I've seen the contracts. The clauses that look reasonable on page 51 but create systematic overcharging. Liability caps that absolve vendors from egregious errors and oversight.
This is intentional.
PBMs charge your plan one price for a drug, pay the pharmacy less, and pocket the difference. That's spread pricing. And it’s more widespread than you may suspect.
The Office of Personnel Management (OPM) contract guidance counsels that "The PBM shall not charge more than the value of negotiated discounts with each pharmacy." Sounds fair. But who negotiated those discounts? The PBM did. With pharmacies they often own.
A recent FTC investigation found PBMs imposed markups by hundreds or thousands of percent on specialty drugs for cancer and HIV. They extracted $7.3 billion in additional revenue between 2017 and 2022 using this practice alone. Spread pricing netted them another cool $1.4 billion, according to the report. Nice for them, bad for all of us!
That's not a bug. That is the business model.
Here's where it gets more brazen. ASO contracts often cap liability for identified errors. I've seen cases in the past where the cap is a random number, say 25% of all observed overpayments.
Think about that. Your company discovers $100,000 in errors or overpayments. The ASO owes back $25,000. The remaining $75,000 is gone, just like that. That's a contract with a built-in discount for malfeasance.
What's the incentive to get it right? There really isn't one. There hasn’t been for decades.
Healthcare waste in the U.S. now runs around $1.2 trillion annually since 2024. That's up to 30% of total U.S. healthcare spending. That waste is higher than the GDP of over 180 countries. Yes, really!
The largest single source? Administrative complexity at roughly $266 billion. Not clinical waste. Not medical errors. Not fraud and abuse. Administrative complexity.
The complexity is the point. It's what allows spread pricing to work. It's what makes those liability caps seem reasonable. Most employers accept it as the way business is done. Fortune 500 companies with sophisticated finance teams sign these contracts.
Why? Contract opacity. Status quo bias. And the sheer scale of the entities they're dealing with who are often multi-billion-dollar conglomerates.
The Consolidated Appropriations Act (CAA) changed the game. Section 201 requires employer health plans to access detailed cost and quality data. Plans cannot agree to contractual restrictions that prevent them from seeing this information.
That's the leverage. Employers can now demand transparency. They can audit. They can terminate contracts that hide pricing or lack transparency.
Most don't know this power exists. Education is hopefully starting to change that.
Class action litigation is beginning to tell the story.
Employee lawsuits against employers are on the rise over breaches of fiduciary duty. Johnson & Johnson had a class action lawsuit filed against them in 2024 by an employee accusing the company's self-funded health plans of failing to negotiate lower prices for prescription drugs, which allegedly cost employees millions of dollars in overpayments for generic drugs.
In April 2024, an employee at the Mayo Clinic Arizona filed a class action lawsuit against the Mayo Clinic and its self-insured plan, alleging among other things, underpayment of claims that left employees with higher than usual out of pocket costs.
Also in 2024, current and former Wells Fargo employees filed a lawsuit against the company’s health plan alleging various fiduciary breaches related to prescription drug pricing and excessive administrative fees.
Then, in March of 2025, employees of JPMorgan Chase filed a class action lawsuit alleging that JPMorgan breached its fiduciary duty by allowing its PBM partner CVS Caremark to engage in practices such as spread pricing, formulary manipulation, and more, at the expense of plan members.
More malfeasance will undoubtedly be revealed as more of these lawsuits are filed in the coming months and years.
Litigation is shining the light on contracts that were designed to stay in the dark. Employers are also slowly realizing that the CAA gives them the power to demand answers and greater transparency.
The shift is happening. Through accountability.
When the cost of systematic overcharging exceeds the profit from it, the incentive to misbehave changes. When employers use their legal rights to audit and terminate, the contracts change.
The waste was built in deliberately over time. It can be built out the same way.