How PBMs Make Money

PBM Basics · 7 min read

Understanding PBM economics is essential for any employer or benefits manager evaluating pharmacy costs. PBM revenue comes from multiple streams, some disclosed and some obscured by contract complexity and business structure.

Administrative Fees

The most visible revenue source is per-claim administrative fees, typically ranging from $1 to $5 per prescription processed. These fees are straightforward and easy to benchmark. However, they represent a small fraction of total PBM economics and are often set artificially low to win business, with margins recovered elsewhere.

Spread Pricing

Spread pricing occurs when a PBM charges a plan sponsor more for a drug than it reimburses the dispensing pharmacy. The difference, or spread, is retained by the PBM as revenue. Spreads can range from a few dollars on common generics to hundreds of dollars on specialty medications. Some PBMs have moved toward pass-through pricing models that eliminate spreads, though the overall economics often shift to other revenue categories.

Rebate Retention

Drug manufacturers pay rebates to PBMs in exchange for favorable formulary placement. The percentage of these rebates passed through to plan sponsors varies by contract. Traditional contracts might pass through 90% of rebates, but the definition of which rebates qualify, the timing of payments, and the treatment of administrative fees on rebates can significantly reduce the effective pass-through rate.

Mail-Order and Specialty Pharmacy

PBM-owned mail-order pharmacies typically operate at higher margins than retail pharmacy reimbursement because the PBM controls both the buying and selling price. Specialty pharmacy represents the highest-margin segment, with PBM-owned specialty pharmacies capturing an increasing share of high-cost drug dispensing. Mandatory specialty pharmacy provisions in PBM contracts direct patients to these owned entities.

Manufacturer Fees and Services

PBMs generate additional revenue from manufacturer-funded programs including hub services, data analytics, patient copay assistance coordination, and formulary review fees. These revenue streams are typically not disclosed to plan sponsors and do not appear in standard financial reporting.

What This Means for EmployersThe total economics of a PBM relationship extend well beyond the per-claim fee on your invoice. Effective pharmacy benefits management requires visibility into all revenue streams, not just the ones disclosed in your contract.