How a potential PBM markets itself does not translate to dollars saved on your pharmacy bill. Transparent and pass-through are now common labels in pharmacy benefit manager (PBM) proposals, including from legacy PBMs. It's to the point that almost every PBM today will call itself pass-through. Yet, when you dive into each model and the final cost you pay, there are drastic differences from PBM to PBM.

Knowing how to choose a truly transparent PBM comes down to understanding the mechanics of how a PBM makes money and the intricacies of the contract you sign.

For a self-funded plan, choosing a PBM is also a fiduciary decision. Plan sponsors need to understand the compensation and terms they accepted on behalf of participants. A sound selection verifies compensation, contract terms, data and audit rights, potential conflicts, and net cost to the plan. Use the sections below to test whether a PBM’s transparency claims hold up in your next RFP.

What Makes a PBM Transparent

A transparent PBM shows the plan sponsor how it is paid and where every drug dollar goes, with the right to verify both. That visibility covers every fee, backed by claims-level data and audit rights.

Transparency and pass-through are not interchangeable. Transparency concerns disclosure and verification: whether the plan can see the economics and check them. Pass-through concerns compensation: whether the value from rebates, discounts, and pharmacy pricing reaches the plan or stays partly with the PBM.

A PBM can be transparent and still retain revenue, as long as it discloses what it keeps. A pass-through contract can also leave gaps when its definitions exclude certain revenue or the plan cannot audit the result. Because transparency and pass-through are different contract attributes, your RFP has to test each one on its own terms.

Start With How the PBM Is Paid

Start your examination of a potential PBM with compensation. Understanding how a PBM makes money shows which way a PBM's incentives point when drug costs change. Ask each finalist to list every revenue source tied to your plan, including revenue that never appears on an invoice.

The disclosure should account for at least these sources:

• Administrative fees, including per-claim, clinical program, and implementation charges

• Spread between what the plan pays and what the pharmacy receives

• Retained rebates and manufacturer administrative fees

• Margin earned through pharmacies the PBM owns or holds a stake in

• Payments from third parties, such as discount card programs or bolt-on point solutions

Much of the cost to the plan that employers miss is revenue that sits outside the admin fee, so a low quoted fee says little on its own. Once every source is on the table, ask which ones can increase when plan drug spend grows.

A fixed administrative fee that stays flat as drug costs rise is one way to align incentives and keep the PBM's share predictable. A transparent PBM can use other structures, as long as the plan can see and audit every component.

Ask how the PBM prices contracts across its client base. Client cross-subsidization can occur when revenue from one group of clients supports pricing or other concessions for another. Ask whether pricing, rebates, or discounts vary across contracts and how the PBM’s broader business arrangements affect your plan’s net cost.

Test the Contract Definitions

Defined terms decide whether a transparent PBM's promises hold. Two contracts can both promise 100% pass-through and deliver very different dollars. The difference sits in what each one counts as a rebate, a pharmacy payment, or a fee.

Read the definitions section before the pricing exhibit. Ask your broker or consultant to flag every term the PBM can interpret on its own. Each one is a place where plan cost can move without a visible price change.

How the Contract Defines Rebates

Start with the scope of the rebate definition. A narrow definition can pass through every dollar it names while leaving out manufacturer administrative fees, price protection payments, and other manufacturer remuneration. Ask whether specialty drugs and every dispensing channel count, and whether a rebate aggregator sits between the PBM and manufacturers.

Timing and reconciliation matter as much as scope. Confirm when the PBM remits rebates to the plan and whether each payment arrives with claim-level detail you can match to your utilization. Without that reconciliation, the plan has no practical way to confirm that 100% of rebates arrived.

How Pharmacy Pricing and Spread Are Defined

Pass-through pricing means the plan pays exactly what the pharmacy is paid on every claim. The contract should apply that standard to retail, mail, and specialty claims alike. A PBM can price one channel on a pass-through basis and another on different terms.

Confirm which pricing benchmarks apply and how the PBM sets and updates its maximum allowable cost (MAC) lists. Then look for language that prohibits spread pricing outright.

Who Can Change the Terms

Strong definitions within your agreement lose their value if the PBM can rewrite them. Look for unilateral amendment rights, clauses that let the PBM revise definitions or formulary rules mid-contract, and pricing changes that take effect on notice alone.

Termination and transition terms belong in the same review. Confirm that the plan can exit without punitive fees and that the PBM must hand over complete claims history at exit. Those terms let the plan run its next RFP on accurate data.

Confirm Data Access and Audit Rights

Disclosure is only as useful as your ability to check it, and a transparent PBM should make checking routine. Claims-level data lets the plan sponsor, its consultant, or an independent auditor confirm that pricing and rebates match the contract.

At minimum, each claim record should include these fields:

• Drug name and National Drug Code (NDC)

• Dispensing pharmacy

• Amount paid to the pharmacy

• Amount billed to the plan

• Rebate attributed to the claim

• Member cost share

Confirm how often the PBM delivers the file, in what format, and whether it charges extra for it. Then confirm the plan's right to audit claims and rebate contracts with an auditor the plan selects. The contract should also state how often the plan can audit and how far back each audit can look.

These terms give the plan sponsor valuable documentation and a way to catch pricing gaps before they compound across plan years. A PBM contract audit checklist helps your team review data and audit language alongside the rest of the agreement.

Look for Conflicts in Ownership and Formulary Decisions

Ownership shapes incentives even when a transparent PBM contract reads cleanly. Ask whether the PBM owns or holds a financial stake in specialty, mail, or retail pharmacies, or in a rebate aggregator. Then ask how the PBM routes claims and prescriptions, and whether routing favors an affiliated channel.

Apply the same test to the formulary. Ask who builds it and how clinical review, net cost, and rebate size each factor into placement. Ask how quickly the PBM adds biosimilars and other lower-net-cost alternatives once they reach the market, and what triggers that review.

These answers bear directly on plan cost and member access. A formulary that favors higher-rebate drugs can raise net plan cost even under full rebate pass-through. An affiliated pharmacy channel can also limit where members fill prescriptions, which matters for member experience.

Compare Bids on Net Cost

Even among transparent PBMs, bids become comparable only when each one prices the same thing. Settle the formulary and plan design first, then require each finalist to reprice your actual claims against those terms. Formulary-first bidding keeps a PBM from looking cheaper by assuming a narrower formulary or different utilization management rules.

Compare the repriced results on total net cost and on per member per month (PMPM) cost. PMPM is the average monthly plan drug spend for each enrolled member: total drug spend divided by members, then by months. Discount percentages and rebate guarantees track performance against benchmarks the contract defines, and those guarantees can improve while plan cost rises.

Keep tracking net cost per claim and PMPM after you award the contract, since those measures show whether the plan pays less over time.

Why the Transparency Bar Is Rising in 2026

Federal law now sets a future baseline for several of these tests. Congress enacted the Consolidated Appropriations Act, 2026 on February 3, 2026. It will require PBMs to report to group health plans at least every six months, or quarterly if the plan requests.

Larger plans, including those averaging at least 100 participants, will receive drug-level detail. That drug-level detail will include the difference between what the plan paid and what the pharmacy was paid.

Under ERISA section 408(b)(2), a PBM contract will count as reasonable only if the PBM remits 100% of drug-related remuneration to the plan. That covers rebates, fees, and alternative discounts. The contract must also give the plan an audit right at least once per plan year.

These requirements apply to contracts entered into, renewed, or extended for plan years beginning 30 months after enactment, which will apply to plans starting in 2029. Separately, on January 30, 2026, the Department of Labor proposed a rule under ERISA for self-insured group health plans. It would require PBMs to give plan fiduciaries initial and semiannual compensation disclosures, including spread and manufacturer payments, and would add an audit right.

The Department of Labor rule was finalized on October 29, 2026, and the statutory requirements take effect later. That timing makes your next renewal the practical moment to ask for the reporting, remittance, and audit terms the law will eventually require. A transparent PBM should be willing to commit to them now.

Business Group on Health fielded its 2027 Employer Health Care Strategy Survey in June 2026 among 127 employers representing about 11 million covered lives. Among those respondents, 32% will offer a transparent or new-generation PBM program in 2027. If your plan is weighing a similar change, the tests above are the criteria to apply.

How SmithRx Approaches Transparent Pharmacy Benefits

Employers choosing a transparent PBM need economics, data, and decisions they can verify for themselves. As a modern PBM, we built our contract around that standard. We earn revenue through a fixed PMPM administrative fee and pass through 100% of manufacturer rebates, so our compensation does not rise with drug costs.

Plans pay what the pharmacy is paid, with no spread pricing. We do not own pharmacies, and our source routing is pharmacy-agnostic. Employers and brokers get plan data and plan-performance analysis through the SmithRx Partner Portal. Its audit trails and savings transparency let the benefits team and its broker review plan results directly.

Our mission is to reduce the cost and complexity of prescription drugs. We're committed to transparency and fair, auditable economics in everything we do. What's more, we're confident that this approach to pharmacy benefits yields superior outcomes. In 2025, SmithRx clients saw 20%+ lower PMPM than the industry benchmark, proving the value of true transparency and a 100% pass-through model.

Choosing a transparent PBM comes down to verification. The finalist worth selecting is the one whose compensation, definitions, data rights, and net cost hold up against your own claims. If you're interested in learning more about SmithRx's modern approach to pharmacy benefits, connect with one of our PBM experts.

Frequently Asked Questions

What is the difference between a transparent PBM and a pass-through PBM?

Transparency means the PBM discloses its compensation and gives the plan a way to verify it. Pass-through describes how pharmacy pricing, rebates, or other value reach the plan. Review the contract definitions and audit rights to determine how each applies.

What data should employers request from a PBM?

Request claims-level data that shows what the plan was billed, what the pharmacy was paid, member cost share, and rebates attributed to each claim. Confirm how often the PBM provides the data, whether it charges for access, and how the plan can audit it.

How can employers compare PBM bids on net cost?

Ask each finalist to reprice the same claims using the same formulary and plan design. Compare total net cost and per member per month costs, including fees and rebates, rather than relying on discount percentages or rebate guarantees alone.