How do PBMs make money, and are we actually getting our rebates?

If you have a health plan, you have a pharmacy benefit manager, even if you have never heard its name. The PBM decides which drugs your plan covers, negotiates with manufacturers, contracts with pharmacies, and processes every prescription. Pharmacy is now about a quarter of total health spending for employers.

Here's the catch with rebates. Most contracts guarantee you a fixed dollar amount per brand prescription, not a percentage of what the PBM actually collects. If the PBM collects $500 on a script and guarantees you $200, the difference is theirs. And because the guarantee is per brand script, the system quietly rewards putting more expensive brand drugs on the formulary, not fewer.

It gets better. Each of the big three PBMs set up a separate rebate aggregator, sometimes called a group purchasing organization. Some of what used to be called rebates now shows up as "administrative fees" or "service fees" paid to the aggregator. If your contract says you get 100 percent of rebates, but the money is no longer called a rebate, you may not be getting 100 percent of anything.

That's why, when I audit a PBM contract, the definition of "rebate" is the first page I read. Also worth knowing: a transparent PBM in a fully insured plan doesn't help you much, because the carrier keeps the savings. In a self-funded or captive plan, the right PBM can be the single biggest lever you have.

Questions to ask

Are our rebates guaranteed per script, or do we receive a percentage of everything collected, including aggregator fees?
How does the contract define "rebate"?
Is there spread pricing at retail or mail, and do we have audit rights?
When a generic or biosimilar is available, why is the brand preferred?

Should we cover GLP-1 drugs for weight loss?

Covering GLP-1s for diabetes is standard. Covering them for weight loss is a real budget decision with four options. Don't cover, cover with guardrails (BMI thresholds, prior authorization, a lifestyle program, reauthorization on results), carve out to a specialty program, or cover broadly. Whatever you choose, put it in writing, budget it honestly, and communicate it clearly.

How do underwriters actually price our renewal?

Your renewal is a number the carrier decides, not one it simply calculates. The underwriter projects your claims, adds trend, blends in a manual rate based on credibility, applies pooling charges for large claims, then adds retention for admin, taxes, commissions, risk, and profit. Every one of those inputs has a range, which is why two carriers can look at the same data and come back 15 percent apart.

When should we start working on our health plan renewal?

Five months or more before the effective date. Requests for quotes typically go out three to four months before renewal for fully insured groups and four to five months out for self-funded and captive groups, because stop loss quotes and lasers depend on current large claim detail. Most renewals fail because they start 60 days out.