Opaque PBM definitions leave room for excess fees, consultant warns

Link warned the employee benefits managers watching the webinar that policing PBM contract language is critical.

"Be very clear about what definitions are in your contract," Link said.

To a layperson, a brand-name drug may be a drug made by the company that originally got it approved for sale in the United States.

A generic drug may be a medication created by the brand-name drug manufacturer's competitor once the drug has lost U.S. patent protection.

A specialty drug is a very expensive drug that may be difficult to make and may require special handling.

But, to a PBM, Link said, the terms may refer to classes of drugs subject to different PBM contract pricing and compensation rules.

"PBMs get to decide what is a 'specialty drug,' what is a 'generic drug,' what is a 'generic specialty drug'," Link said.

The idea that a "generic specialty drug" exists is absurd, he said.

"And yet," he said, "PBMs get to decide those things, and they often move those things to their own advantage."

What it means: Link said employers need to do what they can both to lock in clear, precise, fair contract language into their PBM contracts and to support policymaking efforts to put clear, precise, fair standard definitions in all PBM contracts.

Ben Link: Link is the president of 46brooklyn, a drug pricing research transparency organization.

He is also vice president, pharmacy, at 3 Axis Advisors, a consulting firm that helps health plan sponsors understand their pharmacy benefits.

The National Alliance has just published a new PBM contracting guide, and Link was part of the team that helped write the guide.

Link and the National Alliance have been part of recent efforts to shape the new PBM reporting mandates included in the new Consolidated Appropriations Act of 2026 package and in new U.S. Labor Department draft regulations.

Related: Will DOL create a new pharmacy benefit manager language?

The backdrop: Drug manufacturers point out that they spend enormous sums and assume enormous risk to develop new prescription drugs and get the drugs approved for sale in the United States.

The PBMs argue that they have clearly succeeded at holding down prices for generic drugs and slowed increases in prices for brand-name drugs.

Much of the fury aimed at the PBMs comes from manufacturers, pharmacies and other drug supply chain players that are angry at PBMs for squeezing excess profits out of the supply chain, the PBMs say.

But the National Alliance contends that some PBMs use unfair, opaque methods to keep too big a slice of the savings they squeeze out of the drug supply chain.

Link's advice: Link said PBMs' ability to set PBM language definitions and other parameters gives PBMs too much ability to shape how an employer drug plan's finances will work long after the patients have filled their prescriptions and taken their pills.

Another practice that gives PBMs too much "retrospective pricing" ability is use of "rebate" definitions and mechanisms that make the rebate that a manufacturer pays for the benefit of an employer's plan much different from what the employer receives, Link said.

One step employers may be able to take is to shorten any time periods PBMs can use in rebate calculations or other adjustment calculations as much as possible, he said.

If the manufacturer's rebate applies when a patient fills a prescription, at the point of sale, that reduces the odds that much of the rebate will end up in the PBM's or a PBM affiliate's own fee revenue total, he said.

Employers can also defend themselves by getting the strongest possible PBM arrangement audit rights and working hard to focus on their net prescription plan costs, rather than letting PBMs dazzle them with talk about big rebate checks, Link said.