How PBM Reform Is Changing the Employer Relationship

Aug 17

Greater disclosure is shifting leverage toward plan sponsors, but the real test is whether transparency produces better purchasing, access, and patient care.

The cost of healthcare is placing real pressure on employers, providers, and the patients they serve. Employers are paying for care on behalf of their workforces, providers see what happens when coverage rules interrupt treatment, and patients experience the system through premiums, out-of-pocket costs, delays, restricted networks, and difficult choices at the pharmacy counter.

That reality shaped a recent panel I moderated for Managed Healthcare Executive, The American Journal of Managed Care, Pharmacy Times, and the Pharmacy Benefit Management Institute. I was joined by Elizabeth Mitchell, president and CEO of the Purchaser Business Group on Health; Robyn Crosson, vice president of government relations at Navitus Health Solutions; and Kathy Oubre, CEO of Pontchartrain Cancer Center. Together, we examined how PBM reform is affecting payers, providers, employers, pharmacies, and patients.

The panel's message was clear: PBM reform cannot stop at more disclosure. It is changing who has leverage, what employers are expected to know, how service providers are evaluated, and whether the prescription-drug benefit is producing value for the people who pay for and depend on it.

Affordability is becoming a fiduciary responsibility

PBMs administer prescription-drug benefits by negotiating with manufacturers, managing formularies and pharmacy networks, processing claims, and negotiating pharmacy reimbursement. What has changed is the scrutiny surrounding how those functions are performed and how money moves through the system.

During the panel, Mitchell explained that self-insured employers bear the financial risk for their plans and spend their own money on behalf of their employees. That makes access to cost, compensation, and performance data essential to effective purchasing. Crosson described employers and their advisers as asking more detailed questions, demanding more frequent reporting, and testing whether rebates, spreads, and affiliated-pharmacy payments match what appears in standard procurement materials. Oubre brought the issue back to the patient: in community oncology, formulary placement, network restrictions, and steering can determine whether a patient receives an oral cancer therapy promptly, must ration it, or goes without it.

The Department of Labor's proposed PBM fee-disclosure rule reflects the same concern. It would require covered PBM service providers to give fiduciaries of employer-sponsored self-insured plans detailed information about direct and indirect compensation and to permit audits of that information. The proposal is not yet a final rule, but it reinforces the direction of federal policy: plan fiduciaries are expected to understand PBM economics, identify conflicts, and evaluate whether an arrangement and its compensation are reasonable.

Disclosure changes the question for employers

The panel repeatedly returned to the changing relationship between employers and PBMs. Greater access to information can move an employer from accepting a vendor's spreadsheet to selecting and monitoring a genuine partner. It also gives benefits teams a stronger basis for negotiating contract terms instead of simply accepting language drafted by the PBM.

That opportunity comes with responsibility. Employers have long had fiduciary obligations under ERISA, but expanding disclosures and rising litigation have made those obligations harder to treat as someone else's problem. An employer cannot assume that reliance on a consultant, broker, or PBM ends the inquiry. The plan sponsor still needs to understand the recommendation, identify the compensation and relationships behind it, and document why the final arrangement serves the plan.

Consultants and advisers therefore belong inside the transparency discussion. Mitchell noted that employers often depend heavily on outside expertise because purchasing healthcare is not their core business. The concern is not that every adviser is conflicted. It is that undisclosed compensation or placement arrangements can shape which PBMs reach an employer's request-for-proposals process. Better disclosure should help employers determine whether the advice they receive is neutral and whether credible alternatives were excluded before the competition began.

The legal question is moving from "What did the PBM disclose?" to "What did the fiduciary do with the disclosure?"

Transparency will not eliminate attempts to preserve revenue

The panel did not assume that new requirements would automatically end the practices under scrutiny. Oubre warned that when a particular fee or practice is regulated, compensation may reappear under a new administrative, technology, or clinical-management label. Mitchell raised a related concern: revenue can shift among affiliates or other entities, and indirect compensation may remain difficult to see unless regulatory definitions and employer contracts are broad enough to follow the money. Crosson noted that newer laws are attempting to capture more categories, but plan sponsors still need to ask persistent questions.

This has competitive consequences. Smaller, pass-through, or less vertically integrated PBMs may gain an opening as employers look for alternatives to the dominant model. At the same time, those companies can face proportionally heavier compliance costs when federal and state reporting requirements differ. Reform can level the competitive field only if it exposes financial incentives without creating duplicative obligations that smaller competitors cannot absorb.

For employers, the practical lesson is straightforward: do not evaluate a PBM solely through a rebate guarantee or a bottom-line number in a bid spreadsheet. Review the definitions, affiliated entities, payment flows, audit rights, formulary incentives, network design, and the consultant's compensation together.

The patient impact appears through access, steering, and pharmacy survival

A narrow review of plan spending can miss what happens elsewhere. A formulary decision can affect the employer's cost, the employee's out-of-pocket obligation, the provider's ability to prescribe an appropriate therapy, and the pharmacy's ability to dispense it. Reported savings in one part of the system can reappear as treatment delays, administrative burdens, medication deserts, or higher costs for patients.

Oubre described oncology practices encountering more aggressive steering toward PBM-affiliated specialty pharmacies, sometimes creating confusion over whether a patient actually requested a prescription transfer. She emphasized that these are not merely business disputes. In cancer care, prior-authorization delays, denials, network restrictions, and interruptions in access can directly affect treatment. Crosson and Mitchell likewise stressed the downstream harm to independent pharmacies and the communities that depend on them.

The panel viewed direct-to-consumer cash-pay platforms as potentially useful but incomplete. They may improve access to certain common drugs and allow patients to bypass parts of the traditional system. They may also confuse patients about whether spending counts toward insurance benefits, fragment information about the medicines a patient is taking, and do relatively little for expensive specialty biologics and oncology therapies. DTC access can complement PBM reform; it does not replace it.

Biosimilars illustrate the value of pairing purchasing strategy with patient communication. The panel agreed that reforms should improve the opportunity for biosimilars, but formulary access alone is not enough. Crosson described a large biosimilar transition in which advance outreach encouraged patients to speak with their physicians and produced broad acceptance. The lesson is that patients should be participants in benefit changes, not the last people to learn about them.

The PBM of the future will have to prove its value

When I asked how the PBM's role might change, the panel described a return to the function PBMs were originally expected to perform. Oubre envisioned a model that looks less like an opaque, vertically integrated profit center and more like a transparent claims administrator whose compensation is disclosed, auditable, and less dependent on drug prices. Mitchell described the need for an administrative partner that negotiates fair prices and passes value back to employers and patients. Crosson argued that PBMs will increasingly have to distinguish themselves through clinical performance, better outcomes, and visible alignment with the plan sponsor.

That future is not guaranteed. The market remains highly concentrated, entrenched financial arrangements will not disappear voluntarily, and independent pharmacies are already under significant strain. Still, the panel agreed that reform has not necessarily arrived too late. Employers are more active, policymakers are paying closer attention, new competitors are entering the market, and patients and providers are demanding a system that works better.

Employers do not need to wait for every rule or lawsuit to be resolved before strengthening their own process. They can identify who is responsible for plan oversight, review PBM and consulting contracts together, test whether disclosures are complete and usable, verify audit rights, examine affiliated arrangements, and evaluate compensation, formulary performance, patient cost sharing, utilization management, pharmacy access, complaints, and outcomes as parts of one system.

Healthcare affordability will not be solved by disclosure alone. The opportunity is to turn information into oversight, oversight into better purchasing, and better purchasing into lower costs and more reliable access for the people the health plan is supposed to serve.