Spread Pricing Explained

Spread pricing is the practice of a PBM charging a plan sponsor a higher price for a drug than it reimburses the dispensing pharmacy, retaining the difference as revenue. It is one of the most scrutinized PBM practices and has been banned in Medicaid managed care in most states.

How Spread Pricing Works

When a plan member fills a prescription, the PBM adjudicates the claim through two separate pricing calculations. One determines what the plan sponsor pays (based on the plan's contracted pricing terms). The other determines what the pharmacy receives (based on the pharmacy's network contract). These two prices are set independently, and the PBM is not required to charge the plan the same amount it pays the pharmacy.

For example, a PBM might reimburse a pharmacy $15 for a generic drug while charging the plan sponsor $45 for the same claim. The $30 difference is the spread, retained by the PBM as revenue. Spreads are not visible on standard claims reports unless the plan sponsor has contractual rights to pharmacy-level reimbursement data.

The Scale of Spread Pricing

State-level analyses have revealed significant spread pricing in Medicaid managed care programs. Ohio's 2018 audit found that PBMs charged managed care organizations $224 million more than they paid pharmacies over a single year. Similar findings in other states led to widespread Medicaid spread pricing bans and prompted commercial plan sponsors to scrutinize their own contracts.

Pass-Through Pricing

Pass-through pricing models eliminate the spread by paying the plan sponsor's claims at the same price the PBM pays the pharmacy, plus a transparent administrative fee. Several PBMs now offer pass-through contracts, though employers should verify that the model truly eliminates spreads across all drug categories, including specialty, and that the administrative fee structure does not simply shift margin to a different line item.