Disaggregate PBM Services for Better Cost and Outcomes

Why Plan Sponsors Must Rethink the “One-Stop Shop” Model for Better Outcomes

Pharmacy Benefit Managers (PBMs) have become the fulcrum of prescription drug management in employer health plans, union welfare benefits and governmental programs. For many years, PBMs promised cost savings, efficiency and streamlined administration for plan sponsors. But as the PBM industry has evolved—with massive consolidation, vertical integration and an ever-expanding suite of services—the relationship between plan sponsors and PBMs has become increasingly opaque and, in many cases, more costly.

This blog explores the imperative for plan sponsors to disaggregate PBM services, regain control of their program costs and health outcomes, and secure the financial future of their benefits programs.

Understanding the Breadth of PBM Services

PBMs were once relatively straightforward: they processed pharmacy claims, negotiated discounts and managed formularies. Over the past decade, however, the model has undergone a dramatic shift.

• Expansion Through Vertical Integration: The largest PBMs now sit atop enormous conglomerates, encompassing health insurers, specialty pharmacies, mail-order houses and sometimes even provider groups. This vertical integration has blurred the lines between payer, administrator and provider.
• An Explosion of Service Offerings: At the same time, PBMs have expanded their reach horizontally. Services once managed by plan sponsors or independent third parties—such as utilization management, specialty drug management, clinical program oversight, pharmacy network development and even reporting—have been folded into the PBM portfolio.

The result: PBMs have positioned themselves as a “one-stop shop” for all things pharmacy benefits. This convenience comes at a price, with significant hidden costs and trade-offs that limit flexibility and transparency.

Core Services vs. À La Carte Offerings

It’s critical to distinguish between the core functions of PBMs—claims processing, rebate negotiation and formulary management—and the ever-growing menu of supplemental à la carte services. These add-ons, marketed as value enhancers, often come with their own fee structures, contractual entanglements and, sometimes, dubious returns on investment.

Plan sponsors must ask: Are all these bundled services truly essential? Could a more tailored, modular approach—where services are sourced independently based on unique program needs—deliver greater value and control?

The Consequences of Service Expansion: Less Transparency, Higher Costs

The expansion of PBM services should have led to greater efficiency and cost savings for plan sponsors. Instead, the reverse is often the case. As PBMs have expanded their roles, the system has become more convoluted—and less transparent.

• Declining Transparency: By consolidating more services in-house, PBMs have greater latitude to obscure their pricing formulas, repackage costs and dictate terms to their advantage. Plan sponsors are often left in the dark regarding the actual cost of their benefits and the allocation of funds.
• Cost Savings Eroded: The promise of lower costs has not materialized for many sponsors. Instead, the consolidation of services has reduced the opportunities to shop competitively, negotiate contracts or audit PBM performance on individual service lines.

The operational role of PBMs remains critical—benefits programs can’t function without reliable claims processing, formulary management or clinical oversight. However, when strategy and decision-making migrate from the sponsor to the PBM, sponsors lose control over designing their own benefits plans that align with their financial goals and support member well-being.

Control Must Return to Plan Sponsors

The solution is not to eschew PBM services altogether but to reassert control over which services are managed by the PBM and which remain under the direct oversight of the sponsor or specialized third parties. This means:

• Conducting a detailed audit of current PBM services and associated costs, including “hidden” fees and bundled services.
• Unbundling core services from ancillary offerings, opting wherever possible for best-in-class specialty vendors.
• Negotiating contract terms that provide true transparency—requiring clear reporting, open access to claims data and audit rights.
• Retaining decision-making authority over clinical programs, network design and utilization management protocols.

By disaggregating PBM services, plan sponsors can foster competition, maintain vendor flexibility and build benefit strategies tailored to their unique needs rather than the PBM’s bottom line.

The Financial Incentives Behind Bundling: How PBMs Profit

The current PBM business model is engineered to maximize profit at every touchpoint. According to industry analysts, the top three PBMs process over 80% of all prescriptions in the United States and control nearly every facet of the pharmacy supply chain. The expansion of services has provided PBMs with greater opportunities to generate revenue—often at the direct expense of plan sponsors.

• Administrative Fees: Layered onto every service, these fees are often non-transparent and can quickly add up.
• Clinical Programs with Questionable ROI: PBMs may tout disease management or adherence initiatives with promised returns on investment—yet independent audits often find these figures to be overstated or based on flawed methodology.
• Spread Pricing: PBMs pay pharmacies one price for a drug and charge the plan sponsor a higher price, pocketing the difference. This “spread” is rarely disclosed unless specifically negotiated.
• Clawing Rebates Through Group Purchasing Organizations (GPOs): Rebates that should flow back to plan sponsors may be redirected or diluted as they pass through PBM-owned GPOs, further reducing the plan’s share.
• Charging Fees for Reporting: Even access to basic plan data or standard reports may require additional charges.

To illustrate the scale of PBM profitability: According to a 2023 Drug Channels Institute report, the three largest PBMs (CVS Caremark, Express Scripts and OptumRx) generated combined revenues exceeding $500 billion in 2022, drawing substantial profit from fees, spread pricing and retained rebates.

Charting a Path Forward

For plan sponsors who want to regain control over costs and outcomes, disaggregating PBM services is the answer. Here’s how to get started:

• Perform a PBM Service Audit: Understand every function currently handled by your PBM and the associated costs. Request complete transparency and documentation.
• Identify Core vs. Supplemental Services: Decide which services must be provided by the PBM and which can be outsourced or managed in-house.
• Negotiate Modular Contracts: Push for unbundled, transparent contracts that offer the flexibility to select, swap or terminate non-core services without penalty.
• Build a Specialist Vendor Ecosystem: Consider best-in-class providers for functions such as specialty pharmacy, utilization management or data analytics.
• Retain Strategic Oversight: Require reporting, performance guarantees and audit rights—while maintaining control over plan design and strategy.

Conclusion

The era of the PBM “one-stop shop” promises simplicity but often delivers opacity, reduces control and drives higher costs. By taking the bold step to disaggregate PBM services, plan sponsors can gain the flexibility, transparency and strategic authority needed to ensure their benefits programs best serve their financial interests and their member outcomes.

True control is not just about reducing costs—it’s about forging a future where sponsors are empowered partners, not passive customers, in the health and financial well-being of their populations.

Ready to Take Control? Innovative Rx Strategies Can Help

Disaggregating PBM services and navigating the complexities of contract negotiations, audits and vendor selection can feel daunting, but you don’t have to go it alone. At Innovative Rx Strategies, we’ve helped countless plan sponsors untangle bundled PBM contracts, implement transparent, modular solutions and achieve meaningful savings without sacrificing member outcomes.

Our expert team will work alongside you to audit your current PBM arrangements, identify cost-saving opportunities and build a customized ecosystem of best-in-class vendors—all while ensuring you maintain strategic oversight and flexibility.

Take the first step toward transforming your pharmacy benefits. Contact us today for a complimentary, no-risk pharmacy benefit assessment to learn how Innovative Rx Strategies can help you design a program that truly puts you in control of your costs and your plan’s future.