Coalition PBM Pricing and the Benchmark Problem: What Plan Sponsors Are Actually Comparing
Coalition PBM Pricing and the Benchmark Problem: What Plan Sponsors Are Actually Comparing
Most plan sponsors who ask whether their pharmacy benefit arrangement is competitive receive a confident answer. It is usually some version of this: our pooled pricing outperforms what you would get negotiating alone against Caremark, Express Scripts, or Optum.
That answer is frequently accurate. Pooled purchasing volume produces genuine leverage, and coalition pricing may well beat a stand-alone contract with one of the three largest pharmacy benefit managers.
It is also the wrong comparison — and a fiduciary who accepts it without asking what else could have been measured has a documentation problem, not a pricing problem.
The comparison most committees are shown
A benefits committee reviewing pharmacy spend is typically handed a two-column analysis: current arrangement on the left, Big Three benchmark on the right. The current arrangement wins. The committee notes the result, thanks the presenter, and moves to the next agenda item.
The structural issue is that both columns describe the same category of arrangement. Traditional PBM contracts and many coalition arrangements share the same features that make cost hard to evaluate: spread pricing, retained rebates, and compensation to intermediaries that the plan sponsor never sees broken out.
Measuring one against the other confirms which opaque model is less expensive. It does not tell the committee what the plan would pay in a model where nothing is opaque at all.
The distinction that matters
Coalition pricing versus a Big Three contract compares one opaque model to another. The relevant comparison is coalition pricing versus a transparent, fiduciary PBM — where every fee is disclosed, all rebates pass through to the plan, and the plan sponsor's interests are the only interests being served.
Why an incumbent may decline to participate
Plan sponsors are sometimes surprised when an incumbent arrangement will not participate in a third-party evaluation. The reasoning is not mysterious.
Pricing in these arrangements is frequently contingent on volume staying in place. The moment that pricing is disclosed to an independent evaluator, it becomes directly comparable to alternatives — including alternatives structured to eliminate the revenue streams the incumbent depends on.
Those streams commonly include administrative override fees, per-member-per-month payments, and rebate splits or back-end incentives. An independent process surfaces all of it. Reluctance to participate is not proof of wrongdoing. But it is information, and a committee should treat it that way.
Four areas where compensation is difficult to see
When Culpepper RFP reviews pharmacy benefit arrangements, four areas surface repeatedly. None of them are unusual. All of them are worth a documented answer.
1. Compensation shifted into adjacent programs
Some intermediaries route PBM-derived income through voluntary benefits programs or other adjacent lines of business, which has the effect of understating how much of their revenue originates from the pharmacy arrangement. The remedy is procedural: request a complete, itemized accounting of all compensation — direct and indirect — received from any PBM or related entity.
2. Contract terms amendable without plan sponsor consent
Compensation is often calculated on gross sales less dispensing fees. In many arrangements, the intermediary and the PBM retain the right to amend contract terms at any time, without the plan sponsor's knowledge or approval. Plan members may be named parties to the contract while the plan sponsor has no practical control over its terms. That is a material fiduciary exposure and it belongs in committee minutes.
3. Fees passed through inside drug pricing
Whether structured as a percentage of sales or a per-script charge, intermediary fees are frequently passed through to the plan as inflated drug prices rather than as a separate line item. This is the single largest obstacle to determining effective cost. It is also why a spreadsheet comparison of headline discount rates tells a committee very little.
4. Undisclosed RFP participation fees
When some firms run RFP processes, PBMs are charged a fee to participate. That cost is routinely passed back to plan sponsor clients without disclosure. A committee should confirm whether any such fee is embedded in its current arrangement or in any proposal it is evaluating — including proposals produced by a process it did not control.
What the market is moving toward
The shift away from bundled, traditional PBM arrangements is no longer confined to early adopters. Employers are moving toward two structures.
Modular arrangements separate the functions — pharmacy benefits, specialty pharmacy, formulary management — and contract each to a best-in-class vendor rather than bundling everything through one PBM. Transparent, pass-through arrangements keep a single administrator but change the economics: all rebates pass through to the plan, all fees are disclosed, and the PBM earns a stated administrative fee rather than profiting from spread pricing or back-end manufacturer arrangements.
These are not fringe decisions. Eli Lilly moved roughly 23,000 employees from a Big Three PBM to a transparent alternative in early 2026. Genentech contracts with the same transparent model, and Tyson Foods made a comparable move in 2024. When a manufacturer that helped build the rebate system declines to keep operating inside it for its own workforce, that is a market signal — and increasingly, a reference point regulators can use.
Sequence matters: finalize the formulary before the bid
One practical failure appears often enough to name it. A plan sponsor runs a competitive process while formulary decisions remain open, intending to settle them with the winning vendor.
The result is a bid that cannot be accurately priced. Each vendor responds against its own assumptions. The committee compares numbers that were never comparable, selects one, and then watches actual cost diverge once the formulary is finalized. The documented decision no longer matches the arrangement it produced.
When a specific formulary and real utilization data are built into the process before it is issued, the evaluation becomes genuinely apples-to-apples — and the documentation supports the outcome instead of contradicting it.
The questions to bring to your next committee meeting
Before scoping any evaluation, a committee should be able to answer three things.
What models are we actually willing to consider? If the committee will only evaluate options within a coalition structure, the scope of any RFP is limited before it begins — and so is the potential for both savings and compliance clarity.
Do we want a custom formulary? If yes, it must be finalized before the RFP is issued, not developed afterward.
Have we ever requested a complete accounting of indirect compensation? Not whether it exists. Whether it was requested, in writing, and documented.
Process is the standard
Fiduciary standards do not require plan sponsors to secure the lowest possible price. They require a prudent process — evidence that the committee asked the right questions, gathered comparable information, and can explain how it reached a decision.
A comparison against a benchmark the plan had already rejected does not meet that standard, no matter how favorable the result looks. A comparison against a fully transparent model does, whether or not the plan ultimately changes anything.
The value of an independent evaluation is not that it always produces a different vendor. It is that it produces an answer the committee can defend.
About Culpepper RFP
Culpepper RFP is an independent, third-party evaluation firm with no financial relationships with PBMs, coalitions, or broker networks. We produce the documentation, comparisons, and audit trail plan sponsors need to demonstrate a defensible process — and the confidence to stand behind the decisions that follow from it.
