Beyond the Rebate: 5 Questions to Ask Before Choosing a Pharmacy Benefit Manager

New federal disclosure requirements put pharmacy benefit arrangements in focus. For captive insurance company members, the opportunity is to turn greater visibility into better purchasing decisions.

For employers in medical stop-loss (MSL) group captives, choosing a pharmacy benefit manager (PBM) is part of managing healthcare costs and risk. Captive membership can provide access to pharmacy expertise, negotiated contracts, and claims analysis to support that decision.

New federal requirements will give many self-funded employers more information about how their PBMs are paid. The Department of Labor's final rule requires detailed compensation disclosures for large, self-insured group health plans, beginning with plan years starting on or after July 1, 2027.

Greater visibility raises a practical question: Does your PBM's pricing, service, and approach fit your company's and employees' needs?

PBM selection remains a topic of ongoing discussion among many members of the MSL captives that Captive Resources consults, as they look for ways to manage pharmacy costs and meet their employees' needs.

In a two-part conversation on Captive Resources' podcast, Captivating Health Insights, Kevin Kobielski, president and founder of Navion, explored pharmacy strategy, contract oversight, and PBM selection. Listen to "Choosing a PBM Partner: What Self-Funded Employers Need to Know" here.

• Choosing a PBM Partner: What Self-Funded Employers Need to Know Part 1
• Choosing a PBM Partner: What Self-Funded Employers Need to Know Part 2

Although recorded before the rule's announcement, the episodes offer five practical questions to help your company choose a PBM partner that fits your workforce and cost-management goals.

1. What Is Behind the PBM Label?

"Transparent," "traditional," and "pass-through" are common descriptions in pharmacy benefits. Each can help explain an arrangement, while a closer look at the details can show how it balances cost, clinical management, and service.

• Transparent models disclose administrative and program fees.

• Traditional models may also earn revenue through retained rebates, pharmacy margins, or spread pricing—the difference between what the plan pays and what the pharmacy receives.

• Pass-through models pass negotiated pharmacy pricing and rebates to the plan, charging administrative fees.

These labels can overlap; contract terms determine how each arrangement works.

"I don't think one model's better than the other," Mr. Kobielski explained during the podcast episode.

Evaluate each against your workforce's prescription utilization, benefits needs, employer philosophy, and willingness to introduce changes. Ask what your company pays directly, what other revenue the PBM receives, and which payments it retains or returns to the plan.

2. What Will the Plan Actually Pay?

A larger rebate guarantee or deeper discount does not necessarily mean lower total costs. Mr. Kobielski explained that higher rebate guarantees can deliver less value when more claims are excluded.

An effective comparison evaluates the proposed terms against the employer's actual utilization over the last 12 months. Drug costs, rebates, administrative charges, program fees, and exclusions need to be evaluated together to understand total net cost.

Biosimilars—medications highly similar to existing biologic drugs—illustrate why net cost matters. A lowercost biosimilar may generate a smaller rebate while reducing overall spending. But if a PBM lowers its rebate guarantee without proactively steering members to biosimilars and members continue to use higher-cost products, you could receive less in rebates while continuing to pay higher claim costs.

3. Can You Substantiate the Projected Savings?

A PBM proposal summarizes the guarantees and may include an expected result. The contract establishes how those guarantees will be calculated, verified, and enforced.

Review eligible claims, drug classifications, exclusions, and how rebate and discount guarantees are calculated. Establish who reconciles results, what data your company can access, and how discrepancies are resolved.

Mr. Kobielski emphasized contractual audit rights and experienced support for examining performance and challenging discrepancies. The Department of Labor's rule provides rights to audit compensation disclosures. Separately, evaluate contractual rights to review pricing guarantees and other performance commitments.

Market checks compare contracted pricing with current market terms. Ask when these reviews can occur and what obligations the PBM has following the findings.

4. Will the Partnership Support Your Pharmacy Strategy?

Evaluate clinical services, such as prior authorization and specialty drug review, alongside pricing. Also check whether the agreement allows outside clinical programs or additional purchasing options.

Mr. Kobielski discussed how some PBMs restrict outside programs. When evaluating alternatives, account for program fees and effects on rebates so projected savings reflect the full financial picture.

Pharmacy strategies may need to evolve as utilization, employer needs, and market conditions change, making flexibility an important part of PBM selection.

The evaluation should remain specific to the employer's workforce, benefits objectives, and tolerance for disruption.

5. Can Your Employees Put the Strategy into Practice?

The right pharmacy strategy depends partly on whether your employees can navigate it.

Savings may depend on employees changing pharmacies, transferring prescriptions, or completing additional steps. Without clear incentives and practical support, participation may fall short.

Examine customer service and concierge assistance alongside financial projections. Before switching PBMs, review formulary differences to identify which medications and employees are affected. Understanding both savings and potential disruption helps your company make a more informed decision.

Make PBM Selection an Ongoing Discipline

New disclosure requirements make this a timely moment to revisit pharmacy partnerships. For captive members, better pharmacy purchasing means asking targeted questions, drawing on available expertise, and reviewing results over time. Set clear expectations and hold partners accountable throughout the relationship to help manage costs while supporting employee care.

Disclaimer

Neither Captive Resources, LLC nor its affiliated companies is a law firm, accounting firm, or benefits professional, and neither provides legal, tax, or individualized PBM advice. This article is for general informational purposes only. It does not constitute legal, tax, or individualized benefits advice, nor a recommendation to select a particular PBM, or adopt a specific pharmacy strategy. Views expressed by podcast guests are their own and do not necessarily reflect Captive Resources' views or constitute an endorsement. This article reflects Captive Resources' understanding of the topics discussed, including federal disclosure requirements, as of its publication date. Laws, regulations, and related guidance may change, and their application depends on each employer's specific circumstances, plan documents, and PBM agreement. Captive Resources undertakes no obligation to update this article. Employers should consult qualified legal, tax, and benefits professionals about their particular circumstances and review their own plan data and contract terms before making decisions.