The president of a midsize company sat across the table during a finalist presentation. He leaned forward, emphasizing one point again and again: the big PBM’s buying power. Their ability to secure deep manufacturer rebates and drug discounts, he insisted, was the only way to keep costs under control. Walking away from that leverage, he feared, would mean higher prices for his employees and his bottom line.
But when we shared the financial summary, the numbers told a different story. TransparentRx, without the Big Three’s “buying power,” delivered a lower Per Member Per Month (PMPM) and a reduced total cost of pharmacy care. The illusion of savings from big PBMs dissolved once the real math was applied. As the saying goes, “the math ain’t mathing.”
Why Metrics Matter
Traditional PBM evaluations often highlight rebates and discount percentages. While these figures can look impressive, they do not always reflect the true cost of a pharmacy benefit program. A more accurate assessment comes from focusing on three key metrics:
1. PMPM (Per Member Per Month)
Formula: PMPM = Total Cost of Pharmacy Care / Number of Member Months
Ex. $10M / 120,000 = $83 PMPM (based on 10,000 members)
PMPM standardizes pharmacy spend across time, populations, and vendors, making it easier to compare results in a meaningful way.
2. Total Cost of Pharmacy Care (TCoPC)
This includes all plan expenses not only drug ingredient costs, but also:
- Administrative fees
- Manufacturer rebates
- Dispensing fees
- Claim management services
- Specialty carve-outs
- Clinical services
Looking at the full picture helps benefits leaders understand the true cost to the plan.
3. EACD (Earnings After Cash Disbursements)
Formula: Administrative Fees + DIR Fees + Ingredient Cost + Manufacturer Derived Revenue − Cash Disbursements
Ex. The PBM collects $10 million, pays $6 million to third-party pharmacies, and returns $2 million in manufacturer derived revenue (i.e., rebates) to the client. The remaining $2 million represents the PBM’s management fee.
This figure exposes the PBM’s retained revenue, which is their management fee. If a PBM claims to be pass-through, EACD is how you test it. Most employers never run this calculation, but it is the single best way to verify transparency.
Moving Beyond Discounts and Rebates
Research shows that typical PBM RFPs often focus on discounts off inflated list prices, aggregate rebate guarantees, and limited vendor pools. This can unintentionally bias the process toward higher-cost, higher-rebate drugs and make it difficult to measure net costs. By shifting focus to PMPM, total cost of care, and EACD, plan sponsors gain better visibility into the performance of their benefit program.
The Rebound Effect
Even when discounts are fully passed through, overall pharmacy spend often rises. Contributing factors include:
- Growth in chronic condition prevalence
- Manufacturer price increases, even with generics and biosimilars available
- Broader health trends that drive utilization
This underscores why drug discount or rebate guarantees alone cannot control long-term cost growth.
Investing in High-Value Strategies
Employers can strengthen their pharmacy benefit by proactively investing in strategies that yield sustained impact:
- Utilization management to reduce unnecessary prescriptions
- Formulary integrity to prioritize clinically effective, cost-efficient therapies
- Clinical audits to ensure plan rules are followed
- Real-time analytics to identify savings opportunities early
- Specialty carve outs redirecting high-cost specialty drugs
These initiatives may not carry the same immediate visibility as a rebate guarantee, but over time they deliver meaningful financial and clinical returns.
Takeaway: Evaluating PBM performance through PMPM, total cost of pharmacy care, and EACD provides a clearer picture than focusing on PBM buying power, rebate and discount guarantees. By applying this math, benefits leaders can make more informed decisions that align with both fiduciary responsibility and member health outcomes.
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