Reforming the Pharmacy Supply Chain: Transparent PBM Models Explained

Pharmacy costs have become one of the fastest-growing and least understood components of employer healthcare spending. For many organizations, prescription drugs—particularly specialty medications—now rival or exceed medical claims as a cost driver. Yet despite their impact, the pharmacy supply chain remains opaque, complex, and difficult for employers to manage.

In 2026, more employers are questioning whether traditional pharmacy benefit manager (PBM) models truly align with their interests. This has led to growing interest in transparent PBM arrangements designed to bring clarity, accountability, and cost control back into pharmacy benefits.

Why the Traditional PBM Model Is Under Scrutiny

PBMs play a central role in employer health plans. They manage formularies, negotiate drug prices, administer claims, and process rebates. In theory, PBMs are meant to reduce costs through scale and negotiation power. In practice, many employers struggle to understand how savings are generated—or who ultimately benefits.

Traditional PBM contracts often rely heavily on rebates from drug manufacturers. While these rebates are positioned as cost-saving mechanisms, they can distort incentives by favoring higher-priced drugs with larger rebate potential rather than lower-cost alternatives.

For employers, this structure creates uncertainty. Pharmacy spend may rise even as reported “savings” increase, leaving organizations unsure whether their PBM is optimizing for cost containment or revenue.

How Pharmacy Costs Move Through the Supply Chain

To understand transparent PBM models, employers must first understand the complexity of the pharmacy supply chain. Drug manufacturers set list prices, wholesalers distribute medications, pharmacies dispense them, and PBMs sit in the middle negotiating terms and managing access.

At each stage, pricing mechanisms, fees, and rebates are layered in. By the time a claim reaches the employer’s plan, the true cost of the medication can be difficult to trace. This lack of visibility makes it challenging for employers to identify inefficiencies or negotiate improvements.

Transparent PBM models aim to simplify and clarify this process.

What a Transparent PBM Model Looks Like

A transparent PBM model is designed to eliminate hidden margins and align PBM compensation with employer interests. Instead of profiting from spread pricing or retained rebates, transparent PBMs typically operate on a flat administrative fee structure.

Under this approach, employers gain visibility into actual drug costs, negotiated discounts, and rebates. All manufacturer rebates are passed directly back to the plan rather than retained by the PBM.

This model allows employers to evaluate pharmacy performance based on real cost outcomes rather than headline savings metrics.

Spread Pricing vs. Pass-Through Pricing

One of the key distinctions between traditional and transparent PBM models lies in pricing methodology. Spread pricing occurs when a PBM charges the employer more for a drug than it reimburses the pharmacy, keeping the difference as profit.

In a pass-through or transparent model, the employer pays the actual pharmacy reimbursement cost plus a clearly defined administrative fee. This removes ambiguity and allows employers to see exactly where their pharmacy dollars are going.

For many employers, eliminating spread pricing alone can result in meaningful cost reductions.

How Transparency Changes Formulary Decisions

In traditional PBM arrangements, formulary decisions may be influenced by rebate potential rather than net cost. Transparent PBMs, by contrast, are incentivized to prioritize lower net-cost drugs because their revenue is no longer tied to rebate volume.

This shift can lead to formularies that favor generics, biosimilars, and clinically appropriate lower-cost alternatives—without compromising patient outcomes.

For employers, this alignment is critical as specialty and GLP-1 drug utilization continues to rise.

Impact on Specialty and High-Cost Drugs

Transparent PBM models are particularly relevant for managing specialty drugs, which now account for a disproportionate share of pharmacy spend. With clearer pricing and utilization data, employers can better assess whether specialty drug costs are being managed effectively.

Transparency also enables more informed decisions around prior authorization, step therapy, and site-of-care optimization. Rather than reacting to escalating costs, employers can proactively shape pharmacy strategy.

Considerations Before Switching to a Transparent PBM

While transparent PBM models offer clear advantages, they are not automatically the right solution for every employer. Organizations must consider workforce size, claims volume, administrative capacity, and overall benefits strategy.

Employers should also evaluate how a transparent PBM integrates with medical benefits, stop-loss coverage, and vendor partners. Transparency is only valuable if it leads to actionable insights and informed decision-making.

Transitioning PBMs requires careful planning, communication, and contract review to avoid disruption.

Employee Experience and Communication

From an employee perspective, PBM changes may affect formularies, copays, or pharmacy access. Clear communication is essential to prevent confusion and frustration.

When employers explain the purpose behind PBM changes—cost sustainability, long-term affordability, and improved access—employees are more likely to engage positively with the transition.

The Long-Term Value of Transparency

Transparency in the pharmacy supply chain is not just about reducing costs in the next plan year. It is about creating a sustainable framework for managing pharmacy spend as drug innovation accelerates.

Employers that understand where their pharmacy dollars go are better positioned to adapt, negotiate, and plan for future trends rather than reacting to unexpected increases.

How Taylor Benefits Helps Employers Evaluate PBM Models

At Taylor Benefits Insurance Agency, we help employers cut through the complexity of pharmacy benefits. Our team reviews PBM contracts, analyzes pharmacy claims data, and evaluates whether transparent or pass-through models align with an organization’s goals.

We focus on helping employers regain visibility, accountability, and control—without sacrificing employee access to necessary medications.

As pharmacy costs continue to rise in 2026 and beyond, reforming the pharmacy supply chain may be one of the most impactful steps employers can take. If your organization is questioning whether its PBM model still serves its interests, our advisors are ready to help you explore smarter alternatives.