Understanding spread pricing, how PBMs influence drug costs

What is price spreading?

Spread pricing is when a PBM charges a health plan more for a medication than it reimburses the pharmacy that dispenses it, retaining the difference as profit. For example, if a PBM reimburses a pharmacy $50 for a drug but bills the health plan $60, the $10 difference is the spread. This practice is often shrouded in opacity, making it difficult for stakeholders to ascertain the true cost.

Spread pricing impacts the healthcare system in several key areas:

• Health plans and employers. Health plans and employers face higher costs due to limited pricing transparency, making it difficult to design cost-effective pharmacy benefit plans.
• Pharmacies. Pharmacies, especially independents, are often reimbursed below their medication acquisition costs, which puts financial strain on their operations.
• Patients. Patients ultimately absorb the burden through higher premiums, increased out-of-pocket expenses and reduced access to pharmacies, particularly in rural or underserved areas.

Alternative pricing models and industry reform

To address the challenges posed by spread pricing, alternative models have emerged to promote transparency and accountability.

• Pass-through pricing. Under this model, PBMs charge health plans the exact amount paid to pharmacies for medications, in addition to a clearly defined administrative fee. This approach eliminates hidden markups, ensuring that payers understand the true cost of prescription drugs.
• Transparent PBM models. Some pharmacy benefit managers have shifted toward full-disclosure pricing, which involves revealing all revenue streams, including rebates from drug manufacturers and fees from pharmacies. This structure aligns PBM incentives with the interests of health plans and consumers while regaining trust in the industry.

Regulatory scrutiny and industry response

As concerns over spread pricing have grown, agencies at the state and federal level have launched efforts to regulate PBM practices.

State-level initiatives

Several states have taken decisive action to address spread pricing through their state's managed care programs. For instance, an Ohio audit revealed that PBMs charged the state's Medicaid program $224.8 million in spread pricing over a single year. Audit findings like these have increased scrutiny, prompting calls for greater transparency in PBM contracts and reforms that limit excessive price markups.

In response, several states, including West Virginia and Ohio, have taken independent action to rein in prescription drug costs by each adopting distinct strategies to increase transparency and reduce spending.

In 2017, West Virginia carved out the prescription drug benefit from Medicaid managed care contracts and began acting as its own PBM. In its first year, the move saved the state $54.4 million and directed $122 million to in-state pharmacies through fixed dispensing fees.

Then, in July 2022, West Virginia implemented a first-in-the-nation "Share the Savings" law, requiring insurers and PBMs to pass manufacturer rebates and discounts directly to patients at the pharmacy counter. The policy, HB2263, was created to lower patient costs and simplify drug pricing while helping patients stick to their medication schedules.

In 2022, Ohio implemented a single PBM model as part of its Next Generation of Ohio Medicaid initiative and now mandates that Medicaid-managed care plans use transparent, pass-through payment structures. As reported by the Ohio Department of Medicaid, this approach saved the state $184.4 million in fiscal year 2023 while also enhancing pharmacy access and promoting long-term sustainability.

Federal investigations and policy considerations

At the federal level, the Federal Trade Commission (FTC) has also intensified its investigation into PBM practices. FTC's January 2025 report highlighted significant markups by major PBMs on specialty generic drugs, revealing that PBMs generated over $7.3 billion in excess revenue between 2017 and 2022. The report emphasized the need for policymakers to introduce reforms that inhibit PBMs from leveraging their market power to increase drug prices unfairly.

Another concern is the role of vertical integration -- the ownership or affiliation among PBMs, insurers and large retail or specialty pharmacies. According to the FTC, the top three PBMs processed nearly 80% of the 6.6 billion prescriptions filled in 2023, and the top six PBMs handled more than 90%. This consolidation incentivizes PBMs to steer patients toward their affiliated pharmacies, often at the expense of local, independent providers. These integrated business models have been criticized for reducing patient choice, disadvantaging independent pharmacies and increasing drug costs.

To combat these business models, two bipartisan bills were reintroduced earlier this year. The Prescription Pricing for the People Act directs the Federal Trade Commission (FTC) to complete its ongoing 6(b) study on PBM consolidation and pricing practices, providing recommendations to improve competition and consumer protections. Meanwhile, the PBM Transparency Act seeks to ban deceptive pricing tactics, prohibit clawbacks to pharmacies and require PBMs to report earnings from spread pricing and related fees

The future of spread pricing

The debate over PBM practices like spread pricing is far from over. For instance, PBM industry representatives argue that spread pricing helps cover administrative services, risk management and other costs associated with managing pharmacy benefits. In fact, they claim that eliminating spread pricing could lead to higher administrative fees or reduced rebate savings.

However, critics, including independent pharmacy groups, healthcare advocates and regulators, contend that spread pricing unnecessarily inflates drug costs and disproportionately harms small pharmacies. Additionally, they argue that increased regulatory oversight and alternative pricing models are necessary to curb abuses in the PBM sector.

As regulatory pressure builds, PBMs could face market-driven changes alongside legislative interventions. The increasing availability of data analytics tools and AI-driven drug pricing models might also contribute to more equitable pricing structures by enabling real-time price comparisons and cost transparency.

Spread pricing remains a contentious issue in pharmacy benefit management, with significant implications for healthcare costs, access and equity. As more states and federal agencies scrutinize PBM practices, the industry may be forced to adopt greater transparency measures or transition to pass-through pricing models that provide clearer cost structures.

For healthcare stakeholders, staying current on PBM regulations and pricing models will be vital in navigating prescription drug pricing and reimbursement.

Alivia Kaylor is a scientist and the senior site editor of Pharma Life Sciences.