A Guide to Pharmacy Benefit Manager Pricing Models

October 20, 2026

By Simon Leung, PharmD, RPh and Dominic Micali, REBC

Pharmacy benefit manager (PBM) pricing can be complex, but the PBM model a plan sponsor selects can have a significant impact on drug costs, transparency and oversight. As traditional arrangements face greater scrutiny, innovative approaches are giving plan sponsors new ways to evaluate how prescription drug prices are determined and how PBMs generate revenue. This guide breaks down the primary pricing models to help plan sponsors understand their options and ask more informed questions during the selection and contracting process.

Drug Pricing Terms to Know

Before plan sponsors can begin evaluating PBM pricing models, there are a few key drug pricing terms to know. These help explain how prices are calculated at the manufacturer, pharmacy and PBM levels.

• Wholesale Acquisition Cost (WAC): The manufacturer’s published list price for a drug to wholesalers or direct purchasers, before discounts, rebates or other price reductions.
• Average Wholesale Price (AWP): A published pricing benchmark that generally exceeds WAC. For many brand-name drugs, AWP is approximately WAC plus 20%. AWP is commonly used in PBM contract pricing formulas, such as AWP minus a negotiated discount, although it does not represent the actual price paid to acquire a drug.
• Actual Acquisition Cost (AAC): The actual or estimated price a pharmacy pays to acquire a drug after applicable discounts. Because pharmacy-specific acquisition costs are generally proprietary, various benchmarks may be used to estimate AAC.
• National Average Drug Acquisition Cost (NADAC): A benchmark maintained by the Centers for Medicare & Medicaid Services (CMS) that is based primarily on surveyed invoice prices from retail community pharmacies. NADAC is intended to approximate pharmacies’ acquisition costs and can provide a useful alternative to list-price-based benchmarks such as AWP, although it does not necessarily reflect the actual acquisition cost of a specific pharmacy or every drug.

Three Primary PBM Pricing Models

In most instances, plan sponsors will have limited visibility into specific numbers tied to the terms listed above for certain drugs. It’s almost impossible for anyone other than the pharmacy to know the true AAC. The NADAC can be unreliable because if one large pharmacy retailer doesn’t participate, the numbers are skewed. Even with limited access to the numbers, understanding how these terms influence PBMs and their prices can help plan sponsors better evaluate their options. The three primary PBM pricing models on the market today vary in terms of how costs are determined and the level of transparency plan sponsors have into those formulas.

1. Traditional

Traditional PBM arrangements may generate revenue from multiple sources, including spread pricing, retained manufacturer revenue, pharmacy-related revenue and administrative or service fees. Under spread pricing, the PBM charges the plan sponsor more for a prescription than it reimburses the dispensing pharmacy. Depending on the contract, plan sponsors may have limited visibility into the PBM’s underlying pharmacy reimbursement or other revenue sources.

2. Pass-through

Also known as a “transparent” model, a true pass-through arrangement generally eliminates pharmacy spread by charging the plan sponsor the same amount the PBM reimburses the dispensing pharmacy. It may also pass through 100% of manufacturer rebates and other negotiated revenue. Rather than relying on retained spread or rebates, the PBM is primarily compensated through disclosed administrative fees. However, “pass-through” and “transparent” are not standardized terms, so plan sponsors should confirm contractually which revenue sources are passed through, how pharmacy claims are priced and what fees the PBM or its affiliates may retain.

3. Alternative

A newer group of alternative PBMs and pharmacy benefit platforms — sometimes referred to as industry “disruptors” — has helped popularize cost-plus pricing. More recently, cost-plus models have sought to move away from AWP-based pricing by tying drug costs to an acquisition-cost benchmark or disclosed pharmacy cost. Depending on the arrangement, pricing may be based on NADAC or another defined acquisition-cost methodology, plus a disclosed dispensing or service fee. The plan sponsor then pays the drug cost and clearly defined administrative fees. These models can make the components of prescription pricing easier to understand and audit.

The bottom line:

In addition to these models, there are newer hybrid arrangements that combine elements of traditional, pass-through and cost-plus pricing. For example, an arrangement might use pass-through network pricing for some claims and cost-plus pricing for certain retail, mail or specialty channels. As PBM models continue to evolve, plan sponsors should evaluate the economics of each channel rather than relying solely on how the overall model is labeled.

Further Reading: An In-Depth Look at PBM Business Models

If you’re interested in learning more about the PBM market and specific strategies for plan sponsors, read Simon Leung’s

two-part series recently published in Employee Benefit News. Part one digs into PBM profitability tactics and revenue streams. Part two offers a deeper comparison of traditional and pass-through PBMs, as well as strategic levers for plan sponsors to generate savings.

Six Things to Consider When Choosing a PBM Model

Employers and plan sponsors should take several key considerations into account when evaluating PBM models.

1. Know the model: Understand whether the arrangement is traditional, pass-through, cost-plus or hybrid.
2. Clarify compensation: Identify all sources of PBM and affiliate revenue and determine which are retained versus passed through.
3. Confirm transparency: Ensure reporting, data access and audit rights allow the plan sponsor to validate pharmacy pricing, manufacturer revenue and fees.
4. Compare options: Evaluate whether alternative models may better align with the organization’s goals.

5. Review ownership ties: Understand if the PBM also owns pharmacies and how that may influence pricing and cost transparency.
6. Engage pharmacy expertise: Work with an advisor who understands PBM contracting and has dedicated pharmacy experts.

The Conner Strong & Buckelew Advantage

The world of PBMs is complex and constantly evolving — and staying on top of the latest PBM tactics and regulations can be challenging for employers and plan sponsors to do on their own. At Conner Strong & Buckelew, our team of pharmacy benefits professionals understands the PBM market, the strategies PBMs employ to generate profit and the characteristics of each model. We can help your organization:

• Evaluate PBM models and select the one that best aligns with your plan objectives
• Negotiate PBM contracts that require greater transparency
• Ensure you’re getting the most cost-effective pharmacy solutions

Ready to control costs while delivering quality pharmacy benefits to your members? Contact us today to partner with experienced professionals committed to delivering solutions tailored to the needs of your employee population.