later payment changes what it ultimately keeps, so the initial reimbursement tells only part of the story.

Ownership adds another layer. A PBM can sit inside a group that also owns an insurer, dispensing pharmacies and a rebate aggregator. A dispensing pharmacy’s revenue above its acquisition cost is a different margin from the PBM’s spread on the plan invoice. The rebate aggregator may negotiate additional manufacturer fees. A claim that rebates reached the client leaves those other revenue lines to be examined on their own terms.

Manufacturer Rebates and List Prices Follow Another Money Trail

Manufacturer rebates connect the drugmaker to the plan or PBM, while pharmacy spread connects the plan charge to the dispenser’s payment. That distinction matters when an employee sees a large manufacturer payment and wants to understand where it went.

The association between drug rebates and list prices, published by the USC Schaeffer Center in 2020, examined brand-drug prices from 2015 through 2018. It found a positive association between increases in estimated rebates and increases in list prices.

For a particular plan’s spread inquiry, the missing comparison remains what the PBM charged that plan against what it paid the pharmacy. For a retained-rebate inquiry, the relevant trail follows the manufacturer’s payment, the contractual credit and the report of that money.

When the Payment Records Point to a Whistleblower Case

The strongest starting point is a specific promise or government report contradicted by the payment records. We look at what the business said it would pay or pass through, what it actually did, and who knew how the money was being treated. These PBM cases connect alleged Medicaid underpayments, unperformed services, hidden formulary payments and mislabeled rebates to government spending. For a spread-pricing inquiry, they put the focus on what the company promised and how it accounted for the money.

Caremark’s Alleged Medicaid Underpayment

Caremark agreed to pay $6 million in September 2014 to settle allegations that it knowingly failed to reimburse Medicaid fully for prescription costs owed by private health plans it administered. The patients had both Medicaid and private drug coverage. The private coverage was supposed to bear the cost.

The government alleged that Caremark’s RxCLAIM platform improperly deducted copayments or deductibles when calculating what Medicaid should receive. The alleged shortfall sat inside the reimbursement calculation. That allegedly left taxpayers paying prescription costs that the private plans should have paid.

A former Caremark employee brought the whistleblower case, and the government joined it.

Medco’s Contracted Services and Mail-Order Prescriptions

The Justice Department’s October 2006 Medco resolution announced $155 million across resolutions involving alleged cancellations, short fills, failures to perform contracted review, manufacturer payments and inducements to health plans.

The lesson for an employee reviewing PBM billing is concrete. A contract may promise a service as well as a price. Medco’s alleged failures put the prescription supplied and the review performed beside the payment. A fee description gives the inquiry a starting point. Records of the work show what the client actually received.

The Discount Was on a Different Drug

AstraZeneca agreed to a $7.9 million settlement in February 2015 over alleged payments to Medco for exclusive Nexium formulary status. According to the government, some or all of that compensation took the form of price concessions on Prilosec, Toprol XL and Plendil.

The favored drug and the discounted drugs were different. An employee examining Nexium alone could miss the consideration recorded against the other products.

Elixir and the Alleged Relabeling of Rebates

Rite Aid and Elixir Insurance agreed in July 2024 to pay $101 million to resolve allegations about retained manufacturer rebates reported to Medicare as bona fide service fees. The government alleged that manufacturers had never negotiated to pay those fees and that Elixir knew the retained rebates did not qualify for that treatment.

The alleged reporting covered 2014 through 2020 and affected Medicare’s payment reconciliation. The alleged fee label changed how the government accounted for the money. An employee who knows what the manufacturer negotiated may be able to explain why the label in the government report tells a different story.

What an Insider’s Records Can Show

A PBM billing employee may hold the client invoice and the terms used to generate it. A pharmacy operator may hold reimbursement records and the applicable MAC schedule. A plan employee may know the pass-through promise, while someone handling manufacturer accounts knows which rebates and fees arrived. Each view can supply a missing part of the transaction.

We connect those records to the contract and the government payment involved. A reimbursement appeal can explain a pharmacy’s acquisition-cost concern. A claim comparison can locate retained spread. A report to Medicare or a reimbursement calculation for Medicaid can show where the treatment of that money affected taxpayers. The person who understands why the figures differ can be as important as the figures themselves.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

When You Can Explain the Difference

If you know why the plan’s bill and the pharmacy’s payment diverge, speak to one of our whistleblower experts about how the spread was kept. We work beside you to build your strongest PBM spread pricing whistleblower case around the promises, payments and decisions inside the business. We bring in PBM fraud whistleblower lawyers who understand pharmacy reimbursement and government healthcare payments, and stay with you through the case.