Don’t Sign Here – The 7 Red Flags of PBM Contracts

September 10, 2026

Topic: Choosing a PBM, PBM 101, PBM Reality Check

Signing with a new pharmacy benefit manager (PBM) can be a daunting experience, with hundreds or thousands of plan members depending on that choice. And in this opaque industry, it is important to look beyond the initial conversations with a PBM when it comes to contracts.

So, before you sign on the dotted line, make sure you look for these seven red flags of PBM contracts. Because if any one of these terms are missing or obscured behind legal mumbo jumbo, you’re signing up for hidden costs, misaligned incentives and limited control.

SEE A RED FLAG, MAKE A SMARTER DECISION

Red Flags	Impact to Your Plan	What You Need
🚩 Unrestricted spread pricing	Inflated drug costs Misaligned incentives No way to validate true cost	A PBM that eliminates spread entirely with pass-through pricing where the claim cost is equal to pharmacy reimbursement
🚩 Rebate retention or “partial pass-through” language	Lost savings annually (could be millions of dollars) Self-aligned formulary decisions An incentive to favor high-rebate, higher-cost drugs	A PBM that offers 100% rebate pass-through with full auditability of all revenue streams
🚩 Vague or inconsistent financial definitions	Hidden margin baked into definitions Reporting that “looks” transparent but isn’t verifiable Legal ambiguity that favors the PBM	A PBM that offers standardized, contract-governed definitions across all reports and guarantees
🚩 Limited or conditional data access	Inability to audit pharmacy spend Blind spots in specialty drug management due to high cost and different sites of care Reactive vs proactive benefit strategy	A PBM that offers real-time, full-claim transparency down to the individual claim level
🚩 Weak or restricted audit rights	Unverifiable rebate flows and pricing models Limited accountability Increased fiduciary risk	A PBM that offers full audit rights across rebates, pharmacy contracts and manufacturer agreements
🚩 Hidden revenue streams beyond rebates	Actual total cost of the PBM relationship is obscured Misaligned incentives across the whole ecosystem “Low admin fee” contracts offset by hidden costs	A PBM that offers full disclosure of all revenue sources, not just rebates
🚩 Formulary decisions driven by rebates, not lowest net cost	Higher total drug spend for plan sponsors Potentially worse member experiences and adherence issues Clinical decisions influenced by revenue instead of outcomes	A PBM that offers a clinically driven formulary with independent decision-making and lowest-net-cost focus

Your Current Contract Deserves a Second Look

We’ve covered what to look for when you’re shopping for a new PBM, but what about the one you have now? Whether you’ve been with your current PBM for five minutes or five years, it’s never too late to review your contract and compare it against this list of red flags. And if they can’t offer the transparency you’re looking for, it may be a good time to look elsewhere.

If you have any questions about these red flags or simply want to know what a transparent PBM can do for your plan, reach out to [email protected].

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