What is spread pricing?
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Spread
» Spread: Pharmacies charge different amounts for drugs. For example, prices for a drug can vary based on whether a pharmacy is in or out of a consumer’s network or whether the pharmacy purchases more or less expensive versions of a multisource drug. To manage these fluctuating costs, an employer or health plan may ask its PBM to carry the risk that patients choose costlier pharmacies to fill their prescriptions, allowing the plan sponsor to pay a set reimbursement for each drug regardless of the pharmacy chosen. If what the pharmacy charges the PBM is more than the reimbursement rate agreed between the plan sponsor and the PBM, the PBM takes a loss. If the pharmacy charges less, the PBM earns a margin (i.e., the spread). Smaller employers often choose “spread contracts”5 because of the pricing predictability and savings they derive.
administrative Fee
» Rebate retention: Employers and health plan sponsors may also choose to pay PBMs by asking them to retain a portion of drug company rebates, aligning incentives toward cost savings. This is a less common payment model among large employers. Data shows most rebates are passed through the PBM to the employer or health plan sponsor (99.6% in Medicare and 91% in commercial health plans).
» Administrative fee: Plan sponsors may choose to
pay the PBM a fee to administer claims and pay the PBM whatever the pharmacy charges (based on the contract between the pharmacy and PBM). Many large employers prefer this compensation model over a spread model because they have the scale to absorb the variability. Plan sponsors may also choose to pay administrative fees for rebate administration in lieu of allowing the PBM to keep a small portion of the rebates to pay for those services.
Point of Sale Rebates
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