The challenge is that few – if any – alternative PBMs have the internal resources or capabilities to deliver on this promise. As a result, these smaller, mid-size PBMs are choosing to partner with a company that can provide these competences.

Alternative PBMs should establish criteria for selecting a partner that can enhance and expand internal capabilities:

• Industry track record
• Real-time data
• Proven claims adjudication solutions
• Experienced leadership team
• Technology expertise
• Comprehensive clinical and client services
• Data-powered pharmacy solutions
• Proven financial services

Diagnosing problematic traditional PBM models

The contrast between traditional PBMs and modern alternatives is stark. While PBMs were originally designed to lower drug costs, the behemoth PBMs do just the opposite: They camouflage pricing with hidden fees, implement rebate-driven policies and utilize outdated data reporting systems that introduce inefficiencies that actually increase expenses, limit transparency and restrict flexibility. Their opaque practices, rigid structures and excessive utilization of intermediaries make it difficult for plan sponsors to determine how much they truly pay for medications.

These deficiencies are becoming even more apparent as payers struggle with rising overall health care expenses fueled by the escalating costs of specialty pharmaceuticals, cell and gene therapies and more recently, the utilization of GLP-1 drugs. Legacy PBM structures with rigid processes cannot pivot quickly enough to respond to these market changes. This is precisely where the emerging, nimble PBMs hold a distinct advantage.

See below some of the pain points for traditional models:

Lack of pricing transparency and rebate complexity

Traditional PBMs limit employer and insurer visibility into how much PBMs reimburse pharmacies, how much they retain from manufacturer rebates and why certain high-cost drugs are favored over more affordable alternatives. Instead of prioritizing cost-effective solutions, these behemoth PBMs often steer plans toward medications that generate the highest rebates, ultimately driving up costs.

Restricted formularies and network control

PBMs dictate which drugs are covered, how they are tiered and which pharmacies are included in their networks. Large PBMs with rigid controls prioritize PBM profits over patient affordability and access. Patients are often steered toward in-network pharmacies that maximize PBM revenue, while independent and retail pharmacies struggle to compete due to unfair reimbursement practices.

Layered agreements and hidden costs

PBMs layer leased networks and complex contracts, inflating costs and reducing employer control. By leasing pharmacy networks from larger intermediaries, PBMs create a multi-layered pricing system, adding markups at each level before costs reach the employer. The result is inflated prices with limited visibility into actual medication costs.

Spread pricing, in which PBMs charge insurers more than they reimburse pharmacies, also creates a significant cost burden. These multi-layered agreements make it difficult for organizations to assess the true value of their PBM partnerships, often leaving them locked into contracts with undisclosed pricing structures.

Rigid, one-size-fits-all plan designs

Employers and health systems are often forced into rigid benefit structures that do not accommodate the unique needs of their workforce or patient populations. Without real-time data access, they cannot easily adjust formularies, optimize provider networks or implement cost-saving initiatives.

The transformative role of technology in the future of PBMs

As plan sponsors demand efficiency, cost transparency and patient-focused solutions, success for an alternative PBM model will increasingly rely upon technology-driven advancements. Astute PBM leaders with nimble, flexible business approaches are partnering with select companies that offer first-to-market, smart solutions that deliver transparent real-time adjudication, AI-driven cost optimization and automated fraud detection.

By providing access to actionable data and true cost visibility, these new-age PBMs can more effectively compete for market share and bring greater value to clients seeking optimized pharmacy benefits, cost predictability and improved patient outcomes.

Related: House members roll out bipartisan PBM drug price transparency bill

Cloud-based, application programming interfaces (API)-driven platforms ensure real-time access to claims data, automated adjudication and formulary updates while smart solutions offer dynamic pricing adjustments and automated compliance tracking. AI-powered fraud detection and programmed prior authorizations drive efficiency and cost savings.

With real-time tracking and automation, next-gen PBMs put organizations in full control—preventing price manipulation and uncontrolled spending while enhancing patient access to cost-effective medications.

The value of transparent, customizable PBM models

• Eliminates hidden fees and spread pricing, ensuring predictable, sustainable costs for employers and health plans.
• Facilitates direct contracting with pharmacies, removing unnecessary intermediaries, reducing overall drug expenses.
• Delivers real-time claims adjudication, enhancing billing accuracy, preventing administrative errors and accelerating reimbursement.
• Moves beyond cost savings, offering full visibility into claims data, rebate structures and financial trends.
• Utilizes AI-powered analytics for more informed decision-making, optimizing formularies, detecting fraud and unlocking new cost-saving opportunities in real time.
• Allows organizations to design pharmacy networks that balance cost and accessibility. White-labeled technology solutions further enhance the member experience by allowing businesses to deliver fully branded, seamless pharmacy benefit access.
• Supports better patient experiences, with faster claims processing that reduces delays in medication access and effectively automates prior authorizations to lighten the administrative burden on providers.
• Advances fair reimbursement models to help independent pharmacies remain financially viable, which is particularly important in underserved communities.

Key considerations to navigate the transition

The shift away from a jumbo PBM to a transparent model requires a strategic approach, and many organizations opt for a phased-in process that ensures a smooth transition while minimizing disruptions.

Typically, the process begins with an audit of the current PBM to uncover hidden fees, inefficiencies and network constraints. The next step is to set clear priorities—whether it’s cost transparency, formulary flexibility or improved service quality.

Plan sponsors may kick-off the new relationship with a pilot program that allows for real-time adjustments prior to full-scale adoption. This incremental strategy reduces risk, enhances operational efficiency and ensures measurable cost savings.

Once objectives are established, evaluating potential PBM partners is essential. Factors such as data accessibility, real-time reporting and direct pharmacy contracting should be closely examined. Engaging HR, finance and pharmacy teams early in the process ensures alignment and minimizes resistance.

The future of PBMs: A shift toward transparency, technology and integration

The traditional PBM model is becoming obsolete as employers and health systems demand transparency, efficiency and patient-centered solutions. Organizations now have access to technology-driven PBM alternatives that optimize costs, improve access and enhance overall health care outcomes.

Over the next 5–10 years, industry experts predict that PBMs will evolve into fully integrated, technology-enabled platforms that provide real-time visibility into all aspects of the pharmacy ecosystem. Independent pharmacies, retail chains, specialty drug manufacturers and insurers will interface seamlessly, ensuring transparent pricing, optimized formularies and improved medication safety. The ability to work with tech that connects all stakeholders—manufacturers, pharmacies and benefit managers—will define the next era of pharmacy benefits.

As interoperability becomes a standard expectation, PBMs will no longer act as opaque middlemen. Instead, they will serve as transparent, patient-first facilitators that connect all stakeholders in the pharmaceutical supply chain. Regulations may be coming but the industry shift is already in motion. Organizations that embrace these advancements now will be best positioned to control costs, enhance efficiency and improve pharmacy benefit management for the future.