Your PBM’s contract language determines the real costs and financial accountability behind your pharmacy benefit plan. However, when PBMs write their own custom agreements without any universal standard for definitions, vague and loose phrasing can create expensive loopholes that are easy to miss. Liviniti understands this dilemma and knows that what a contract actually says, rather than what it implies is essential to delivering a truly transparent pharmacy benefit.
“It is surprisingly common for a PBM contract to make no reference at all to the phrase ‘pass through,’ even when that label appears throughout the PBM’s marketing materials,” says Jennifer Johnson, Liviniti SVP of Sales. “Discounts and rebates listed on a spreadsheet mean little without contractual definitions behind them.” Jennifer points out that a sound contract should define exactly what the PBM considers to be a rebate, whether 100% of manufacturer-derived revenue is passed through to the employer, and the timing and method of rebate payment, among other terms.
Average Wholesale Price, she says, is also widely misunderstood. “AWP is not an average, and it is not an actual wholesale price,” Jennifer explains. “Instead, think of it more as the sticker price on a car. Plan sponsors who base contracts on AWP discounts without understanding how they work can be easily misled,” Jennifer explains. “Consider a single generic drug: same molecule, same strength, same therapeutic equivalence. Depending on which National Drug Code ends up on the claim, the billed cost can differ dramatically.”
Brand-versus-generic classification is another area worth watching, particularly when a contract includes performance guarantees tied to brand-to-generic ratios. Without clear contractual language preventing it, a PBM has room to shift how certain drugs are classified to help meet its own discount guarantees rather than processing pharmacy claims in the plan’s best financial interest.
Spread pricing, when a PBM charges the plan more than it pays the pharmacy that dispenses the drug, is often assumed to disappear once a contract is labeled “pass through.” That assumption can be wrong. Spread can still exist within less visible areas of the agreement, creating additional, hidden fees for the PBM.
The Consolidated Appropriations Act of 2026 has raised the stakes. Transparency is no longer a nice-to-have. It is a necessary defense related to fiduciary liability. A savvy broker that understands contract nuances and loopholes is in the best position to protect their clients.
Don’t let a PBM contract’s complexity or industry jargon cloud your analysis. Know which terms to evaluate, conduct regular audits, and partner with a PBM that is fully transparent by design rather than by marketing label alone. Tune in to hear more about this topic from Jennifer Johnson on the podchat, Don’t Let Your PBM Pick Your Pocket.