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Your contract is written to be hard to read. Here is what the terms that drive your cost actually mean, in plain English, and what to watch for in each.
The PBM bills the plan more than it pays the pharmacy and keeps the difference.
Your plan is charged one price; the pharmacy is paid a lower one. The gap is the PBM’s margin, and it is not always disclosed.
What to watch: Ask whether your contract is spread or pass-through, in writing.
The plan pays exactly what the pharmacy is paid, plus a disclosed fee.
A transparent model where the PBM’s revenue is a stated administrative fee rather than a hidden margin on each claim.
What to watch: Confirm “100% pass-through” covers rebates and fees, not just ingredient cost.
A list price, not what anyone actually pays.
A benchmark sticker price most contracts discount from. Because it is a list number, “a deeper AWP discount” can still cost more than a competing structure.
What to watch: Discounts off AWP mean little without the underlying definitions.
The manufacturer’s list price to wholesalers.
Another list-based benchmark, closer to acquisition than AWP but still not the net price your plan should pay.
What to watch: Watch which benchmark each drug class is priced against.
A public survey of what pharmacies actually pay.
The National Average Drug Acquisition Cost, published by CMS. One of the few public, acquisition-based benchmarks you can check your claims against.
What to watch: Reconciling claims against NADAC reveals markup the contract may hide.
A PBM-controlled price ceiling for generics.
The PBM’s own list of the most it will reimburse for many generics. The list is often proprietary and can change without notice.
What to watch: Ask for MAC list transparency and update rights.
Manufacturer payments tied to a drug’s placement.
Money manufacturers pay based on formulary position and volume. Whether it reaches your plan depends entirely on contract language.
What to watch: A rebate guarantee per script is not the same as full pass-through.
How much rebate value actually reaches the plan.
The share of manufacturer rebates the PBM forwards to you. “100% pass-through” should be defined precisely and made auditable.
What to watch: Confirm the definition of “rebate” and your right to reconcile it.
A blended discount the PBM promises across a category.
A guaranteed average discount (for example, across all generics) measured over a period. Individual claims can vary widely under the average.
What to watch: Check how guarantees are reconciled and what happens if they are missed.
The plan is charged the lower of several prices, in the PBM’s favor.
Pricing that selects among AWP discount, MAC, and usual-and-customary. Done fairly it protects the plan; defined loosely it can favor the PBM.
What to watch: Read exactly which prices are compared and who sets them.
Fees and clawbacks applied after the point of sale.
Direct and indirect remuneration: retroactive adjustments that can change the true net cost well after a claim is paid.
What to watch: Ask how post-point-of-sale adjustments are disclosed and reconciled.
Your contractual right to inspect the PBM’s numbers.
The clause that lets you (or an independent party) verify pricing, rebates, and guarantees. Without real audit rights, you are trusting the scorekeeper.
What to watch: Confirm scope, frequency, and that you can use an independent auditor.
Start free: learn the terms and generate the letters to get your contract in hand. A guided Audit then reads your actual contract and flags the terms driving your cost, with the source on each.