Opaque Contracts & Rising Fiduciary Risk

Most PBM contracts are not written to protect the plan sponsor. In his career, Steven Ditto has reviewed contracts as long as 150+ pages, filled with contradictory provisions and definitions that obscure how money moves.

Now, employers don't have to be in the dark when it comes to the overall alignment and CAA readiness of their PBM contract. Nautilus's contractxray.com and CAA Readiness Report scores contracts on a scale where 90–100 is strong and anything under 60 is a red flag. Notably, the majority of PBM contracts they've reviewed fall under that red flag threshold, which means the terms limit a plan sponsor's ability to meet its fiduciary obligations.

Several contract mechanics drive that misalignment. Benefits leaders should watch for the following terms:

• Rebate definitions that recharacterize parts of rebates as "fees" to shrink guaranteed pass-through.

• Spread pricing that lets the PBM keep the margin between what it charges the plan and pays the pharmacy.

• Vertical integration that steers prescriptions to PBM-owned pharmacies and white-labeled drugs.

• Restrictive data, audit, and termination rights that can trigger repricing or lost rebates when the plan makes changes.

The rebate trap deserves particular attention. Rebates are funded by inflating a drug's list price, so a contract touting rebate guarantees can raise net cost rather than lower it. The sickest members on so-called "specialty drugs,” especially those paying toward a high deductible, effectively fund those rebates through higher point-of-care prices. Specialty drugs concentrate this problem: the Drug Channels Institute reports that over 65% of legacy-PBM affiliated pharmacy profits come from specialty drugs alone.

“Go find the six hundred dollar biosimilar, not the thirty-three thousand dollar biosimilar, and everybody wins. Plan pays less, the patient pays less, and the only person or the only organization that doesn't pay less or win in that is the PBM that's probably taking a big portion of that home." 

- Steven Ditto, Nautilus Health

Marketing language compounds the confusion. Words like "transparent," "pass-through," and "fiduciary aligned" now appear even in contracts that score poorly on disclosure, audit rights, and data rights. This is where legacy PBM economics can hide behind modern PBM vocabulary, and it is why the specific contract terms matter more than the label a vendor claims.

Key Strategies for CAA Readiness & Alignment

Luckily, employers aren't on their own to navigate the complex PBM market. Transparency-minded organizations like Nautilus Health have outlined a repeatable approach that moves plan sponsors from guesswork to documented diligence.

1. Score the Contract With Contract X-ray

Nautilus convened about 30 PBM experts and benefits lawyers to build roughly 35 model contract clauses covering fiduciary, operational, financial, and clinical terms. For CAA readiness, they narrowed the focus to 10 key provisions and scored each one against model language.

The rubric is deliberately simple. Each provision receives one of three scores:

• 0 when the provision is not mentioned in the contract.

• 1 when it is written against the plan sponsor.

• 5 when it meets model language.

A quick-look snapshot scores a contract in about a minute, while a detailed review produces a scorecard plus roughly 12–13 pages of negotiating guidance. The tool measures the contract itself, so sales decks and marketing claims carry no weight in the score.

2. Build a Documented Procurement Process

Fiduciary duty rests on diligence and prudence, and plan sponsors need a decision-making framework they can point to. Ditto's guidance is to only evaluate truly aligned partners. Score contracts first, shortlist the PBMs that score well, and require a contract that passes the standard before advancing a vendor. A documented, repeatable process is the protection ERISA expects.

“Score these contracts. The ones that score really well are basically the ‘good pond, the right pond,’ then go fish in there and you're gonna come up with a good result and you're likely to have a fiduciary-aligned partner who's going to support your obligations." 

- Steven Ditto, Nautilus Health

3. Evaluate Net Cost and Control Beyond Discounts

Headline discounts and rebate guarantees can mask higher net spend, so benefits leaders should press vendors on accountability. Plan sponsors should be asking potential PBMs during request-for-proposal (RFP):

• Do I have full data access to verify actual net cost and audit what the plan pays?

• Do I have visibility into the formulary and pharmacy network, free of conflicts from PBM-owned pharmacies?

• Is pricing platform-based, with no cross-subsidization between clients?

• Are there clinical guarantees, such as moving members to a lower-cost biosimilar, backed by real accountability?

Track per member per month (PMPM) net spend over time, measured after all discounts and rebates. That single metric ties contract terms to plan performance more honestly than a discount or rebate volume spreadsheet.

Frequently Asked Questions

Why can a contract touting rebate guarantees cost more instead of less?

Rebates are funded by inflating a drug's list price, so net cost rises. For example, a few hundred dollar biosimilar can replace a brand alternative with a $20,000 price tag, and only the PBM loses revenue when the plan chooses the lower-cost option.

What does the CAA mean for plan sponsors?

The CAA adds data-reporting requirements and mandatory audits, giving employers a flashlight into the black box. It does not fix PBM behavior on its own, and it shifts more fiduciary responsibility onto employers to act on the data. Provisions phase in through 2029, yet they reflect fiduciary best practice today.

How should employers evaluate a contract instead of comparing overall discounts?

Score the contract's fiduciary, financial, data, audit, and termination provisions, then shortlist the PBMs that score well. From there, track net PMPM spend after rebates over time rather than headline discounts.

Moving Toward a Modern, Transparent Model

CAA readiness starts with knowing what your contract really means and whether it supports your fiduciary duties. Modern PBM contracts make net cost, data access, and clinical execution visible, which gives benefits leaders the evidence they need to protect both plan performance and member outcomes. In Nautilus's Contract X-ray review, SmithRx scored "excellent" and "CAA 2026 ready," with audit provisions Ditto contextualized as especially strong for the industry.

You can access SmithRx's Scorecard here and request your own contract evaluation at contractxray.com. If you'd like to learn more about how SmithRx can deliver top-scoring pharmacy benefits, reach out to a member of our team.