In pharmacy benefits, PBM “lesser of logic” determines how much the plan pays for a drug. On paper, it’s designed to protect the payer by ensuring the plan always pays the lowest price among a set of benchmark options. But PBMs often game the logic by controlling which benchmarks are included in the first place.

What Is “Lesser of Logic”?

It’s a pricing rule that compares multiple benchmarks for a drug claim and uses the lowest one to calculate plan cost. Typically, these benchmarks include:

The logic should apply to all of these and select the lowest price for the third-party payer. But here’s where the manipulation starts.

Plan pays: $75 (MAC Price)
Rationale: It’s the lowest of all benchmarks.

Same drug, same benchmarks, but the PBM contract excludes U&C pricing from the “lesser of” calculation.

Plan pays: $75 (ingredient cost only)
Plan Should have paid: $50
PBM pockets: $25 spread (assuming no dispensing fee spread 🙄)
Problem: U&C was excluded, despite being the lowest actual price.

Caveat Emptor: Copayments Must Be Part of “Lesser of” Logic

The member’s copayment isn’t just a flat fee. It’s supposed to be the maximum they pay. If the ingredient cost is less than the copay, the member should pay the lesser amount. But PBMs often skip this check, allowing the member to overpay while the plan pays nothing. The technical term for this process is called a clawback.

Example:

• Ingredient Cost: $8
• Member Copay: $10
• Proper Charge to Member: $8
• Charge to Plan: $0
• Total Paid: $8
• Overpayment if Copay Isn’t Adjusted: $2
• Who Keeps the $2? PBM or pharmacy, depending on contract setup

This is a quiet but common form of margin capture. It punishes members and undermines trust in the plan.

Fix: Require in your contract that member cost share be the lesser of:

1. Flat copay
2. Coinsurance amount
3. Total claim cost (ingredient + fee)

That one line can stop millions in overpayments across large populations.

How PBMs Justify the Exclusion

They may say U&C data is unreliable or inconsistent. In other cases, they quietly stop collecting or enforcing U&C pricing, allowing it to fade out of relevance.

Why This Matters

Over thousands of claims, this tactic inflates your drug spend without raising red flags. You’re led to believe you’re paying the lowest price, but you’re often not.

What You Can Do About It

• Review your PBM contract. All four benchmarks, AWP – %, MAC, U&C, and copayment must be included in the lesser of logic.
• Request sample claims data. Spot-check random NDCs across pharmacies. Look for cases where U&C is lower than what was paid.
• Demand transparency. Know how often MAC lists are updated and whether U&C is captured and audited.
• Work with a fiduciary PBM. One that passes through all discounts and aligns its compensation with your best interest.

Final Thought

Lesser of logic only works if it includes every relevant benchmark. If your PBM gets to pick and choose, they’re not protecting you, they’re protecting their margin. Learn about lesser of logic and more at the Pharmacy Benefit Institute of America (PBIA) Summit.

Five ways to improve PBM procurement for clients and other notes from around the interweb:

• Five ways to improve PBM procurement for clients. Nearly a decade ago, plan sponsors’ pharmacy benefit conversations focused mostly on member satisfaction and plan compliance. Today, fiduciary duty comes first, then member satisfaction, compliance and, of course, GLP-1s, which is why employers are counting on their benefit advisers more than ever to guide them through Rx matters. Times have changed, which begs the question, “What does it take to ensure plan sponsors meet their fiduciary duty?” Putting the pharmacy benefits manager (PBM) business “out to bid” every few years isn’t enough. Given heightened scrutiny of traditional PBMs and rising Employee Retirement Income Security Act (ERISA) liability risk, plan sponsors should regularly evaluate their PBM options, prioritizing strategies that lower total costs, improve member outcomes and safeguard long-term plan sustainability. However, issuing, evaluating, and managing requests for proposals (RFPs) from PBMs can be challenging.

• Pharmacy in Focus Report: Navigating the GLP-1 conundrum. The pharmacy industry is at the epicenter of a worldwide transformative shift in health care. In the U.S., prescription drug spending has grown steadily to $723 billion in 2023.1 For commercial plans, Evernorth Research Institute found that prescription drug spend has seen increases ranging from 2.3% in 2019 to 8.9% in 2024. Key drivers of this trend include rising rates of chronic conditions, persistent drug price inflation and the rapid pace of pharmaceutical innovation, including expanding drug indications. In 2025 and beyond, while we anticipate a gradual tapering of the rate of spending increases, spending levels will remain high, increasing above projected inflation rates and creating a volatile environment that will continue to impact individuals, providers, plan sponsors and communities.

• The Future of PBMs in 2025: AI, Regulations, and Transparency Initiatives. Pharmacy benefit managers (PBMs) play a critical role in the US health care system by managing prescription drug benefits for insurers, government programs, and employers. However, the industry faces growing scrutiny over pricing transparency, rebate structures, and patient access to medications. As we move into 2025, the PBM landscape is undergoing significant transformation driven by regulatory changes, artificial intelligence (AI) integration, and transparency initiatives. In 2024, the Biden administration and Congress introduced several measures to increase PBM transparency and reduce prescription drug costs. Regulatory bodies such as the Federal Trade Commission (FTC) and Centers for Medicare & Medicaid Services (CMS) have intensified investigations into PBM pricing practices, particularly spread pricing, and rebate structures.

• The Endless Opportunities ChatGPT Creates for Pharmacists. With the recent rise of artificial intelligence (AI), not only in the pharmacy but across society, major players within the AI space have designed technology possible for any human being to adapt. One of the most notable examples is ChatGPT, an AI language model capable of answering straightforward questions with detailed answers. “ChatGPT is an AI language model capable of responding in straightforward language to medication-related questions,” wrote authors of a study published in the Journal of the American Pharmacists Association (JAPhA). “ChatGPT may assist clinicians in analyzing clinical cases and become a potential tool for supporting pharmacists in providing medication therapy management (MTM) and other health services.”

Why TransparentRx Is Your Trusted Partner for Smarter Pharmacy Benefits

At TransparentRx, we specialize in delivering fiduciary pharmacy benefit management services that prioritize transparency, cost containment, and optimal patient outcomes. Our unique approach helps self-funded employers, benefits consultants, and health plan sponsors navigate the complexities of pharmacy benefits while reducing costs and enhancing care.

If you’re ready to take control of your pharmacy benefit strategy and eliminate hidden fees, contact TransparentRx today for a consultation. Let us help you achieve smarter, more effective benefits management.

Medical specialty drugs are among the fastest-growing cost drivers in healthcare, demanding a more strategic approach to reimbursement. Without proper oversight, self-funded employers and plan sponsors can overpay for these high-cost therapies, leading to unnecessary financial strain. Optimizing medical specialty reimbursement presents significant opportunities for plan sponsors to reduce medical benefit drug costs while maintaining clinical effectiveness.

Clinical Effectiveness

Ensuring clinical effectiveness means aligning medical specialty drug reimbursement with evidence-based protocols. This requires a framework that prioritizes therapies with proven outcomes and avoids unnecessary utilization. Establishing clinical guidelines and enforcing prior authorization policies can help curb waste while ensuring patients receive the right medication at the right time.

Pricing Validation: Paid vs. Billed

A frequent source of waste in specialty drug reimbursement is the gap between what is billed and what is ultimately paid. Providers may bill significantly higher amounts than negotiated contract rates, leaving employers at risk of overpayment. Rigorous auditing of claims and automated pricing validation tools can help identify discrepancies and ensure plan sponsors pay only what is contractually obligated.

Pricing Validation: Paid vs. Contract

Beyond billed versus paid amounts, discrepancies also exist between what is paid and the contracted rate with manufacturers, PBMs, or other intermediaries. Implementing real-time pricing validation tools ensures that payments adhere to contract terms, reducing financial leakage and preventing unnecessary markups. Employers should demand transparency from their vendors and hold them accountable for contract compliance.

Dose Optimization

One of the most overlooked opportunities in medical specialty reimbursement is dose optimization. Many specialty drugs have flexible dosing options, yet providers often prescribe in a manner that maximizes revenue rather than efficiency. For example, if a drug is available in multiple vial sizes, using the optimal combination can reduce waste and lower costs. By requiring dose rounding policies and leveraging clinical pharmacist oversight, employers can avoid overuse and ensure cost-effective dosing strategies.

Quantity Limits

Implementing quantity limits on specialty medications prevents excess dispensing and waste. Specialty drugs are often high-cost, and without proper safeguards, patients may receive more medication than clinically necessary. By setting quantity limits based on FDA-approved indications and real-world utilization data, plan sponsors can minimize waste and prevent unnecessary costs.

Medical Drug Rebates

Rebates are a critical component of specialty drug reimbursement, yet they often remain opaque. Employers should demand full visibility into rebate agreements and ensure that all negotiated discounts are passed through. Fiduciary PBMs play a crucial role in securing transparent rebate structures that lower medical benefit drug costs while maintaining patient access to essential therapies.

Medical Formulary Management

A well-structured medical formulary helps steer utilization toward the most cost-effective therapies. By excluding high-cost drugs with limited clinical value and promoting biosimilars or lower-cost alternatives, formulary management can significantly reduce specialty drug spending. Employers should work with PBMs that take a fiduciary approach to formulary design, ensuring that decisions are based on clinical and financial value rather than hidden incentives.

Site of Care Management

Where a specialty drug is administered can dramatically impact cost. Hospital outpatient settings often charge significantly more for the same infusion therapy compared to in-home or alternate site infusion centers. Implementing a site-of-care program that redirects patients to lower-cost, clinically appropriate settings can yield substantial savings. Employers should leverage data analytics to identify opportunities for site-of-care shifts and implement incentives for members to choose lower-cost locations.

Conclusion

Medical benefit drug costs will continue to rise, but self-funded employers and plan sponsors have significant opportunities to manage these expenses more effectively. By focusing on clinical effectiveness, pricing validation, dose optimization, quantity limits, rebates, formulary management, and site-of-care strategies, organizations can take control of specialty drug spending without sacrificing patient outcomes. Those who fail to adopt a proactive reimbursement strategy risk excessive costs and financial inefficiencies. Employers must demand transparency, accountability, and a fiduciary approach from their PBM partners to drive sustainable savings in medical specialty reimbursement.

Merck Lowered the Price of Januvia—Insurers Dropped It from Formularies and other notes from around the interweb:

• Merck Lowered the Price of Januvia—Insurers Dropped It from Formularies. In a move that should have been great news for patients, Merck significantly reduced the price of its blockbuster diabetes drug, Januvia (sitagliptin). However, instead of benefiting from the savings, many insured patients are discovering that their insurance plans no longer cover it. The culprit? Pharmacy Benefit Managers (PBMs)—powerful intermediaries that negotiate drug prices on behalf of insurance companies—have removed Januvia from their formularies. Those same powerful intermediaries are the latest in the hot seat for their predatory behavior in the United States health system. PBMs have been found to make coverage decisions based on their financial incentives rather than patient access to affordable medication.

• Walgreens Goes From $100 Billion Health Giant to Private-Equity Salvage Project. Customers bought more household items online at sites such as Amazon.com, instead of Walgreens’s more than 8,000 stores across the U.S. The pharmacy chain inked deals with other drug suppliers and doctors’ offices, but stood pat while rivals, including CVS and Express Scripts, merged with big health insurers, gaining control of the medical-reimbursement purse strings that were squeezing pharmacies. Walgreens cash flow sagged, its debt piled up and shares sank. And on Thursday, Walgreens was sold to private-equity firm Sycamore for $10 billion, down a staggering 91% from its $106 billion peak in 2015. The storied pharmacy chain—which became a ubiquitous seller of everything from diabetes injections to nail files as retailers consolidated across the U.S.—fell after it neglected to keep up with customer preference to buy online and failed to navigate the fierce competition and intense cost pressures of healthcare.

• The Endless Opportunities ChatGPT Creates for Pharmacists. With the recent rise of artificial intelligence (AI), not only in the pharmacy but across society, major players within the AI space have designed technology possible for any human being to adapt. One of the most notable examples is ChatGPT, an AI language model capable of answering straightforward questions with detailed answers. “ChatGPT is an AI language model capable of responding in straightforward language to medication-related questions,” wrote authors of a study published in the Journal of the American Pharmacists Association (JAPhA). “ChatGPT may assist clinicians in analyzing clinical cases and become a potential tool for supporting pharmacists in providing medication therapy management (MTM) and other health services.”

• PBM Reform: Tackling Transparency, Pricing, and Patient Access. Pharmacy benefit manager (PBM) reform has become a substantial topic of debate for the past decades as patients and health care providers advocate for improved transparency, fair pricing, and better access to critical therapies. PBMs occupy a central role in the drug price supply chain, acting as intermediaries between drug companies, insurers, and pharmacies to determine which drugs will be most available and what they will cost. The top 3 PBMs control 80% of the national market, giving them significant power to negotiate drug prices and rebates, create formularies, determine which pharmacies patients can use, process prescription drug claims, and set reimbursement rates for pharmacies. However, there is a significant lack of transparency around how these costs are negotiated between health plans and pharmaceutical manufacturers, leading to calls for policy reform.

Why TransparentRx Is Your Trusted Partner for Smarter Pharmacy Benefits

At TransparentRx, we specialize in delivering fiduciary pharmacy benefit management services that prioritize transparency, cost containment, and optimal patient outcomes. Our unique approach helps self-funded employers, benefits consultants, and health plan sponsors navigate the complexities of pharmacy benefits while reducing costs and enhancing care.

If you’re ready to take control of your pharmacy benefit strategy and eliminate hidden fees, contact TransparentRx today for a consultation. Let us help you achieve smarter, more effective benefits management.

Pharmacy benefit managers (PBMs) play a critical role in managing prescription drug costs for employers, yet many benefit decision-makers struggle with how to compare PBM proposals. The lack of clarity often results in higher costs, misaligned incentives, and poor contract terms. If you’re a PBM consultant, director of benefits, or benefit broker, understanding the differences between traditional, pass-through, transparent, and fiduciary PBMs is essential to making informed recommendations. Here’s how each model operates and why the distinctions matter.

Traditional PBMs: Profits Over Transparency

Traditional PBMs operate under a spread pricing model, where they charge plan sponsors more for drugs than they reimburse pharmacies. They also retain a portion of manufacturer rebates instead of passing the full amount back to the employer. While they claim to reduce pharmacy costs, the reality is that their financial incentives are misaligned with the employer’s goal of cost containment. The lack of visibility into contract terms allows traditional PBMs to generate excessive margins at the expense of plan sponsors.

Pass-Through PBMs: A Step Forward, But Not Enough

Pass-through PBMs promote transparency by committing to pass all rebates, discounts, and pharmacy reimbursements directly to the employer. However, this model does not necessarily eliminate hidden fees. Some pass-through PBMs still engage in practices such as administrative fees or spread pricing under different labels, making it crucial to scrutinize contract language carefully.

Transparent PBMs: More Clarity, But Still Not Fully Aligned

Transparent PBMs provide greater visibility into pricing and contractual terms, offering more straightforward fee structures. However, transparency alone does not guarantee fiduciary alignment. Some transparent PBMs still derive profits from administrative fees or other undisclosed revenue streams. While they disclose costs more openly than traditional or pass-through models, employers must still verify that the PBM’s financial incentives align with their best interests.

Fiduciary PBMs: The Gold Standard

A fiduciary PBM is contractually obligated to act in the best interests of the plan sponsor and its members. Unlike traditional, pass-through, or transparent PBMs, fiduciary PBMs fully disclose all revenue sources, eliminate spread pricing, and pass 100% of rebates back to the employer. They charge a flat administrative fee for their services, ensuring their profit does not depend on inflated drug costs or hidden fees. This model creates true alignment between the PBM and the employer, leading to lower overall costs and better outcomes.

Why Employers Struggle to Differentiate PBM Proposals

1. Misleading Terminology: PBMs often use terms like “pass-through” and “transparent” to appear cost-effective, but their contracts may still include hidden fees.
2. Complex Contracts: PBM agreements are notoriously difficult to decipher, filled with clauses that allow for profit retention through indirect means.
3. Focus on Rebates Instead of Net Costs: Many decision-makers fixate on rebate amounts rather than overall drug spending, failing to see how lower ingredient costs can save more money than high rebates.
4. Inconsistent Pricing Structures: Without standard pricing models, comparing PBM proposals side-by-side is challenging.

How to Cut Through the Confusion

• Demand a Fiduciary Standard: If a PBM refuses to sign a fiduciary contract, it’s a red flag.
• Focus on Net Cost, Not Rebates: A high rebate percentage or dollar amount does not mean lower drug costs.
• Request Full Revenue Disclosure: Ask the PBM to disclose all sources of income and ensure there are no hidden fees.
• Continuous Monitoring: Provides real-time oversight, allowing plan sponsors to detect and address pricing discrepancies, contract non-compliance, and waste before they escalate into major financial losses.

Final Thoughts

The contract is the foundation of any PBM relationship, dictating pricing, transparency, and accountability. Without a carefully negotiated agreement, employers may unknowingly agree to terms that allow hidden fees and misaligned incentives to persist. To achieve radical transparency and cost control, every PBM contract should be reviewed by an expert who understands the complexities of pricing structures, revenue streams, and contract loopholes. A thorough review ensures that the PBM is fully aligned with the employer’s best interests, eliminating hidden costs, and creating a pathway for sustainable savings. Investing in expert oversight of PBM contracts is not just a best practice—it’s a necessity for securing the financial health of your pharmacy benefits plan.

The Benefits and Challenges of Subcutaneous Infusion in Cancer Care and other notes from around the interweb:

• The Benefits and Challenges of Subcutaneous Infusion in Cancer Care. Subcutaneous (SC) injection in cancer treatment is an emerging administration method, carrying with it both benefits and challenges for patients and health care providers. The evolution of intravenous (IV) to subcutaneous (SC) chemotherapy has resulted in significant cost savings for patients and reduced administration times, easing hospital burden and helping improve resource allocation. Despite these benefits, regulatory and payer challenges remain. In a presentation at the ACCC 51st Annual Meeting & Cancer Center Business Summit in Washington, DC, Raghava Induru, MD, thoracic oncologist and director of operations at Atrium Health Advocate Aurora, Levine Cancer Institute, emphasized the need for better drug development, clinical trials, and payer acceptance, as well as a multi-faceted approach to optimize SC administration and improve patient experience.

• Walgreens Goes From $100 Billion Health Giant to Private-Equity Salvage Project. Customers bought more household items online at sites such as Amazon.com, instead of Walgreens’s more than 8,000 stores across the U.S. The pharmacy chain inked deals with other drug suppliers and doctors’ offices, but stood pat while rivals, including CVS and Express Scripts, merged with big health insurers, gaining control of the medical-reimbursement purse strings that were squeezing pharmacies. Walgreens cash flow sagged, its debt piled up and shares sank. And on Thursday, Walgreens was sold to private-equity firm Sycamore for $10 billion, down a staggering 91% from its $106 billion peak in 2015. The storied pharmacy chain—which became a ubiquitous seller of everything from diabetes injections to nail files as retailers consolidated across the U.S.—fell after it neglected to keep up with customer preference to buy online and failed to navigate the fierce competition and intense cost pressures of healthcare.

• The Endless Opportunities ChatGPT Creates for Pharmacists. With the recent rise of artificial intelligence (AI), not only in the pharmacy but across society, major players within the AI space have designed technology possible for any human being to adapt. One of the most notable examples is ChatGPT, an AI language model capable of answering straightforward questions with detailed answers. “ChatGPT is an AI language model capable of responding in straightforward language to medication-related questions,” wrote authors of a study published in the Journal of the American Pharmacists Association (JAPhA). “ChatGPT may assist clinicians in analyzing clinical cases and become a potential tool for supporting pharmacists in providing medication therapy management (MTM) and other health services.”

• PBM Reform: Tackling Transparency, Pricing, and Patient Access. Pharmacy benefit manager (PBM) reform has become a substantial topic of debate for the past decades as patients and health care providers advocate for improved transparency, fair pricing, and better access to critical therapies. PBMs occupy a central role in the drug price supply chain, acting as intermediaries between drug companies, insurers, and pharmacies to determine which drugs will be most available and what they will cost. The top 3 PBMs control 80% of the national market, giving them significant power to negotiate drug prices and rebates, create formularies, determine which pharmacies patients can use, process prescription drug claims, and set reimbursement rates for pharmacies. However, there is a significant lack of transparency around how these costs are negotiated between health plans and pharmaceutical manufacturers, leading to calls for policy reform.

Why TransparentRx Is Your Trusted Partner for Smarter Pharmacy Benefits

At TransparentRx, we specialize in delivering fiduciary pharmacy benefit management services that prioritize transparency, cost containment, and optimal patient outcomes. Our unique approach helps self-funded employers, benefits consultants, and health plan sponsors navigate the complexities of pharmacy benefits while reducing costs and enhancing care.

If you’re ready to take control of your pharmacy benefit strategy and eliminate hidden fees, contact TransparentRx today for a consultation. Let us help you achieve smarter, more effective benefits management.

Many directors of benefits review their PBM’s reports and assume the numbers tell the full story. But without understanding the fundamental calculations behind key performance metrics, it’s easy to miss hidden costs and misleading figures. PBMs often present data in ways that obscure true performance, making it difficult to assess whether you’re getting the best value. To take control of your pharmacy spend, you need to know not just what to measure, but how those numbers are calculated. Here are six PBM performance metrics every director of benefits must understand.

1. Specialty Dispensing Rate (SDR) is defined as the percentage of all dispensed prescriptions that are specialty drugs. Specialty drugs are high-cost medications used to treat complex, chronic conditions such as cancer, rheumatoid arthritis, and multiple sclerosis. These drugs often require special handling, administration, or monitoring. Figure 1 assumes an average cost of $8500 per 28-day supply for a specialty drug claim and $100 for a non-specialty prescription drug claim. Goal < 2.5%.
2. Generic Effective Rate (GER) is the average percent discount off the AWP for all generic drugs whether reimbursed at MAC, usual and customary pricing, or AWP discount. Because nine out of ten dispensed drugs are generic, the GDR performance metric is especially important. It can be difficult to catch where you are losing money until it is too late. You want to catch overpayments early enough to make the proper adjustment(s). Continuously monitor your GER so any overpayments to PBMs don’t pile up. Analyze performance by channel i.e. retail 30, retail 90 etc. If your pricing benchmark is NADAC, back in the ingredient cost + professional dispensing fee to calculate the NADAC effective rate (NER). Goal > 88%.
3. Generic Dispense Rate (GDR) or generic dispensing ratio is the number of generic fills divided by the total number of prescriptions. GDR is a standard performance metric on which our formulary manager is regularly evaluated. For every 1% increase in GDR a plan can expect to realize a 5% reduction in gross drug spend! Both GDR and GSR are indicators of how well clinical programs are performing. For example, loose utilization management will produce a poor (i.e. 84%) GDR. Goal > 90%.
4. Proportion Days Covered (PDC) is a commonly used metric in pharmacy benefits management to measure medication adherence. It represents the percentage of days within a specified period (usually 6 or 12 months) during which a patient has access to their prescribed medication. Unlike the Medication Possession Ratio (MPR), PDC accounts for overlapping prescriptions and is capped at 100%, making it a more reliable indicator of adherence. Goal > 80%.
5. Total Cost of Care (TCOC) in pharmacy benefits is the overall financial impact of prescription drug spending on a health plan, factoring in both direct and indirect costs. It goes beyond just drug prices and rebates to include medical cost offsets, patient adherence, PBM cost-shifting tactics, utilization management effectiveness, and member cost-sharing. A low pharmacy spend doesn’t always mean lower healthcare costs—if restrictive formularies or high patient out-of-pocket costs lead to increased hospitalizations or complications, the total cost of care rises. Evaluating pharmacy benefits through this lens ensures cost containment efforts don’t create bigger financial burdens elsewhere. Goal = $960 PMPY x number of members.
6. Per Member Per Month (PMPM) is the most fundamental cost indicator for financial benchmarking in pharmacy benefits. As such, every proposal should include a projected PMPM. Additionally, incumbent PBM cost performance should be measured by change in PMPM YOY for both whole dollars and percentage. It is calculated by dividing the total annual cost or revenue by the number of member months. Goal < $80 PMPM.

Every metric outlined above assumes clean claims—no reclassifications, exclusions, or manipulated data. When analyzing PBM performance, it’s critical to compare apples to apples, as PBMs are notorious for reclassifying drugs, reducing claim counts, and using other tactics to make their numbers look better than reality. If you don’t fully understand how these metrics are calculated, a non-fiduciary PBM will exploit your knowledge gap.

Conclusion – PBM performance metrics

Reviewing reports isn’t enough—you need to dig into the math behind the numbers to hold them accountable. A Playbook for Employers Addressing Pharmacy Benefit Management Misalignment could be your best resource for navigating these challenges, especially page seven. If you’re serious about cutting through the smoke and mirrors, let’s talk.

In every Certified Pharmacy Benefits Specialist (CPBS) course I teach, there’s one topic that never fails to ignite strong reactions from retail pharmacists: DAW (Dispense as Written) codes. When we get to DAW 9, emotions run high. Pharmacists often take the floor for 10 minutes, venting about how others manipulate this code—and they have every right to be frustrated.

DAW codes play a crucial role in billing claims correctly to a patient’s insurance plan. These codes help insurance companies and PBMs determine how much to reimburse a pharmacy and whether a medication qualifies for full or partial coverage. If the pharmacy doesn’t bill a claim correctly, patients may not receive the right drug at the right price. While DAW 0 serves as the default and DAW 1 appears rarely, PBMs commonly drive DAW 9.

For plan sponsors, brokers, and consultants, DAW 9 often flies under the radar, even though it directly increases costs and wasteful spending. Normally, when a prescriber allows substitution, the pharmacy dispenses the generic because it’s the lower-cost alternative. But when DAW 9 is applied, the pharmacist is forced to dispense the brand-name drug for it to be covered. This happens simply by switching the DAW code in the system from 0 to 9.

In a retail pharmacy, the pharmacy technician—not the pharmacist—often ensures the claim gets paid. When the system rejects a claim with DAW 0, the technician cycles through different DAW codes until the system accepts one. You might wonder, why would a PBM push this practice? One word: rebates.

If you’ve signed on with a non-fiduciary PBM that touts “$0 admin fees” on the pharmacy benefit or swaps rebates for medical benefit admin fee credits, how do you think they’re making money?

By keeping admin fees artificially low or diverting rebates, PBMs create hidden cash flow streams—DAW 9 being one of them. It allows them to increase their share of manufacturer revenue (rebates), directly inflating costs for plan sponsors and patients.

In 2025, working with a PBM that doesn’t provide radical transparency is fiscally reckless. Yet, most plan sponsors don’t even realize what’s happening. What they don’t know is costing them—big time.

Next Steps to Remedy DAW 9 Abuse:

1. Audit PBM Contracts: Ensure your PBM agreement explicitly prohibits the use of DAW 9 to manipulate rebates and increase brand drug utilization. Look for language that guarantees full transparency in formulary decision-making.
2. Demand Fiduciary Accountability: Work with a fiduciary PBM that is legally obligated to act in your best interest, ensuring cost-effective prescribing and rebate pass-through.
3. Monitor Prescription Claims Data: Analyze claim-level data to identify DAW 9 usage trends and flag unusual brand drug dispensing patterns. This will help pinpoint where excess costs are coming from.
4. Educate Pharmacy Teams and Providers: Ensure prescribers, pharmacists, and pharmacy technicians understand the financial impact of DAW 9 and encourage them to resist PBM-driven brand dispensing.
5. Implement Stronger Plan Controls: Work with your PBM to set up formulary and prior authorization rules that prevent unnecessary brand drug dispensing through DAW 9.

By taking these steps, plan sponsors can protect their pharmacy spend, ensure patients receive the most cost-effective medications, and shut down hidden PBM revenue schemes.

Elevate your expertise in pharmacy benefits management with the Certified Pharmacy Benefits Specialist® (CPBS) program, sponsored by the UNC-Chapel Hill Eshelman School of Pharmacy. Whether you’re an HR leader, finance executive, consultant, or pharmacist, this certification provides the in-depth knowledge and strategic insight needed to manage pharmacy benefits with confidence and cost efficiency. Gain up to twenty continuing education credits, enhance your career prospects, and help your organization take control of pharmacy spending. Register today to join a growing network of professionals shaping the future of pharmacy benefits management. Learn more at https://pharmacybenefitinstitute.com.

Fiduciary duty claims in prescription drug case dismissed and other notes from around the interweb:

• Fiduciary duty claims in prescription drug case dismissed. The U.S. District Court for the District of New Jersey recently dismissed two of three claims in a lawsuit against Johnson & Johnson (J&J) that alleged the company’s self-insured group health plan fiduciaries violated their duties under ERISA regarding the plan’s prescription drug benefit. The case, Lewandowski v. Johnson & Johnson, originally filed in early 2024, specifically claimed that J&J, as plan sponsor, breached its fiduciary duty of prudence under ERISA by failing to use good judgment when selecting a pharmacy benefit manager (PBM) and failing to negotiate better pricing terms for the plan and participants in its PBM services agreement. The lawsuit claimed these failures resulted in increased costs (e.g., higher plan premiums, deductibles, copayments, and cost sharing), lower wages and limited wage growth, thus harming participants and beneficiaries.

• Aetna sues drugmakers for widespread price-fixing and collusion. Aetna is taking legal action against Pfizer, Novartis, Teva Pharmaceuticals, and others, saying the list of drugmakers conspired to overcharge the insurer, consumers, and the federal government for generic drugs. The complaint (PDF), filed Dec. 31, claims the drugmakers communicated secretly at trade conferences or through phone calls, beginning in 2012, to determine the market share, prices, and bids of certain drugs. If communication was in writing, they destroyed the evidence, Aetna claimed. “They effectuated their market allocation by either refusing to bid for particular customers or providing outrageously high cover bids,” the complaint said. “This created an artificial equilibrium that enabled the conspirators to then collectively raise and/or maintain prices for a particular generic drug.”

• Pharmacy benefit managers raised prices by over 1,000% on specialty drugs. In the latest report, Specialty Generic Drugs: A Growing Profit Center for Vertically Integrated Pharmacy Benefit Managers, the FTC staff reported that the three largest PBMs drove up the price of specialty generic drugs for patients with cancer, multiple sclerosis, HIV, and pulmonary hypertension by more than 1,000% in some cases and by hundreds of percent in other cases. Together, the nation’s three largest PBMs manage 79% of all prescription drug claims for some 270 million Americans, the FTC staff noted in the July report, Pharmacy Benefit Managers: The Powerful Middlemen Inflating Drug Costs and Squeezing Main Street Pharmacies.

• How a Duty To Spend Wisely on Worker Benefits Could Loosen PBMs’ Grip on Drug Prices. Ann Lewandowski knows all about pharmacy benefit managers, or PBMs, the companies that shape the U.S. drug market. Her job, as a policy advocate at drugmaker Johnson & Johnson, was to tell patient and physician groups about the PBMs’ role in high drug prices. Armed with that knowledge, Lewandowski filed a potentially groundbreaking lawsuit in February. Rather than targeting the PBMs, however, she went after a big company that uses one — her own employer, Johnson & Johnson. Lewandowski charges in her lawsuit that by contracting with the PBM Express Scripts, which is part of the insurance giant Cigna, Johnson & Johnson — which fired her in April — failed in its duty to ensure reasonable drug prices for its more than 50,000 U.S. employees.

Why TransparentRx Is Your Trusted Partner for Smarter Pharmacy Benefits

At TransparentRx, we specialize in delivering fiduciary pharmacy benefit management services that prioritize transparency, cost containment, and optimal patient outcomes. Our unique approach helps self-funded employers, benefits consultants, and health plan sponsors navigate the complexities of pharmacy benefits while reducing costs and enhancing care.

If you’re ready to take control of your pharmacy benefit strategy and eliminate hidden fees, contact TransparentRx today for a consultation. Let us help you achieve smarter, more effective benefits management.