Most employers have never read the medication policies controlling high cost drug decisions inside their pharmacy benefit plan. Brokers, consultants, and Benefits Directors spend plenty of time reviewing rebates, discounts, formularies, guarantees, and specialty drug trend. Those items matter. But medication policies are where many day-to-day coverage decisions are actually made. If you have not reviewed these policies, you do not fully know how your pharmacy benefit is being managed.

A medication policy is a written clinical and coverage rule for a specific drug, drug class, or treatment category. It explains when a medication may be covered, what documentation is required, what alternative therapies must be tried first, how much of the drug may be dispensed, and how long the approval lasts. In plain English, it is the rulebook used to decide whether a prescription gets approved, denied, limited, or sent back for more information.

Medication policies are more than clinical paperwork. They are plan governance documents.

These policies matter because many high cost medications are not simple yes-or-no decisions. They involve diagnosis, disease severity, treatment history, FDA labeling, clinical guidelines, safety concerns, quantity limits, and plan-specific product preferences. A good medication policy brings those factors together in one place so decisions are consistent, defensible, and aligned with the plan sponsor’s intent.

Take migraine treatment as an example. Newer migraine therapies, including CGRP inhibitors, can be clinically appropriate for the right patients. They can also create unnecessary cost when used without proper criteria. A migraine medication policy may identify the drugs covered under the category, separate preferred from non-preferred products, and require prior authorization before approval.

For migraine prevention, the policy might require documentation that the member has had at least four migraine days per month for at least three months, has functional impairment, and has already tried guideline recommended preventive medications. For acute migraine treatment, the policy might require documented failure or contraindication to generic triptans before covering a newer, higher cost drug. This is not arbitrary cost control. When properly designed, it is evidence-based management.

A bad medication policy can block appropriate care, frustrate members, and create unnecessary provider abrasion. A good medication policy protects the member, the plan, and the employer. It helps ensure the right drug is used for the right patient, at the right time, for the right clinical reason.

Medication policies are usually created by a pharmacy benefit administrator, PBM, health plan, or delegated clinical team. The better ones are developed by pharmacists and clinicians who review FDA labeling, prescribing information, peer-reviewed literature, specialty society guidelines, safety data, and available therapeutic alternatives. Many are also reviewed by a Pharmacy and Therapeutics Committee, often called a P&T Committee, made up of physicians, pharmacists, and other clinical experts.

This is where the fiduciary issue comes in.

A medication policy should support the plan sponsor’s duty to manage the pharmacy benefit prudently and solely in the interest of the plan and its members. It should not quietly steer utilization toward products that are more profitable for the vendor. A policy can be written to encourage clinically appropriate, lower-net-cost therapy. It can also be written to favor drugs with better economics for the PBM. The employer may never see the difference unless someone asks.

Medication policies are most often used during prior authorization, step therapy, quantity limit review, formulary exception review, and reauthorization. When a prescriber submits a request for a drug requiring review, the clinical reviewer compares the request against the policy.

• Does the patient have the required diagnosis?
• Has the patient tried the required first-line therapies?
• Is the requested drug FDA-approved or supported by current guidelines?
• Is the quantity consistent with labeling and safe use? Is the medication preferred under the plan?
• Is there a lower-cost clinically appropriate alternative?

If the request meets the criteria, the drug may be approved. If not, the request may be denied or returned for more documentation. This process is not perfect and it should not be treated as a substitute for medical judgment. Providers still make clinical decisions. Medication policies are coverage tools. Their purpose is to help the plan apply consistent standards while allowing room for exceptions when properly supported.

Reauthorization is another important use. A drug may be reasonable to try, but that does not mean the plan should keep paying indefinitely if the member is not improving. For expensive therapies, reauthorization criteria often require updated progress notes or evidence of clinical benefit. In migraine, this could include fewer headache days, reduced use of rescue medications, fewer missed workdays, or improved ability to perform daily activities.

This is common sense plan management. If a medication is working, continued coverage may be appropriate. If it is not working, the plan should know.

Quantity limits serve a similar purpose. Some drugs have high cost exposure when use exceeds clinically appropriate limits. A policy may specify how many tablets, injections, syringes, pens, or devices are covered per month. These limits should be tied to FDA labeling, clinical evidence, and accepted practice patterns. They should not be random denial mechanisms.

For brokers and consultants, medication policies are a useful oversight tool. They show how the pharmacy benefit actually functions behind the scenes. Advisors should request the policies for the top cost-driving categories, including GLP-1s, inflammatory conditions, migraine, oncology support drugs, fertility, hemophilia, multiple sclerosis, and rare disease therapies.

Then ask direct questions.

• Who wrote the policy?
• When was it last reviewed?
• What references support it?
• Who approved it?
• How are preferred products selected?
• Are lowest net cost options prioritized?
• How are exceptions handled?
• Does the policy align with the plan document?
• Are denial and appeal decisions being applied consistently?

Benefits Directors should ask these questions before implementation, not after an employee complaint. Learning the rules only after a member is denied care is a poor way to manage a pharmacy benefit plan. The larger point is simple. Medication policies reveal whether your plan is being managed with discipline, transparency, and accountability. They protect patients by grounding decisions in evidence. They protect the plan by reducing inappropriate utilization, unsafe use, and waste. They protect the employer by supporting consistent decisions under a fiduciary standard of care. If you have not reviewed them, you are trusting someone else’s rulebook without knowing what is in it.

Self-funded employers spend months negotiating pharmacy benefit terms, reviewing clinical programs, and selecting a pharmacy benefit manager, only to lose control once claims start processing. The contract may look good. The pricing may look competitive. The clinical strategy may sound reasonable. But if members are routinely filling non-formulary drugs, the plan is bleeding money. A formulary is only as good as the discipline behind it.

That is why formulary compliance matters.

Formulary compliance measures whether the drugs being paid for by the plan align with the plan’s approved drug list. In plain English, it answers a simple question: Are we paying for the drugs we agreed should be covered, or are we paying for exceptions, workarounds, and waste? A practical way to measure formulary compliance is to calculate non-formulary spend as a percentage of total net drug spend:

Formulary Compliance Rate (measured by non-formulary spend %) = non-formulary drug spend ÷ total net drug spend × 100

For this benchmark to be useful, “total net drug spend” must be defined consistently. Start with total allowed pharmacy cost, then subtract all credits that reduce the plan’s true cost, including rebates, drug-level credits, refunds, guarantees, reversals, adjustments, and other post-adjudication pharmacy credits returned to the plan. Copay assistance credits should only be included if the plan actually captures those dollars. Without a clear net spend definition, the non-formulary spend percentage can make compliance look better or worse than it really is.

For example, if a self-funded employer spends $10 million annually on prescription drugs and $250,000 is tied to approved non-formulary claims, the plan’s non-formulary spend rate is 2.5%. In most cases, 2% to 3% or less suggests the formulary is being followed and exceptions are being used appropriately. A rate between 3% and 5% deserves review. Anything above 5% should trigger a deeper audit of exception approvals, therapeutic classes, and whether the PBM or pharmacy benefit administrator is allowing the P&T committee’s work to be bypassed.

This gives HR, finance, and benefits consultants a clean starting point. You can also track the number of non-formulary claims, the number of members using non-formulary medications, and the top therapeutic classes driving the spend. But the dollar impact should come first because that is what reveals whether the issue is material. A strong compliance report should show three things:

1. Total formulary drug spend
2. Total non-formulary drug spend
3. The reason non-formulary claims were approved

Without the reason codes, the report is incomplete. Some exceptions are clinically appropriate. Others are just poor plan management. Good compliance does not mean zero exceptions. That is unrealistic and, in some cases, inappropriate. Good compliance means the plan has a clear formulary, a fair exception process, and a low level of non-formulary spend that can be explained.

Another example, suppose a self-funded employer spends $10 million annually on prescription drugs. If $350,000 is non-formulary spend, that may be acceptable if most of it is tied to documented clinical exceptions, failed step therapy, or continuity-of-care decisions. But if $1.5 million is going to non-formulary drugs with no clear documentation, no prior authorization history, and no therapeutic rationale, that is not member advocacy. That is plan leakage.

This is where the Pharmacy and Therapeutics committee, commonly called the P&T committee, becomes critical. A formulary should not be built by sales teams, rebate departments, account managers, or anyone else with a financial interest in which drugs win preferred placement. It should be built through a clinical review process led by qualified, conflict-free professionals who evaluate safety, efficacy, therapeutic value, and appropriate alternatives.

The most efficient way to measure formulary compliance is to monitor non-formulary spend as a percentage of total net drug spend.

When the P&T committee does its job well, the formulary has clinical credibility. It gives the plan sponsor a defensible basis for coverage decisions. It also helps separate legitimate clinical exceptions from financial manipulation. The problem starts when the work of the P&T committee is circumvented after the fact.

This can happen when non-formulary drugs are routinely approved without documented clinical justification, when rebate arrangements override clinical recommendations, or when “special handling” is used to keep certain high-cost drugs flowing through the plan. Once that happens, the formulary becomes a suggestion instead of a standard.

For self-funded employers, that is dangerous. The plan sponsor may believe it has adopted a clinically sound formulary, while the actual claims experience tells a different story. A fiduciary standard of care requires the employer to know whether the formulary is being followed, whether exceptions are properly documented, and whether financial conflicts are influencing coverage outcomes.

HR leaders often worry that stronger formulary controls will create disruption. That concern is valid. Employees do not want to hear that a drug they have been taking is no longer preferred. HR does not want angry calls, escalations, or disruption during open enrollment.

The answer is not to avoid formulary management. The answer is to manage change with care. Members should receive advance notice, clear alternatives, access to clinical support, and a reasonable exception pathway. Most disruption can be reduced when the process is communicated early and administered consistently.

The bigger problem is that some stakeholders use “access” as a shield against accountability. They argue that formularies restrict care, create red tape, or interfere with the doctor-patient relationship. Sometimes that criticism is sincere. Other times, it is coming from parties that benefit when formularies are loose, confusing, or rebate-driven.

There are three common types of formularies employers should understand.

1. A value-based formulary prioritizes drugs based on clinical effectiveness and total net cost. This model is usually best aligned with fiduciary oversight because it asks whether the plan is paying for the right drug at the right cost for the right reason.
2. A rebate-driven formulary gives preferred placement to drugs that produce favorable rebate economics. This may lower the apparent cost on paper, but it can also favor higher list price drugs and create conflicts between plan savings and PBM revenue.
3. A hybrid formulary blends clinical value, net cost, access, and rebate considerations. This can work, but only if the employer has full transparency into the decision-making process and can verify whether preferred drugs are truly in the plan’s best interest.

My bottom line.

Use 2 percent to 3 percent of total net drug spend as the working benchmark for paid non-formulary spend, 3 percent to 5 percent as a watch zone, and anything above 5 percent as a trigger for immediate review. The public literature suggests many plans have far more leakage than that, especially when formularies are broad or rebate-driven.

Formulary compliance is not about denying care. It is about enforcing the plan’s clinical and financial intent. A self-funded employer that does not monitor non-formulary spend is not managing the pharmacy benefit. It is funding whatever the system allows through. That is not oversight. That is trust without verification, and in pharmacy benefits, that is expensive.

How We Can Work Together

Whether you’re a plan sponsor trying to get control of pharmacy spend, or a broker guiding clients through PBM decisions, education is the fastest way to improve outcomes. If you want a focused, high-value session your team can actually use, here are several ways we can work together.

Option 1: Get Certified

American College of Benefit Specialists (ACoBS) equips benefits professionals with practical knowledge across pharmacy, medical, retirement, and voluntary benefits. Organizations working with ACoBS-certified consultants gain better plan oversight, stronger vendor accountability, and more disciplined cost control. The certification signals a clear commitment to fiduciary guidance and protecting plan assets.

Option 2: Book a Webinar

A clean, educational session for employers, brokers, or TPAs. We’ll cover the most common PBM profit tactics, how to spot contract red flags, and what a fiduciary standard of care looks like in pharmacy benefits. Great for client education and thought leadership.

Option 3: Join the Virtual Roundtable

Bring your internal team (HR, Finance, and Benefits) or your broker group. I’ll lead a live discussion focused on PBM oversight, cost drivers, and what to ask your PBM right now. You’ll leave with a short action list you can use immediately.

Option 4: Get a Quote

Pharmacy benefits now rival medical spend for many plans. Yet most are still governed by contracts few have fully read and pricing models few can clearly explain. That is a fiduciary risk, not just a cost issue.

If you want lower spend, tighter oversight, and alignment you can defend in front of a board or audit committee, act with intent. Certify your team. Educate your clients. Pressure test your PBM.

Self-funded employers often face a difficult tradeoff in pharmacy benefit management. They can reduce unnecessary pharmacy spend or limit member disruption. On the surface, avoiding disruption feels like the safer path. HR teams do not want employees frustrated at the pharmacy counter, calling about medication changes, or asking why a drug that worked yesterday now requires a different process today.

That concern is real. But it can also become expensive. In many pharmacy plans, meaningful savings are available through better formulary management, stronger utilization management, and a more disciplined approach to generic and therapeutic alternatives. The challenge is that those savings often require some level of change for a small portion of members.

The Concern: Member Disruption

When a plan moves from a loose formulary to a more carefully managed one, some members may be affected. A member may need to switch from a brand drug to a generic equivalent. Another may need to move to a lower cost therapeutic alternative. Others may go through prior authorization, step therapy, or an exception review.

That creates anxiety for HR, and understandably so. HR teams often hear the complaints, even when the clinical and financial rationale is sound. No one wants a benefit change to feel like a takeaway, especially when employees are dealing with medications they rely on. But the question should not be, “Will there be any disruption?” A better question is, “Is the disruption clinically appropriate, financially justified, and properly supported?”

Reckless vs. Responsible Disruption

There is a big difference between reckless disruption and responsible disruption. Reckless disruption happens when members are forced through confusing changes without support, communication, or clinical review. That creates frustration and can harm trust. Responsible disruption looks different. It includes:

• Advance member notice before changes take effect
• Prescriber outreach when therapy changes may be needed
• Clear therapeutic alternatives when clinically appropriate
• Exception protocols for members with legitimate clinical needs
• Pharmacist support for members who need help navigating the change

That is not disruption for the sake of savings. That is fiduciary plan management.

The Fiduciary Issue

Self-funded employers have a duty to manage plan assets carefully. Every unnecessary dollar spent on an avoidable high-cost medication is a dollar that cannot be used for wages, benefits, reserves, or other priorities. When lower-cost alternatives are clinically appropriate, ignoring them is not member advocacy. It is poor stewardship.

Take a simple generic dispensing rate example. Assume a self-funded plan spends $10 million annually on pharmacy claims and has an 80% generic dispensing rate. If stronger formulary management, utilization management, and member support can move that plan to a 90% generic dispensing rate, the plan gains ten percentage points of improvement.

If each one point increase in generic dispensing rate produces an estimated 4% gross savings, the math is hard to ignore. A ten point improvement would represent an estimated 40% gross savings opportunity. On a $10 million annual pharmacy spend, that equals approximately $4 million in potential gross savings.

That does not mean every plan will capture the full amount. Savings depend on the drug mix, brand utilization, specialty exposure, rebates, member behavior, prescriber cooperation, and how well the transition is managed. But the example makes the fiduciary point clear. Even modest improvements in generic dispensing can create major financial consequences for a self-funded employer.

A low generic dispensing rate, high non-formulary spend, or excessive use of non-preferred brands can signal that the plan is paying more than necessary. These patterns do not always mean care is better. Often, they mean the formulary is not being managed tightly enough, the incumbent PBM has not applied sufficient controls, or the plan sponsor has not been given a clear picture of the tradeoffs.

The Cost of Doing Nothing

HR teams often feel caught between two pressures: controlling pharmacy costs and avoiding employee complaints. That tension is real. But avoiding every difficult conversation is not a strategy. It usually means the plan is allowing historical prescribing patterns, manufacturer influence, or PBM economics to drive decisions.

Before implementing any major formulary or utilization management change, the affected member population should be reviewed carefully. Some members may have direct generic equivalents available. Others may have lower-cost therapeutic alternatives. Some cases may require clinical review. A smaller group may need more hands-on support to avoid confusion or gaps in therapy.

This is where many employers make the wrong comparison. They compare the discomfort of change against the comfort of doing nothing. But doing nothing has a cost, and in pharmacy benefits, that cost can be substantial.

The Better Standard

The purpose of a well-managed pharmacy benefit is not to keep everything exactly as it is. It is to protect members while protecting the plan. Sometimes that means change. Sometimes it means telling a member, “There is a clinically appropriate alternative, and the plan will support you through the transition.”

That message is not anti-member. It is honest. Most employees do not know whether their medication is preferred, non-preferred, non-formulary, or clinically replaceable. They only know what their doctor prescribed and what they pay at the pharmacy counter. It is the plan’s responsibility, with the right pharmacy benefit administrator, to create a structure that helps members get appropriate care without wasting plan dollars.

Disruption should be minimized, not worshipped. The better goal is not zero disruption. The better goal is the right disruption, for the right reasons, with the right support. For self-funded employers, that distinction can be worth millions.

How We Can Work Together

Whether you’re a plan sponsor trying to get control of pharmacy spend, or a broker guiding clients through PBM decisions, education is the fastest way to improve outcomes. If you want a focused, high-value session your team can actually use, here are several ways we can work together.

Option 1: Get Certified

American College of Benefit Specialists (ACoBS) equips benefits professionals with practical knowledge across pharmacy, medical, retirement, and voluntary benefits. Organizations working with ACoBS-certified consultants gain better plan oversight, stronger vendor accountability, and more disciplined cost control. The certification signals a clear commitment to fiduciary guidance and protecting plan assets.

Option 2: Book a Webinar

A clean, educational session for employers, brokers, or TPAs. We’ll cover the most common PBM profit tactics, how to spot contract red flags, and what a fiduciary standard of care looks like in pharmacy benefits. Great for client education and thought leadership.

Option 3: Join the Virtual Roundtable

Bring your internal team (HR, Finance, and Benefits) or your broker group. I’ll lead a live discussion focused on PBM oversight, cost drivers, and what to ask your PBM right now. You’ll leave with a short action list you can use immediately.

Option 4: Get a Quote

Pharmacy benefits now rival medical spend for many plans. Yet most are still governed by contracts few have fully read and pricing models few can clearly explain. That is a fiduciary risk, not just a cost issue.

If you want lower spend, tighter oversight, and alignment you can defend in front of a board or audit committee, act with intent. Certify your team. Educate your clients. Pressure test your PBM.

A pharmacy claim can look clean and still be wrong. That is the uncomfortable truth employers need to understand. A drug can pass through adjudication, meet the plan’s coverage rules, generate a paid claim, and still fail the most important test: whether that medication is appropriate, necessary, and likely to work for the patient.

Clinical rigor is the discipline that closes that gap.

Over the past 10 years, while onboarding new clients, our team has identified dozens of situations where drugs costing more than $100,000, per year, had already been adjudicated and approved, only for genetic testing to later reveal they were unlikely to work for the patient. That is not a minor oversight. It is a break in the evidence trail before plan assets were spent.

The key elements include:

• Pharmacogenomics gives employers and fiduciaries another layer of clinical protection. It can help determine whether a patient’s genetic profile makes a drug ineffective, unsafe, or less appropriate than another therapy. Pharmacogenomics is not relevant to every drug or every patient, but where it is clinically indicated, it should be part of the review before a high-cost approval. For high-cost therapies, especially specialty medications, this should not be treated as academic medicine. It is practical plan governance.
• Medication therapy management is just as important. This becomes even more critical when plans use international mail programs or when claims adjudicate outside the normal electronic workflow. When a claim bypasses the standard drug utilization review process, the plan may also lose basic clinical safeguards, including checks for duplicate therapy, drug-drug interactions, contraindications, and dosing concerns. A lower unit cost is not a bargain if clinical oversight is stripped out of the transaction.
• Utilization management must also carry real clinical weight. Prior authorization should not be a paperwork ritual. A credible PA process should review FDA labeling, clinical trial checkpoints, patient selection criteria, diagnosis confirmation, contraindications, and prior therapy history. The question should not be, “Was the form completed?” The question should be, “Does this patient match the evidence that supports use of this drug?”
• Formulary management is where fiduciary discipline often gets tested. Employers should know the difference between a rebate-driven formulary, which may favor drugs that improve PBM economics and a value-based formulary, which weighs clinical effectiveness, safety, total net cost, and patient outcomes. But even a sound formulary can be undermined if a conflict-free P&T committee’s evidence-based decisions are bypassed by rubber stamped prior authorizations. The PA process should defend the formulary’s clinical logic, not quietly dismantle it.
• Medication adherence is the last piece, and it is often the most measurable. Plans should track proportion of days covered, or PDC, to understand whether members are actually taking their medications as prescribed. Poor adherence turns good prescribing into poor outcomes and can drive avoidable medical spend.

Clinical rigor is not about slowing care down.

It is about refusing to let plan dollars move faster than the evidence. For employers with fiduciary responsibilities, that distinction matters. A pharmacy benefit should not merely pay claims. It should prove, before and after payment, that the therapy was worth funding.

How We Can Work Together

Whether you’re a plan sponsor trying to get control of pharmacy spend, or a broker guiding clients through PBM decisions, education is the fastest way to improve outcomes. If you want a focused, high-value session your team can actually use, here are several ways we can work together.

Option 1: Get Certified

American College of Benefit Specialists (ACoBS) equips benefits professionals with practical knowledge across pharmacy, medical, retirement, and voluntary benefits. Organizations working with ACoBS-certified consultants gain better plan oversight, stronger vendor accountability, and more disciplined cost control. The certification signals a clear commitment to fiduciary guidance and protecting plan assets.

Option 2: Book a Webinar

A clean, educational session for employers, brokers, or TPAs. We’ll cover the most common PBM profit tactics, how to spot contract red flags, and what a fiduciary standard of care looks like in pharmacy benefits. Great for client education and thought leadership.

Option 3: Join the Virtual Roundtable

Bring your internal team (HR, Finance, and Benefits) or your broker group. I’ll lead a live discussion focused on PBM oversight, cost drivers, and what to ask your PBM right now. You’ll leave with a short action list you can use immediately.

Option 4: Get a Quote

Pharmacy benefits now rival medical spend for many plans. Yet most are still governed by contracts few have fully read and pricing models few can clearly explain. That is a fiduciary risk, not just a cost issue.

If you want lower spend, tighter oversight, and alignment you can defend in front of a board or audit committee, act with intent. Certify your team. Educate your clients. Pressure test your PBM.

I recently asked ChatGPT to score our pharmacy benefit administrator (PBA) services agreement on how much control and transparency it gives self-funded employers. Here was the prompt: “Act as an ERISA attorney and pharmacy benefits expert. Score the attached contract on a scale of 1 to 10 on how much control and transparency it provides to self-funded employers.” The score came back 9.6 out of 10. Skeptical? Good. You should be.

In pharmacy benefits, big transparency claims deserve pressure testing. So call my bluff. Ask for the agreement. Read the audit clause. Review the rebate language. Look at who controls the formulary, specialty pharmacy arrangements, network strategy, data access, and plan economics.

Then do the same with your current PBM or PBA agreement. Use the same prompt. Pressure test the contract you already have in place. The answer may show whether your agreement gives the plan sponsor enforceable control, or whether it relies too heavily on vendor promises. What surprised me was not the score itself. It was how much the score changed when the contract posture changed.

Prompt: Act as an ERISA attorney and pharmacy benefits expert. Score the attached contract on a scale of 1 to 10 on how much control and transparency it provides to self-funded employers.

The existing version, built around a fiduciary pharmacy benefit administrator model, scored 9.6 out of 10. The reason was straightforward. The agreement gave the employer final authority over plan design, formulary, utilization management, pharmacy network decisions, manufacturer contracting, rebate strategy, and coverage policy. TransparentRx did not have discretionary authority over those decisions. It also included broad audit rights, pass-through economics, specialty compensation disclosure, and client ownership of plan-attributable rebates, credits, discounts, fees, and other financial benefits.

Then I asked a different question: what happens if the fiduciary language is removed and the contract describes the company as a pharmacy benefit manager instead of an administrator?

The score dropped to roughly 7.2 out of 10. That is not a cosmetic change. It affects money, oversight, and CAA documentation. Contract posture has financial and compliance consequences. If an agreement reads like a conventional PBM contract, the employer may lose leverage over the very items that determine whether the plan is truly being managed in its best interest:

• Rebate strategy and whether all plan-attributable rebates are disclosed, reconciled, and returned.
• Specialty pharmacy economics, including margins, referral arrangements, data fees, service fees, and affiliate relationships.
• Audit access to claims-level data, pharmacy reimbursement records, MAC list application, manufacturer payments, aggregator records, and subcontractor compensation.
• CAA RxDC reporting at the plan level, not just the vendor’s aggregate book of business. Aggregate reporting may help a vendor complete a filing, but it does not give the employer enough visibility to verify its own prescription drug spend, rebates, high-cost drugs, top drugs, member cost-sharing, or vendor compensation. Plan-level reporting ties the data back to the employer’s actual claims experience, which is what fiduciaries need for cost oversight, renewal decisions, rebate reconciliation, and CAA documentation.
• Fiduciary documentation. A weaker contract can make it harder for the plan sponsor to show it had the contractual right to obtain, review, and verify the financial data behind pharmacy spend.

Transparency is not meaningless. It is essential, but it has to be enforceable.

A vendor can say it is transparent, but the contract must give the plan sponsor the right to obtain, audit, reconcile, and use the data needed to manage the plan, verify financial performance, and meet reporting obligations. In pharmacy benefits, transparency without contractual rights is just a talking point.

Here is the scorecard under the existing service agreement:

The lesson is simple: contract labels matter, but contract authority matters more. 

A self-funded employer should know exactly where control sits. That means knowing who controls the plan, formulary, rebate strategy, and pharmacy network. It also means knowing who owns the data, who can audit the financial flows, and who receives every dollar tied to the plan.

Brokers, consultants, and Benefit Directors should not stop at “transparent PBM” language. Ask for the agreement. Read the audit clause. Review rebate ownership. Check specialty compensation. Confirm who has final decision-making authority. Then ask one direct question: does this agreement give the plan sponsor enforceable control, or does it leave the employer relying on vendor promises?

How We Can Work Together

Whether you’re a plan sponsor trying to get control of pharmacy spend, or a broker guiding clients through PBM decisions, education is the fastest way to improve outcomes. If you want a focused, high-value session your team can actually use, here are several ways we can work together.

Option 1: Get Certified

American College of Benefit Specialists (ACoBS) equips benefits professionals with practical knowledge across pharmacy, medical, retirement, and voluntary benefits. Organizations working with ACoBS-certified consultants gain better plan oversight, stronger vendor accountability, and more disciplined cost control. The certification signals a clear commitment to fiduciary guidance and protecting plan assets.

Option 2: Book a Webinar

A clean, educational session for employers, brokers, or TPAs. We’ll cover the most common PBM profit tactics, how to spot contract red flags, and what a fiduciary standard of care looks like in pharmacy benefits. Great for client education and thought leadership.

Option 3: Join the Virtual Roundtable

Bring your internal team (HR, Finance, and Benefits) or your broker group. I’ll lead a live discussion focused on PBM oversight, cost drivers, and what to ask your PBM right now. You’ll leave with a short action list you can use immediately.

Option 4: Get a Quote

Pharmacy benefits now rival medical spend for many plans. Yet most are still governed by contracts few have fully read and pricing models few can clearly explain. That is a fiduciary risk, not just a cost issue.

If you want lower spend, tighter oversight, and alignment you can defend in front of a board or audit committee, act with intent. Certify your team. Educate your clients. Pressure test your PBM.

Buying pharmacy benefits is no longer a routine procurement exercise. For brokers, consultants, CFOs, and HR leaders, PBM oversight now sits squarely in the risk management category. The wrong contract, the wrong data rights, or the wrong internal assumptions can cost a plan millions. Here are six non-negotiables every pharmacy benefits purchaser should demand.

Knowledgeable staff

A prudent process starts with competent people. The fiduciary standard does not require perfection, but it does require informed decision-making. That means the employer, broker, consultant, and internal benefits team must understand how PBMs make money, how to design a pharmacy benefit, how to evaluate clinical management, how specialty drugs are priced, and where conflicts of interest appear.

The “prudent expert” requirement matters. If the plan sponsor does not have that expertise internally, it must hire it. Relying on a PBM to explain whether its own arrangement is fair is not oversight. It is delegation without control.

Vendor contract access

Purchasers need access to vendor contracts, not just summaries, assurances, or sanitized reporting. One reason is international mail order pharmacy arrangements. In some cases, drugs sourced through these channels are marked up by 2,000% or more before being passed through the benefit plan.

That kind of spread does not show up clearly in a typical PBM performance review. It is buried in related-party arrangements, subcontractor agreements, specialty pharmacy terms, or opaque purchasing structures. If the purchaser cannot see the underlying contracts, it cannot verify whether pricing is fair.

Claim data access

Access to complete, usable, plan-level claim data is no longer optional. The Department of Labor and Consolidated Appropriations Act enforcement environment will only put more pressure on plan fiduciaries in 2026 and beyond.

Plan sponsors need data that allows independent review of drug pricing, rebates, fees, specialty claims, formulary decisions, prior authorization outcomes, and pharmacy reimbursement. A PDF summary from the PBM is not enough. Purchasers need raw data rights, audit rights, and the ability to share data with independent advisors working on behalf of the plan.

Medical benefit drug claim oversight

High-cost drugs are not only paid through the pharmacy benefit. Many are billed under the medical benefit through physician offices, hospital outpatient departments, infusion centers, and specialty clinics. These claims may involve J-codes, HCPCS codes, units, modifiers, and provider markups that are difficult to monitor without the right data.

Purchasers should require access to medical drug claim data and an independent review process to evaluate pricing, units billed, site-of-care patterns, duplicate billing, and opportunities to move select drugs to lower-cost channels when appropriate. PBM oversight is incomplete if medical benefit drug spend is ignored.

Fiduciary PBM contract

There is a difference between a fiduciary PBM contract and a contract that uses friendly language like “fiduciary aligned.” Purchasers should not accept branding, slogans, or partial transparency as a substitute for enforceable fiduciary obligations.

A real fiduciary PBM contract should define who the PBM serves, how compensation is earned, what revenue must be disclosed, what must be passed through, and what happens when conflicts arise. If the PBM keeps spread pricing, hidden rebates, data fees, manufacturer payments, pharmacy network revenue, or GPO income, the contract should say so plainly.

Adequate resources

PBM oversight requires independent tools. Do not rely solely on PBM self-reporting. The plan sponsor should have its own resources to validate pricing, benchmark claims, review specialty costs, and test contract performance.

At a minimum, purchasers should have access to an independent AWP price reporting agreement or similar pricing validation resource. Without it, the plan is asking the PBM to grade its own paper.

The larger point is simple: pharmacy benefits purchasers cannot manage what they cannot see, test, or enforce. A fiduciary standard of care demands more than a competitive RFP. It demands evidence, access, expertise, and contractual accountability.

How We Can Work Together

Whether you’re a plan sponsor trying to get control of pharmacy spend, or a broker guiding clients through PBM decisions, education is the fastest way to improve outcomes. If you want a focused, high-value session your team can actually use, here are several ways we can work together.

Option 1: Get Certified

American College of Benefit Specialists (ACoBS) equips benefits professionals with practical knowledge across pharmacy, medical, retirement, and voluntary benefits. Organizations working with ACoBS-certified consultants gain better plan oversight, stronger vendor accountability, and more disciplined cost control. The certification signals a clear commitment to fiduciary guidance and protecting plan assets.

Option 2: Book a Webinar

A clean, educational session for employers, brokers, or TPAs. We’ll cover the most common PBM profit tactics, how to spot contract red flags, and what a fiduciary standard of care looks like in pharmacy benefits. Great for client education and thought leadership.

Option 3: Join the Virtual Roundtable

Bring your internal team (HR, Finance, and Benefits) or your broker group. I’ll lead a live discussion focused on PBM oversight, cost drivers, and what to ask your PBM right now. You’ll leave with a short action list you can use immediately.

Option 4: Get a Quote

Pharmacy benefits now rival medical spend for many plans. Yet most are still governed by contracts few have fully read and pricing models few can clearly explain. That is a fiduciary risk, not just a cost issue.

If you want lower spend, tighter oversight, and alignment you can defend in front of a board or audit committee, act with intent. Certify your team. Educate your clients. Pressure test your PBM.

The old PBM sales pitch is no longer enough. In today’s environment, cost management must be measurable, defensible, and open to inspection. With drug spend still climbing and scrutiny intensifying, plan sponsors cannot afford vague promises or half-measures. A PBM that claims to act in the client’s best interest should be able to prove it in plain view. Here are seven ways to tell whether your PBM is truly operating at maximum cost-effectiveness.

1. Rebates decrease when total cost of pharmacy care (TCoPC) decreases for new implementations.
   If a new PBM implementation lowers net drug spend, rebate yields may also decline because fewer high-cost brand claims are being dispensed. That is not a red flag. It is often evidence that the PBM is steering the plan toward lower cost alternatives. Brokers and Benefits Directors should focus on total cost of care, not rebate totals in isolation. A bigger rebate check means little if overall spend remains inflated.
2. At least 90% of generic claims are MAC’d.
   A PBM serious about controlling cost should place the overwhelming majority of generic claims under a Maximum Allowable Cost methodology. When too many generic claims fall outside MAC, the plan is exposed to unnecessary spread and inflated reimbursement. This metric gives consultants and fiduciaries a quick way to test whether the PBM is applying disciplined pricing controls where they matter most.
3. Prior authorization approval rates fall in the 50% to 60% range.
   A PA program that approves nearly everything is not managing utilization. It is rubber-stamping it. A rate in the 50% to 60% range suggests the PBM is conducting real clinical review and stopping inappropriate or avoidable spend. For Benefits Directors, that means the utilization management program is doing its job instead of serving as window dressing.
4. The PBM supports carve-outs.
   When a PBM resists carve-outs, the objections usually sound familiar: safety concerns, compliance risk, operational complexity, or disruption. Plan sponsors have heard it all. In many cases, that resistance is about preserving control and protecting revenue streams. A cost-effective PBM should be willing to support carve-outs when they create better economics or oversight for the client.
5. Generic dispensing rate is 90% or higher.
   A high GDR remains one of the clearest signs that the plan is being steered toward lower-cost therapies when clinically appropriate. It does not tell the whole story, but it is still a strong indicator of formulary discipline, prescriber engagement, and member channel management. For brokers, it is a simple metric that signals whether savings strategies are translating into actual behavior.
6. Specialty dispensing rate is 1% or lower.
   Specialty utilization drives an outsized share of pharmacy spend. A lower SDR can indicate tighter management, better site-of-care strategies, stronger prior authorization controls, and more effective biosimilar adoption. Benefits leaders should watch this closely because even small changes in specialty mix can materially affect total plan cost.
7. You can review the PBM’s vendor contracts.
   If the PBM will not let you review contracts with mail pharmacies, rebate aggregators, TPAs, PGx vendors, MTM vendors, and others, you are being asked to trust what should be verified. Transparency at this level is no longer optional. Given the current climate, PBMs must be beyond reproach in their client business affairs. Anything less should concern every fiduciary.

A PBM that truly maximizes cost-effectiveness does not hide behind talking points. It shows its work.

How We Can Work Together

Whether you’re a plan sponsor trying to get control of pharmacy spend, or a broker guiding clients through PBM decisions, education is the fastest way to improve outcomes. If you want a focused, high-value session your team can actually use, here are several ways we can work together.

Option 1: Get Certified

American College of Benefit Specialists (ACoBS) equips benefits professionals with practical knowledge across pharmacy, medical, retirement, and voluntary benefits. Organizations working with ACoBS-certified consultants gain better plan oversight, stronger vendor accountability, and more disciplined cost control. The certification signals a clear commitment to fiduciary guidance and protecting plan assets.

Option 2: Book a Webinar

A clean, educational session for employers, brokers, or TPAs. We’ll cover the most common PBM profit tactics, how to spot contract red flags, and what a fiduciary standard of care looks like in pharmacy benefits. Great for client education and thought leadership.

Option 3: Join the Virtual Roundtable

Bring your internal team (HR, Finance, and Benefits) or your broker group. I’ll lead a live discussion focused on PBM oversight, cost drivers, and what to ask your PBM right now. You’ll leave with a short action list you can use immediately.

Option 4: Get a Quote

Pharmacy benefits now rival medical spend for many plans. Yet most are still governed by contracts few have fully read and pricing models few can clearly explain. That is a fiduciary risk, not just a cost issue.

If you want lower spend, tighter oversight, and alignment you can defend in front of a board or audit committee, act with intent. Certify your team. Educate your clients. Pressure test your PBM.

When a plan sponsor decides to move medical benefit drugs to the pharmacy benefit as part of its total cost of care strategy, it shifts the focus from idea to execution. This is where benefit brokers and benefit directors can either create a smooth transition or inherit avoidable disruption. The move is not just a benefit design change. It is an implementation project involving vendors, providers, internal teams, and members. Done well, it can improve control, visibility, and savings. Done poorly, it can create confusion, provider pushback, and member dissatisfaction.

A good decision still needs a good rollout.

1. The first step is to define exactly which drugs are moving. Not every medical benefit drug belongs on the pharmacy benefit. The best candidates are usually high-cost therapies with repeat use, clear product identification, and a real savings opportunity tied to unit cost, site of care, or utilization management. This is also the point to establish a baseline: current spend, site of care, billing patterns, denial rates, and member out-of-pocket exposure. Without that baseline, vendor savings claims are hard to verify. Payers already require detailed drug identification and accurate unit reporting on many claims, which shows how precise this work needs to be.
2. The second step is vendor alignment. This is where many implementations begin to fail. The PBM may think it owns the clinical policy, the medical administrator may think prior authorization still sits on the medical side, and providers may not know who is supplying the drug. Those issues need to be resolved before any build work begins. Brokers and benefit directors need clear answers on who handles prior authorization, dispensing, drug billing, administration billing, and exceptions. That matters because medical and pharmacy coverage policies do not always align for the same drug, which can create delays, denials, and provider friction.
3. The third step is to build and test the workflow before go-live. Claims routing, code mapping, prior authorization rules, specialty pharmacy logistics, exception handling, and reporting all need to be built and tested from start to finish. That means validating the full sequence: physician order, prior authorization, dispensing, provider receipt, drug administration, and claim payment. You cannot treat this as a desk exercise because provider acceptance is a real issue. Some providers and health systems will not accept white-bagged product, or they will accept it only under narrow conditions. That is why clinical groups continue to raise concerns about safety, coordination, and disruption when organizations execute these models poorly.
4. The fourth step is to protect the member before the transition goes live. This is one of the most overlooked parts of implementation. Moving a drug from the medical benefit to the pharmacy benefit can change how cost share is applied. A drug once covered under medical coinsurance may now fall under a specialty tier, a different deductible, or a separate accumulator. That means the employer may save money while the member pays more, which is not a fiduciary win. One oncology study found that bagging was linked to lower insurer payments but higher patient out-of-pocket costs. Before launch, employers should model member impact, identify likely points of disruption, and prepare clear communications and escalation paths for delays, denials, or provider refusals.
5. The fifth step is to treat go-live as the start of the proof period, not the finish line. For at least the first 90 days, brokers and benefit directors should monitor denial rates, prior authorization turnaround times, shipment failures, missed administrations, provider complaints, member complaints, and site-of-care shifts. That last point matters because outpatient hospital settings are often materially more expensive than physician offices for comparable services. Savings also need to be measured on a net basis. If spend simply moved from provider markup to PBM markup, the employer did not solve the problem. That is why transparent reporting and tight contract discipline matter just as much after implementation as before it. FTC scrutiny of specialty pharmacy economics is a reminder that more control does not automatically mean better value.

The strategy is set. Now comes the work.

The bottom line is simple. Once the plan sponsor makes the decision, success depends less on the strategy itself and more on how well it manages the transition. Benefit brokers and benefit directors play a central role in keeping the process disciplined, practical, and member-conscious. Employers that approach this move with a clear plan, defined accountability, and strong post-launch oversight are far more likely to achieve the savings they expect without creating unnecessary friction along the way.

How We Can Work Together

Whether you’re a plan sponsor trying to get control of pharmacy spend, or a broker guiding clients through PBM decisions, education is the fastest way to improve outcomes. If you want a focused, high-value session your team can actually use, here are several ways we can work together.

Option 1: Get Certified

American College of Benefit Specialists (ACoBS) equips benefits professionals with practical knowledge across pharmacy, medical, retirement, and voluntary benefits. Organizations working with ACoBS-certified consultants gain better plan oversight, stronger vendor accountability, and more disciplined cost control. The certification signals a clear commitment to fiduciary guidance and protecting plan assets.

Option 2: Book a Webinar

A clean, educational session for employers, brokers, or TPAs. We’ll cover the most common PBM profit tactics, how to spot contract red flags, and what a fiduciary standard of care looks like in pharmacy benefits. Great for client education and thought leadership.

Option 3: Join the Virtual Roundtable

Bring your internal team (HR, Finance, and Benefits) or your broker group. I’ll lead a live discussion focused on PBM oversight, cost drivers, and what to ask your PBM right now. You’ll leave with a short action list you can use immediately.

Option 4: Get a Quote

Pharmacy benefits now rival medical spend for many plans. Yet most are still governed by contracts few have fully read and pricing models few can clearly explain. That is a fiduciary risk, not just a cost issue.

If you want lower spend, tighter oversight, and alignment you can defend in front of a board or audit committee, act with intent. Certify your team. Educate your clients. Pressure test your PBM.

Most employers do not lose sleep over concert ticket fees. They should still pay attention to Ticketmaster. The reason is simple. Ticketmaster is being criticized for operating in a way that many buyers see as unfair, confusing, and self-protective. According to The Guardian, senators accused the company of raising other charges after rules targeted hidden fees, calling it a bait-and-switch approach rather than real reform. At the same time, the Department of Justice alleges that Live Nation-Ticketmaster’s conduct harms fans, artists, smaller promoters, and venues by weakening competition and preserving its control over the market.

Commercial employers should see the parallel immediately.

The traditional PBM model often works the same way. A large intermediary controls key parts of the transaction, tells the buyer it is delivering savings, and then makes it difficult to determine where money is being earned, retained, or shifted. The product is different, but the outcome can look familiar: the buyer pays more than expected, the contract is hard to interpret, and the middleman keeps defending its role as essential.

That is why the Ticketmaster story matters. It is not really about concerts. It is about what happens when opacity becomes part of the business model. The DOJ says Live Nation-Ticketmaster used exclusionary conduct, long-term exclusive arrangements, and other tactics that limited competition and kept venues from using rival providers. That matters because concentrated control often weakens pricing pressure, blunts innovation, and leaves buyers with fewer practical options than they appear to have on paper.

Employers dealing with PBMs should recognize the pattern.

Here are the similarities.

• Who is harmed. In Ticketmaster’s case, the DOJ says the harm falls on fans, artists, smaller promoters, and venue operators. In the PBM market, the comparable groups are employers, plan members, independent pharmacies, and sometimes even consultants or advisers who cannot get complete, reliable claims and pricing data. In both settings, the end buyer and surrounding market participants lose leverage when one intermediary controls too much of the flow.
• How they are harmed. The Guardian reports that after hidden-fee rules took effect, Ticketmaster found other ways to preserve revenue. Employers often face the same kind of economic shell game in pharmacy benefits. A PBM may promote rebate improvements or stronger discounts in one area while recovering margin somewhere else through spread pricing, retained rebates, specialty pharmacy markups, inflated dispensing economics, administrative fees, or favorable steering into affiliated channels. The issue is not just high cost. It is cost that moves around faster than the buyer can track it.
• Why buyers miss it. Most employers do not review PBM economics line by line. They rely on RFPs, consultant scorecards, guarantee sheets, and headline discount terms. That is where the problem starts. A PBM can look competitive on AWP discounts or rebate guarantees while still retaining value through contract definitions, exclusions, data blind spots, specialty carve-in rules, or opaque reconciliation methods. Ticketmaster’s fee criticism is a useful reminder that disclosure alone does not solve much if the structure still lets the intermediary protect margin elsewhere.
• How competition gets weakened. The DOJ alleges that Live Nation-Ticketmaster used its market position and exclusive deals to lock out rivals and reduce real competition. Employers often see a softer but similar version in PBM contracting. Incumbents bundle services, tie data to proprietary systems, make implementation difficult, and use affiliate arrangements to keep clients inside their ecosystem. That does not always violate antitrust law, but it does make the market less open and less accountable.
• Why trust breaks down. Buyers can tolerate complexity for a while. What they do not tolerate is the feeling that complexity was designed to keep them from seeing the truth. Once employers begin to suspect that savings in one bucket are being offset by profit-taking in another, the conversation changes. It stops being about vendor performance and starts being about whether the buyer has been managed or misled. That is where reputational damage begins. This is an inference from the reported Ticketmaster fee response and the DOJ’s broader allegations about market conduct.

Employers should also be clear about the likely PBM equivalents of Ticketmaster’s fee reshuffling.

If one revenue stream gets squeezed, margin often reappears somewhere else. It can show up in spread pricing on generic drugs. It can show up in lower rebate pass-through percentages than the client assumed. It can show up in specialty drug dispensing margins through affiliated pharmacies. It can show up in administrative fees, data access restrictions, formulary management payments, or contract language that makes audits technically possible but practically useless. That is why a single “savings” metric is rarely enough. A PBM that loses easy profit in one place may simply hunt for it in another.

This is where employers need to stop thinking like purchasers of administrative services and start thinking like fiduciaries. A fiduciary standard of care means asking whether the pharmacy benefit is being managed for the exclusive benefit of the plan and its participants, or whether the structure rewards the intermediary first. That is not a philosophical question. It is a financial one. If the PBM’s compensation rises when the plan spends more, uses more expensive channels, or accepts lower transparency, the employer has a governance problem whether it wants to admit it or not.

Here are practical steps employers can take.

• Evaluate total net cost, not isolated discounts. Rebate totals and AWP discounts can be manipulated as standalone talking points. Review ingredient cost, rebates, dispensing fees, administrative fees, specialty pharmacy economics, and every retained revenue stream together.
• Force plain-English contract terms. If your team cannot explain how the PBM makes money in two minutes, the arrangement is too opaque. Definitions around spread pricing, rebate pass-through, specialty pharmacy, audit rights, and manufacturer revenue should be explicit and easy to understand.
• Test whether savings are real or relocated. After any contract change or “enhancement,” ask one question: did total plan cost go down, or did margin simply move to another line item?
• Benchmark specialty separately. This is where many employers lose control. Specialty claims are often the easiest place for a PBM to preserve margin while still reporting attractive overall contract terms.
• Strengthen audit rights and use them. Audit language that cannot produce actionable data is window dressing. Employers should insist on timely access to claims detail, rebate detail, channel economics, and affiliate compensation.
• Reduce dependence on one black-box vendor. The more functions the PBM and its affiliates control, the harder it becomes to challenge pricing and performance. Carve-outs, pass-through arrangements, and direct contracting deserve serious evaluation.
• Hold advisers to the same standard. Employers should expect consultants and brokers to explain not just what a PBM promises, but how the economics work underneath the promises.

Ticketmaster is now dealing with the kind of scrutiny that shows up after buyers decide the system may be working against them. PBMs are on similar ground. Once employers realize that “savings” can be manufactured on paper while money leaks elsewhere, patience runs out. Regulators may act. Litigators may act. Markets may shift. But none of that helps an employer that waited too long to look closely.

The better move is to get ahead of it.

The core lesson is not that PBMs are identical to Ticketmaster. They are not. The lesson is that any middleman that depends on complexity, limited visibility, and shifting revenue streams should expect more skepticism over time. Employers do not need to wait for a subpoena, a lawsuit, or a Senate hearing to respond. They already have enough reason to demand clarity now. That is what a fiduciary buyer does. It does not accept savings claims at face value. It follows the money.

How We Can Work Together

Whether you’re a plan sponsor trying to get control of pharmacy spend, or a broker guiding clients through PBM decisions, education is the fastest way to improve outcomes. If you want a focused, high-value session your team can actually use, here are several ways we can work together.

Option 1: Get Certified

American College of Benefit Specialists (ACoBS) equips benefits professionals with practical knowledge across pharmacy, medical, retirement, and voluntary benefits. Organizations working with ACoBS-certified consultants gain better plan oversight, stronger vendor accountability, and more disciplined cost control. The certification signals a clear commitment to fiduciary guidance and protecting plan assets.

Option 2: Book a Webinar

A clean, educational session for employers, brokers, or TPAs. We’ll cover the most common PBM profit tactics, how to spot contract red flags, and what a fiduciary standard of care looks like in pharmacy benefits. Great for client education and thought leadership.

Option 3: Join the Virtual Roundtable

Bring your internal team (HR, Finance, and Benefits) or your broker group. I’ll lead a live discussion focused on PBM oversight, cost drivers, and what to ask your PBM right now. You’ll leave with a short action list you can use immediately.

Option 4: Get a Quote

Pharmacy benefits now rival medical spend for many plans. Yet most are still governed by contracts few have fully read and pricing models few can clearly explain. That is a fiduciary risk, not just a cost issue.

If you want lower spend, tighter oversight, and alignment you can defend in front of a board or audit committee, act with intent. Certify your team. Educate your clients. Pressure test your PBM.

In the commercial sector, employers are still being told that pharmacy benefits are too complex to fully understand, too specialized to directly manage, and too entrenched to meaningfully change. That story falls apart the moment you look at Caterpillar.

More than 20 years ago, Caterpillar decided the prescription drug supply chain was bloated, conflicted, and wasting money. Instead of accepting the usual PBM talking points, the company did what too few employers have done since. It followed the money, challenged the middlemen, and redesigned the purchasing model around transparency, direct accountability, and measurable value.

That is what makes the Caterpillar story so relevant today. It is not a tale about a clever contract tweak. It is proof that large employers have had a workable blueprint for fixing pharmacy benefits all along. Most just chose not to use it.

According to Todd Bisping’s 2010 account, Caterpillar’s prescription drug spend had been rising about 14% per year from 1996 through 2004. Brand drug prices had doubled since 2004. After the company began actively managing generic utilization, formulary strategy, and the supply chain, it reported that by 2009 total drug costs were 6.8% lower than in 2004 and per-member-per-year costs were 13.8% lower, even while employee and retiree copayment tiers generally remained unchanged from 2002 levels.

Read that again. Lower costs. Stable member cost sharing. No magical innovation. No AI dashboard. No new law required. Just an employer refusing to tolerate waste. Caterpillar’s leadership started with a simple but powerful observation.

Their internal analysis suggested that 10% to 25% of the prescription drug supply chain contained waste, some of it driven by conflicts of interest. They specifically pointed to the fact that some consultants advising plan sponsors on PBM selection were also receiving broker fees from the PBMs being evaluated. That is not alignment. That is a rigged purchasing process dressed up as expert guidance.

So Caterpillar attacked the problem at its root.

The company pushed for transparency standards through the HR Policy Association coalition, then treated transparency not as the goal, but as the starting point. That distinction matters. Transparency by itself does not save a dime. It only gives an employer the ability to see where the waste lives and who is benefiting from it. Caterpillar then used that visibility to do what the market said could not be done: directly negotiate with major pharmacies outside the standard PBM pricing structure.

Its goals were straightforward. Find major pharmacy partners willing to contract directly. Preserve non-exclusive arrangements. Replace average wholesale price with a more rational pricing method. Ensure true price transparency. Caterpillar struck deals with Walmart and Walgreens that were built around those principles.

The most important part of the model was the pricing methodology. Caterpillar rejected AWP and moved to a cost-plus framework based on actual invoice cost, overhead, and margin. In plain English, the company wanted to know what the drug really cost, what it reasonably took to dispense it, and what profit the pharmacy would earn. That is how serious buyers purchase almost everything else. Employers should ask themselves a blunt question: why has pharmacy been allowed to operate under looser rules than office furniture, freight, or industrial supplies?

Caterpillar also insisted on audit rights. That may be the most underappreciated part of the story. Any vendor can promise transparency. A serious buyer builds in the right to verify it. Caterpillar understood that a pricing method without audit rights is just another act of faith.

Then came the network strategy. With two-year contracts effective January 1, 2010, Caterpillar said Walgreens and Walmart provided geographic access to more than 90% of participants. The company built a preferred network around those pharmacies, kept copays unchanged there, and imposed higher cost sharing outside the preferred network. Over the term of those contracts, Caterpillar expected savings “well into 8 figures.”

This is where many employers still get lost. They assume disruption means taking something away from members. Caterpillar showed the opposite. If you remove waste from the supply chain, you can improve the economics without immediately shifting more burden to employees. That is what disciplined purchasing looks like.

So why did Caterpillar solve this problem years ago while so many employers remain stuck in the status quo?

Part of the answer is convenience. The traditional PBM model asks employers to outsource difficult thinking. It packages complexity into glossy reports, benchmark language, rebate guarantees, and contract terms that sound protective but often preserve the same structural conflicts. Employers are told they are buying expertise when in many cases they are buying opacity.

Another part is fear. Many plan sponsors have been conditioned to believe that direct contracting, transparent pricing, or fiduciary oversight is too disruptive, too niche, or only feasible for unusually large employers. Caterpillar disproved that assumption. The company did not eliminate every intermediary. It redefined their role. It kept partners that added value and challenged those that extracted value without earning it.

That distinction matters even more now because the broader market has started catching up to what Caterpillar recognized years ago. The FTC’s July 2024 interim report found that the six largest PBMs managed nearly 95% of prescriptions filled in the United States and said increasing vertical integration and concentration enabled PBMs to profit while inflating drug costs and squeezing independent pharmacies. The FTC’s January 2025 second interim report said the big three PBMs marked up many specialty generic drugs significantly.

In other words, the concerns Caterpillar acted on in 2004 are no longer dismissed as fringe complaints. They are now being validated by federal investigators.

That should be a wake-up call for every employer in the commercial market.

The future of pharmacy benefits will not belong to employers who negotiate the best rebate story. It will belong to employers who build plans around transparent net cost, aligned incentives, and independent oversight. The market is moving, although not fast enough. Employers that wait for perfect regulation or unanimous consultant support will remain trapped in a model designed to reward middlemen more than plan sponsors and members.

Here is what employers should be doing now.

1. They should stop judging PBM performance primarily by discounts, rebates, and guarantees that can be manipulated within an opaque system. Those metrics often distract from the real question: what is the total net cost after all revenue streams, spread, fees, and channel steering are accounted for?
2. They should demand contract language that identifies every source of PBM compensation and every affiliated entity touching the claim. If money changes hands anywhere in the arrangement, the employer should know who received it, why, and whether it reduced plan cost.
3. They should require pass-through economics, independent audit rights, and a pricing model tied to verifiable acquisition cost wherever possible. A vendor that resists transparency is telling you more than enough.
4. They should revisit pharmacy network strategy. The commercial sector has more leverage than it acts like it has. Employers can steer volume, reward efficient channels, and contract with organizations willing to compete on price and service instead of relying on black-box arrangements.
5. They should also rethink advisor alignment. A consultant cannot credibly represent the employer’s interest while receiving compensation tied to the vendor being evaluated. That is not a technical flaw. That is the flaw.
6. Most of all, employers need to adopt a fiduciary mindset. That means treating pharmacy benefits as a managed asset, not a mysterious carveout. It means asking harder questions, accepting less marketing theater, and refusing to tolerate compensation models that depend on concealment.

Caterpillar did not fix every problem in pharmacy benefits. But it proved something that still unsettles the status quo: employers have far more power than they are led to believe. The lesson for the commercial sector is not that Caterpillar was unusually bold. It is that too many others have been unusually passive.

The next era of pharmacy benefits will be defined by inherent transparency, fewer conflicts of interest, and tighter employer oversight. The employers that prepare now will be in position to lower costs without gutting benefits. The ones that do not will keep paying for opacity and calling it strategy.

How We Can Work Together

Whether you’re a plan sponsor trying to get control of pharmacy spend, or a broker guiding clients through PBM decisions, education is the fastest way to improve outcomes. If you want a focused, high-value session your team can actually use, here are several ways we can work together.

Option 1: Get Certified

American College of Benefit Specialists (ACoBS) equips benefits professionals with practical knowledge across pharmacy, medical, retirement, and voluntary benefits. Organizations working with ACoBS-certified consultants gain better plan oversight, stronger vendor accountability, and more disciplined cost control. The certification signals a clear commitment to fiduciary guidance and protecting plan assets.

Option 2: Book a Webinar

A clean, educational session for employers, brokers, or TPAs. We’ll cover the most common PBM profit tactics, how to spot contract red flags, and what a fiduciary standard of care looks like in pharmacy benefits. Great for client education and thought leadership.

Option 3: Join the Virtual Roundtable

Bring your internal team (HR, Finance, and Benefits) or your broker group. I’ll lead a live discussion focused on PBM oversight, cost drivers, and what to ask your PBM right now. You’ll leave with a short action list you can use immediately.

Option 4: Get a Quote

Pharmacy benefits now rival medical spend for many plans. Yet most are still governed by contracts few have fully read and pricing models few can clearly explain. That is a fiduciary risk, not just a cost issue.

If you want lower spend, tighter oversight, and alignment you can defend in front of a board or audit committee, act with intent. Certify your team. Educate your clients. Pressure test your PBM.