PBM vs. PBO

Pharmacy Benefit Optimizers, or PBOs, emerged as an alternative to traditional PBMs, positioning themselves as advisory firms that advocate for plan sponsors rather than operating the pharmacy supply chain. Understanding the distinction matters because the models create different incentive structures.

The Traditional PBM Model

A traditional PBM operates the entire pharmacy benefit: processing claims, managing the formulary, contracting with pharmacies, negotiating manufacturer rebates, and often dispensing medications through owned mail-order and specialty pharmacies. Revenue comes from the spread between what it charges plan sponsors and pays pharmacies, from retained portions of manufacturer rebates, and from margins on pharmacy operations.

The PBO Model

A PBO typically does not own pharmacies, does not take possession of rebates, and does not profit from the spread between ingredient costs and plan charges. Instead, a PBO sits alongside or on top of a PBM relationship, auditing claims in real time, analyzing pricing, monitoring rebate pass-through, and recommending formulary adjustments. Revenue comes from advisory fees, often calculated per member per month or as a share of documented savings.

Companies like RxBenefits and Rightway have popularized variations of this model. RxBenefits, for example, acts as a benefits optimizer that manages the PBM relationship on behalf of employers, conducting ongoing analysis of claims data and PBM performance.

Where the Lines Blur

The distinction between PBMs and PBOs has become less clear as both models evolve. Some PBOs now offer claims adjudication and network management, making them functionally similar to PBMs. Some PBMs have introduced pass-through pricing and fiduciary commitments that address the conflicts PBOs were designed to solve. Evaluating any pharmacy benefits partner requires looking past the label to the actual contract terms, revenue sources, and operational structure.