PBM Transparency & Pass-Through Economics

Thesis

The nuance that matters: the transparency regime does not bite uniformly in 2026. CAA 2026’s §408(b)(2) service-provider status hit immediately on contracts renewed after February 3, 2026, but its substantive rebate/pricing disclosures don’t kick in until plan years beginning August 3, 2028 (January 1, 2029 for calendar-year plans). SB 41 is already the fiduciary high-water mark but faces an open ERISA-preemption question. The Lewandowski v. Johnson & Johnson case — widely cited as the PBM-fiduciary precedent — was dismissed twice for Article III standing (most recently November 2025), with plaintiffs signaling a 3rd Circuit appeal.

The practical read for buyers: the legal wall has cracked, not collapsed. Plan sponsors who wait for a plaintiff-side Lewandowski win before pressure-testing their Big 3 contract are misreading the risk. The signaling effect has already shifted fiduciary expectations, and the benefits-consultant community (Lockton Companies, WTW, Mercer) is pricing transparency diligence into 2026-2027 renewals regardless of whether the precedent lands.

How Spread Pricing Actually Works

Spread pricing is the core opacity mechanic. The PBM charges the plan sponsor one rate for a prescription and reimburses the dispensing pharmacy at a lower rate — pocketing the difference. The spread lives in the contractual seam between “plan cost” and “pharmacy reimbursement” because no party to the transaction other than the PBM sees both numbers simultaneously.

The FTC’s second interim report (January 14, 2025) found:

$1.4B of spread pricing income at Big 3 PBMs on specialty generic drugs alone, 2017-2022.
$7.3B total revenue above NADAC (National Average Drug Acquisition Cost) at Big 3 affiliated specialty pharmacies over the same period.
42% CAGR in Big-3-affiliated pharmacy revenue over NADAC, 2017-2021.
22% of analyzed specialty generics were marked up more than 1,000% at Big 3 affiliated pharmacies vs. NADAC acquisition cost.

The canonical worked example is imatinib mesylate (generic Gleevec). Despite being a commodity generic, all three Big 3 PBMs still classify it as “specialty,” triggering the affiliated-specialty-pharmacy dispensing channel with its elevated reimbursement rates. The FTC’s first interim report (July 2024) found an even starker case: generic tadalafil (for pulmonary hypertension) was marked up 7,736% for commercial payers in 2022.

The mechanics operate on both sides of the P&L. The PBM is paid by the plan for the drug, pays the pharmacy less than that, and on drugs dispensed at its own affiliated specialty pharmacy captures the difference directly as pharmacy operating income. On non-affiliated dispensing, the spread is smaller but still present as the gap between MAC (Maximum Allowable Cost) price sheets that the PBM maintains separately for plan billing vs. pharmacy reimbursement.

The Pass-Through Alternative Models

“Pass-through” is not a single economic model. In the market there are four credible structural alternatives to spread pricing, and buyers should distinguish them:

Model	Mechanic	Representative Vendor
Flat admin fee + 100% pass-through rebates + pass-through pharmacy pricing	PMPM or per-script admin fee. All rebates and network discounts flow to the plan.	Navitus, SmithRx
Cost-plus / NADAC-based pricing	Plan pays acquisition cost + flat markup + dispensing fee. No spread.	Capital Rx (now Judi Health), Mark Cuban Cost Plus Drugs
Percentage admin fee + pass-through rebates	Admin fee scales with claims; rebates still pass through.	Mid-market transparent PBMs
Pharmacy benefits optimizer (PBO) overlay	Sits atop Big 3 contract; aggregates rebates and audits flows.	RxBenefits

The distinction matters because the pass-through label gets applied loosely by marketing teams. A percentage admin fee model still creates an incentive for the PBM to gross up claims volume, even if rebates are technically passing through. A PBO overlay doesn’t replace the Big 3 contract — it extracts accountability from it. Only the flat-fee + cost-plus structure fully removes the opacity premium.

The Credible Challenger Landscape

Market share is shifting measurably. Alternative PBM employer share rose from 12% in 2024 to 31% in 2025, while Big 3 share fell from 72% to 61%. This is the single most load-bearing datapoint for the transparency thesis.

Vendor	Founded	Book / Covered Lives	Model	Ownership
Navitus Health Solutions	2003	~18M lives, 800 clients (employers, unions, govt, payers, health systems); Navitus Key launched Jun 2025 for sub-5,000-member employers	100% pass-through; claims first transparent PBM in the U.S.	Subsidiary of SSM Health (Wisconsin)
Capital Rx / Judi Health	2017	5M+ employer PBM lives; 80+ new partnerships/year 2023-2025	Flat-fee admin + NADAC cost-plus + 100% pass-through rebates; unified pharmacy + medical claims adjudication	VC-backed; recently rebranded to Judi Health
SmithRx	2016	Mid-market self-insured focus; lives not disclosed	100% pass-through; in-house modern claims engine	VC-backed (Venrock, Founders Fund — unverified)
RxBenefits	2004	Largest PBO atop Express Scripts; lives not disclosed	Rebate aggregation + audit + contracting discipline overlay on Big 3	PE-owned (Advent International, GI Partners — unverified)
Rightway Rx	2017	Self-insured employers; lives not disclosed	Flat admin fee + no rebate retention + SureSpend cap	VC-backed (Thrive Capital, Khosla)
Mark Cuban Cost Plus Drugs	2022	Primarily DTC; direct-to-employer overlay with Humana in pilot	Cost-plus direct pharmacy + PBM overlay partnerships	Privately held, Cuban-backed

Material gaps in public disclosure: SmithRx, RxBenefits, and MCCPD do not publish covered-lives figures. MCCPD is a public benefit corporation and has deliberately avoided financial transparency. Any plan sponsor RFP scoring these vendors should expect NDA-gated financial diligence rather than publicly available comparables.

MCCPD’s actual position

The most frequent mischaracterization is that Mark Cuban Cost Plus Drugs is a scaled PBM alternative. It is not, yet. MCCPD operates primarily as a direct-to-consumer cost-plus pharmacy (MCCPD.com), with a ~70-person organization and roughly three people dedicated to the benefits offering. The Humana/CenterWell partnership announced in 2025 is the flagship employer-channel deployment; specific large self-insured employer contracts are not publicly disclosed. MCCPD functions in the landscape as a disruptor signal and pricing benchmark — pressuring Big 3 contracts through visibility of cash-pay alternatives — rather than a plug-in PBM replacement at scale.

Federal Regulatory Stack

CAA 2026 — Two Clocks to Track

The Consolidated Appropriations Act of 2026, signed February 3, 2026, imposes two structurally different requirements with two different effective dates:

Immediate (February 3, 2026 forward): PBMs are formally designated as “covered service providers” under ERISA §408(b)(2). Any ERISA group health plan contract entered into, extended, or renewed after signing is subject to the fiduciary-monitoring framework. Practical effect: plan sponsors cannot legally “rubber-stamp” a Big 3 contract in a 2026 renewal without documented fee-reasonableness diligence.

Delayed (plan years beginning August 3, 2028; January 1, 2029 for calendar-year plans): Standardized reporting, rebate pass-through disclosure, audit rights, and drug-level pricing transparency. This is the substantive “transparency regime” that the industry press calls “PBM reform.”

The industry framing that CAA 2026 “delivers PBM reform” is too loose. The fee-disclosure trigger is immediate and legally consequential; the substantive rebate/pricing disclosures don’t bite until 2029. Plan sponsors renewing in 2026-2028 should build transparency clauses into new contracts even absent regulatory compulsion, because the §408(b)(2) duty exists now regardless of what the 2029 disclosure standard looks like.

FTC Track

The FTC has published two interim reports (July 2024, January 2025) and is in active consent-decree negotiations with Big 3 PBMs. The Express Scripts settlement announced February 4, 2026 requires net-cost-based member cost-sharing, bans prefer-high-WAC-drugs formulary strategies, and mandates point-of-sale rebate pass-through to patients beginning 2028. A 10-year consent decree. Settlements with CVS Caremark and OptumRx are expected on similar terms.

Lewandowski v. J&J — Legal Reality Check

The Lewandowski v. Johnson & Johnson case is widely cited in press as the “PBM fiduciary precedent.” The legal reality is narrower:

Theory: J&J plan participants alleged the company breached ERISA fiduciary duty by failing to monitor its PBM (Express Scripts), failing to consider pass-through alternatives, and allowing excessive drug prices (e.g., multiple sclerosis generic teriflunomide reportedly priced above cash-pay alternatives).
Status: Dismissed twice. Most recent dismissal November 26, 2025 (U.S. District Court for New Jersey) on Article III standing — court found alleged premium/OOP harms “speculative and not redressable.” Plaintiffs declined to file a 3rd amended complaint December 18, 2025 and are preparing a 3rd Circuit appeal.
Signaling effect vs. precedent: The case has not yet produced plaintiff-favorable precedent. It has, however, triggered copycat filings and put every plan fiduciary on notice that “rubber-stamping Big 3” is litigation-exposed. CAA 2026’s §408(b)(2) fee disclosure will ease standing substantially by giving participants legible fee data.

Plan sponsors should treat Lewandowski as a live litigation risk, not a won precedent. The reputational and fiduciary-duty implications apply even if the case fails definitively on appeal.

State-Level Reform Landscape

California SB 41 (signed October 11, 2025, effective January 1, 2026) is the new high-water mark. It imposes an explicit fiduciary duty on PBMs, prohibits spread pricing, mandates 100% rebate pass-through, requires CA Department of Insurance licensure by January 1, 2027, and — critically — applies to both fully-insured and self-insured ERISA plans operating in California. The ERISA-preemption legal challenge on SB 41 is the next major PBM-reform legal question; if the law survives preemption, it becomes a template for other large states.

Arkansas Act 624 (signed April 2025) would have barred PBMs from owning pharmacies in Arkansas effective January 2026. Enjoined July 28, 2025 on Commerce Clause grounds. Under appeal. Transition permits through September 2027 for rare/orphan drugs.

Other 2025 state activity: MultiState reports PBM bills advanced in a majority of state legislatures in 2025, covering ownership restrictions, transparency, rebate pass-through, and anti-steering. All 50 states now have PBM laws on the books.

NAIC PBM model act: Status as of April 2026 not confirmed in this research round — flag for follow-up verification.

The Benefits Consultant Turn

Which PBMs get invited to plan-sponsor RFPs is shaped by the benefits-consultant community. The 2026 stance:

Lockton Companies has published multiple 2026 client alerts framing CAA 2026 + DOL rules as a “double dose” pushing plan sponsors toward contractual transparency. Most visible on the issue in 2026.
WTW offers explicit rebate guarantees and pass-through audit services in its Pharmacy Benefits practice, effectively endorsing pass-through as fiduciary best practice.
Mercer is the largest middle-market benefits consultant; historically agnostic, increasingly recommends transparent/pass-through RFP shortlists post-CAA 2026.
Aon runs PBM RFPs and pharmacy benchmarking; has a public Employee Benefits Benchmarking offering including pharmacy spend reviews.
PSG (Pharmaceutical Strategies Group) is the specialist pharmacy consultant authoring widely-cited annual trends surveys; neutral on vendor but structurally favors transparency.
Garner Health advocates direct-to-employer cost-plus models (MCCPD-style).

The consultant community is not uniformly anti-Big-3. But the aggregate posture has shifted: a 2026 RFP that does not include at least one pass-through alternative is now difficult to defend as a reasonable fiduciary process.

Implications for Pharma Services Vendors

Rebate aggregators (GPOs): Prime Therapeutics, Zinc Health Services, Ascent Health Services face structural headwinds. Their value proposition rests on opacity of rebate flows. In a 100%-pass-through world, the rebate aggregator collapses into a lower-margin contract-admin function.

Hub services: Independent hubs (ConnectiveRx, AssistRx) gain relative to PBM-owned hubs (Accredo hub, Optum hub) because manufacturers can no longer rely on PBM-integrated hubs to manage patient access without transparency. Expect increased RFP activity in 2026-2027 for independent-hub conversions.

Specialty pharmacies: The “Big 3 affiliated SP” advantage narrows. See PBM-Owned vs Independent Specialty Pharmacies for the full dynamic. In a pass-through world, the PBM can no longer self-preference its affiliated SP with undisclosed margin; the SP has to win on service and network terms.

Market access consultants: Opportunity expansion. Benefits consultants and pharma market-access teams need new analytical frameworks for a world where formulary economics are disclosed. Firms with PBM benchmarking and contract-audit capabilities (Lockton Companies, WTW, PSG) gain most.

Copay assistance: The FTC-Express Scripts consent decree’s point-of-sale rebate pass-through (effective 2028) plus copay accumulator/maximizer state restrictions (26 states + DC/PR as of January 2026) collectively reduce the structural need for manufacturer copay programs on brand-originator products. Expect reduced copay GTN spending from brand manufacturers whose patient OOP will be net-cost-adjusted at POS.

Buyer Decision Framework

Plan sponsors evaluating PBM options in 2026 should answer four questions:

Is your current Big 3 contract’s fee and rebate structure documented to §408(b)(2) standards? If not, the CAA 2026 renewal cycle requires it regardless of whether you switch vendors.
Have you RFP’d at least one pass-through alternative in the last 3 years? If not, your next renewal needs to include at least one — the post-Lewandowski fiduciary posture makes agnostic incumbency difficult to defend.
What is your specialty-Rx spend concentration? The Big 3’s opacity advantage is largest on specialty. Plan sponsors with >30% specialty spend should prioritize transparency evaluation over administrative-fee comparisons.
What is your state-law exposure? California-based plans (SB 41), Texas/FL/NY operations, and states with active 2025 legislation require state-specific diligence. Multi-state employers may face conflicting compliance posture between the Big 3’s national contracts and state transparency mandates.

The default answer should no longer be “stay with incumbent and renegotiate.” The default should be “RFP with at least one pass-through alternative, document the fiduciary process, and decide on evidence.”

Analyst Notes

The opacity premium has a measurable number: $7.3B over 5 years at Big 3 affiliated specialty pharmacies above NADAC. This is the scale of value transfer that pass-through PBMs are structurally positioned to reclaim for plan sponsors.
Do not overclaim Lewandowski as precedent. Press coverage conflates the signaling effect with legal precedent. The case has been dismissed twice. Plan sponsors should treat it as a live risk, not a won case. The wiki page on PBM Reform Implications covers the vendor-impact map separately.
The two CAA 2026 clocks are frequently confused. §408(b)(2) covered-service-provider status is immediate; substantive rebate/pricing disclosure doesn’t bite until 2029. Both matter — but for different reasons and on different timelines.
Mark Cuban Cost Plus Drugs is a pricing benchmark, not a scaled PBM alternative. Do not treat it as an RFP-ready replacement at the large-employer scale. It functions as a reference point that pressures Big 3 contracts.
California SB 41 is the preemption test case. If it survives ERISA preemption, it becomes a template for large-state PBM fiduciary mandates. If it fails, federal CAA 2026 stays the primary regulatory lever.
Rebate aggregator economics (Prime, Zinc, Ascent) are the under-discussed loser in a pass-through world. Plan sponsors performing vendor diligence should ask specifically about rebate aggregator structure, not just PBM structure.
Contradiction flag (from research): Industry PR often frames CAA 2026 as “PBM reform finally arriving.” Legally this is loose. The §408(b)(2) trigger is immediate and consequential; the substantive disclosures are delayed to 2028-2029. The wiki page should resist the press framing and preserve the two-clock reality.
Unsourced claims flagged for follow-up: Specific $/Rx spread on imatinib (DCI paywall), SmithRx/RxBenefits covered lives, NAIC PBM model act 2026 status, ERISA-preemption litigation posture on SB 41.

Concepts:

PBM Ecosystem
Pass-Through PBM Economics
Gross-to-Net Dynamics
Copay Accumulators and Maximizers
340B Drug Pricing Program
Formulary Management & Step Therapy

Related Analyses:

Key Vendors:

Navitus Health Solutions
Express Scripts / Evernorth
CVS Caremark
OptumRx