Transparency vs. Alignment in PBMs: What’s the Real Difference?

Transparency has become a big selling point in pharmacy benefits. Pharmacy Benefit Managers (PBMs) are talking about clearer pricing, rebate pass-throughs, and fewer surprises in their contracts. Business Group on Health’s 2025 Employer Health Care Strategy Survey found that 25% of employers had a transparent PBM program in place in 2024, while another 40% were considering implementing one in 2026 or 2027.  

For employers trying to get a handle on prescription drug costs, greater transparency sounds promising. But what does transparency tell employers about how their pharmacy benefits are managed? Does knowing how a PBM makes money reveal whether it has a reason to keep their costs down?

For self-funded employers, the answer can shape how they evaluate their pharmacy benefits. To make sense of the promises PBMs are making, it helps to look beyond what a contract discloses and consider how the business model works.

What’s the difference between PBM transparency and financial alignment?‍

PBM transparency shows employers how their PBM makes money, including its fees, rebates, and pricing arrangements. Financial alignment examines whether the PBM’s financial incentives support the plan's goals, including controlling prescription drug costs and improving benefits for members. A PBM can disclose its revenue sources while still having financial incentives that conflict with a plan’s interests.

What does a transparent PBM disclose?

A transparent PBM contract should show employers how their pharmacy benefits are priced and administered. Depending on the contract, disclosures may cover:

• Administrative fees and compensation: What the PBM charges for its services and whether it receives other forms of revenue.
• ‍Manufacturer rebates and payments: What manufacturers pay in connection with covered drugs and how those payments reach the plan.
• ‍Pharmacy reimbursement: What the PBM pays pharmacies compared with what the plan is charged.
• ‍Pricing arrangements: Whether spread pricing, affiliated pharmacy arrangements, or other financial mechanisms affect the plan's costs.

A contract can disclose how a PBM earns revenue without showing whether its financial incentives support the plan’s goals. To see where conflicts can arise, it helps to look at the business practices behind those disclosures.  

What does true alignment look like?

True financial alignment means a PBM’s business model removes incentives to profit from decisions made on a health plan’s behalf. Judi Health CEO, AJ Loiacono, calls this ‘True Transparency,’ distinguishing it from ‘lower-t transparency.’ As AJ explains, disclosing fees and rebates doesn’t go far enough if a PBM or its parent company and affiliates can still profit from clinical decisions, formulary selection, or where prescriptions are filled.

Small-t transparency is a soundbite and a dangerous marketing ploy by legacy PBMs to self-funded plan sponsors.

- AJ Loiacono, CEO

Employers shouldn’t have to take a PBM’s word for it when it comes to controlling costs, they should be able to examine the business model behind their pharmacy benefits and see whether the incentives support their plan’s interests and the members it serves.

‍Judi Rx was built around this principle because the stakes go beyond a plan’s spending. When financial incentives support clinically appropriate, cost-effective care, employers can make better use of their healthcare dollars while helping members access the medications they need.

How do traditional PBM contracts create conflicts of interest?

Some PBM contract terms can reward decisions that increase a PBM’s revenue, even when those decisions may raise costs for a health plan. Four common practices illustrate where financial incentives can conflict with a plan’s interests:

Because a PBM's financial incentives can shape decisions made on a plan’s behalf, reviewing contract terms alongside claims and pricing data helps employers identify potential conflicts and evaluate how those incentives affect pharmacy benefit costs.

Why don’t higher PBM rebates always mean lower drug costs?

Higher PBM rebates don't always translate into lower net pharmacy costs. A bigger rebate can look like a win, but the savings need to be weighed against what a plan pays for the drug themselves. Rebate guarantees are easy to compare in a rebate proposal, which can make a larger number hard to ignore. The catch? A generous guarantee doesn’t tell employers what they’ll spend overall.

A 2024 national survey of 110 benefits leaders at self-funded employers published in The American Journal of Managed Care found that nearly two-third of respondents had rebate guarantees for specialty drugs. Those employers also placed greater importance on guarantees when selecting a PBM than employers receiving rebates without guarantees or no rebates at all.

High rebate strategies come with underlying high costs.

- Kristin Begley, PharmD, Chief Commercial Officer

The relationship between rebates and ingredient costs can be estimated using Kristin’s “reverse fiduciary test:” For every $1 in rebates earned can come with roughly $3.25 in ingredient costs. The exact relationship varies by drug mix and contract, but the key question for employers is: What does it cost to generate those rebates? Evaluating those costs means looking beyond the rebate guarantees to how the PBM’s contract rewards its business decisions.

What should employers look for in an aligned PBM contract?

An aligned PBM contract should make it easy to see how the PBM earns its revenue and verify that its financial incentives support the plan’s goals. A few provisions can help employers determine whether the contract delivers on that promise:

• A flat administrative fee. The PBM earns a defined fee for its services rather than making more money as prescription spending increases.
• ‍Full rebate pass-through. All manufacturer rebates and applicable payments are passed through to the plan, with clear reporting and reconciliation.
• ‍Consistent, verifiable pricing. The contract eliminates spread pricing and lets the plan reconcile what it pays with what pharmacies receive. Employers should also compare ingredient costs with rebate guarantees when evaluating projected net costs.
• ‍Full claims data access. Employers can access claims-level information down to the National Drug Code (NDC-9) level to examine prescription costs and drug utilization. Claims data also allows them to compare projected spending with actual claims and PMPM costs.
• ‍Clinically appropriate decisions. Formulary choices, prior authorization requirements, and refill policies should support appropriate care. Reviewing the drug mix and utilization patterns helps employers assess whether those decisions support the plan’s clinical and cost goals.

Pricing benchmarks offer another way to verify whether a PBM’s pricing model delivers what the contract promises. Judi Rx uses the NADAC, a publicly available benchmark based on pharmacy acquisition costs, to support pricing transparency.  

Employers also need access to the claims data behind their pharmacy spending to check costs and see how their benefits are being used. Our prescription data guide explains what data to request and how to put it to work.

What results can an aligned model deliver?

Rebate guarantees can look impressive in a proposal, but employers need to see how those promises translate into real pharmacy spending. Subaru of Indiana Automotive took a different approach after moving to Judi Rx, focusing on how its pharmacy benefits performed in practice.  

For Benefits and Compensation Manager, Julia Bryan, that meant looking beyond projected rebate savings. Subaru’s pharmacy trend came in at 4%, compared with an industry trend of about 11% the prior year, even with GLP-1 medications in the mix.

We validate our net cost now by measuring actual performance, not projected savings related to the rebates.

- Julia Bryan, SHRM-SCP, Subaru of Indiana Automotive

Julia emphasizes the importance of claims-level data, PMPM analysis, and accounting for drug mix when evaluating pharmacy benefit performance. Without that context, a trend figure alone can’t explain what’s driving pharmacy spending.  

Rice University offers another example of the results. After moving from a large coalition arrangement to Judi Rx and adding GLP-1 coverage for weight loss, the university saw its total drug costs decrease by 5% year-over-year after nine months.

Subaru and Rice illustrate why transparency need to go beyond rebate guarantees. Employers need to see how their pharmacy benefits perform in practice and have the data to verify those results. Individual results will vary, but True Transparency gives employers the information to evaluate performance, while financial alignment helps ensure the PBM has a financial incentive to deliver better value.

Ready to look beyond transparency?

Understanding how your PBM operates is a starting point, but making sure its financial incentives support your plan and the people who depend on it is where alignment comes in,

Learn how Judi Rx approaches pharmacy benefits with a model built around transparency and alignment.

Frequently Asked Questions: PBM Transparency and Financial Alignment

What is the difference between a transparent PBM and an aligned PBM?

A transparent PBM provides visibility into its pricing, fees, rebates, and revenue. An aligned PBM also structures its compensation so it doesn’t benefit financially from higher drug spending. Transparency reveals how the model works; alignment addresses the incentives behind it.

‍How do PBM rebates work?

Drug manufacturers pay rebates to PBMs under contractual arrangements, often based on covered drugs and other terms. How those payments are handled depends on the PBM contract. Employers should examine how much is passed through to the plan and compare rebate revenue with total prescription drug costs, since higher rebates don’t automatically mean lower net spending.

‍Why can higher PBM rebates lead to higher net costs?

A higher rebate may be associated with a more expensive drug or formulary. If the additional ingredient cost exceeds the rebate benefit, the plan can end up spending more overall. Employers should compare total net costs rather than rebate amounts alone.

‍How can employers identify spread pricing?

Employers can compare what their plan is charged for a prescription with what the PBM reimburses the dispensing pharmacy. They should review contract language for spread pricing provisions and request claims-level data that allows them to reconcile the two amounts. ‍

What should employers ask before renewing a PBM contract?

Employers should ask how the PBM earns revenue, whether manufacturer rebates and applicable payments pass through in full, how pricing can be verified, and whether claims-level data is accessible. They should also examine how the PBM’s financial incentives relate to its clinical and formulary decisions. Contractual commitments and supporting data provide a stronger basis for evaluation than general claims of transparency

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