Your PBM Is Not Your Fiduciary. That's the Problem.

Pharmacy spend accounts for 20 to 25 percent of total health plan costs. For most self-insured employers, that number keeps climbing. Prescription drug prices increased 3.3% last year alone.

The usual response? Trust your Pharmacy Benefit Manager to handle it.

Here's the problem: three PBMs control 79 percent of all prescription drug claims in the United States. These companies negotiate with manufacturers, build formularies, set reimbursement rates, and process claims. They sit between your plan and every pharmacy transaction your employees make.

They also profit from the complexity they create.

The Agency Problem

Traditional PBMs operate on spread pricing. They pay pharmacies one amount and charge your plan a higher amount. The difference goes into their pocket. You never see the actual transaction cost.

Rebates create another hidden revenue stream. Manufacturers pay PBMs to place their drugs on preferred formularies. Some of that money flows back to you. Some do not. Without full transparency, you cannot know how much stays with the PBM.

François de Brantes, Executive Vice President at XO Health, puts it directly: "You've got to look at the intermediaries, the TPAs, the PBMs. You have to get rid of all the crappy self-dealing, the bad incentives, that harm as opposed to help you manage your costs."

What Fiduciary PBMs Do Differently

A fiduciary PBM operates under a different model. It acts in your interest, not its own. The differences are structural:

• Pass-through pricing. You see exactly what the PBM pays pharmacies. No spread, no hidden markup.
• 100 percent rebate transparency. Every dollar negotiated with manufacturers flows back to your plan. The PBM earns an administrative fee, nothing more.
• Audit rights. You can examine claims data, pricing, and contracts. No restrictions, no redactions.
• Aligned incentives. The PBM makes money from a flat fee or percentage of savings. Lower drug costs benefit both parties.
• Clinical independence. Formulary decisions are based on efficacy and cost, not manufacturer payments.

Your Fiduciary Obligation

ERISA requires self-insured employers to act solely in the interest of plan participants. The Consolidated Appropriations Act (CAA) of 2021 strengthened this requirement. You must now evaluate your service providers, understand their compensation, and document that you are getting reasonable value.

De Brantes makes a critical point: "A self-insured employer has fiduciary responsibilities that a fully insured employer doesn't. Those fiduciary responsibilities don't change whether you have 50 lives or 500,000."

Working with a PBM that profits from opacity exposes you to regulatory risk. It also costs your plan money. Both are fiduciary failures.

Where to Start

1. Audit your current PBM contract. Look for spread pricing, rebate retention, and audit restrictions. If the contract limits your ability to see actual costs, that should tell you something.
2. Request pricing transparency. Ask your PBM for a breakdown of what they paid pharmacies versus what they charged your plan. If they refuse, well, there’s your answer.
3. Run the numbers. Use analytics to identify formulary inefficiencies: generic equivalents that could have been dispensed in place of brand names, therapeutic alternatives that could reduce cost, specialty drugs billed at inflated rates.
4. Evaluate fiduciary alternatives. Several independent PBMs now offer fully transparent, pass-through models. Compare their terms to your current arrangement. Be prepared to walk if necessary.
5. Document your process. ERISA requires a prudent process, not just a good outcome. Keep records of your evaluation, the alternatives you considered, and the rationale for your ultimate decision.

The Bottom Line

Elizabeth Mitchell, CEO of the Purchaser Business Group on Health, states it plainly: "The current system does not work for employers, families or most health care providers and the industry has demonstrated it will not reform itself to deliver high quality care at lower costs."

Your PBM relationship is a choice. You can accept hidden costs, opaque pricing, and misaligned incentives. Or you can demand transparency and align your pharmacy benefits with your fiduciary duty.

The money you save goes back to your plan and to your employees and their families. That is what fiduciary responsibility looks like in practice.

Jude Odu is the author of Model Optimal Care: End U.S. Healthcare Waste, One Health Plan at a Time.