Pharmacy Benefit Managers (PBMs): Why Hospitals Should Pay Attention

Pharmacy Benefit Manager

Pharmacy Benefit Managers (PBMs) play a complex role in healthcare, managing employee pharmacy benefits, while also impacting hospital-owned pharmacy revenue. For hospitals, this dual exposure makes transparency around PBM pricing, contracts, and performance essential. As scrutiny and regulation increase, hospitals must take a proactive approach to managing these relationships. Pathstone helps hospitals navigate this complexity through a vendor-agnostic, data-driven approach — bringing transparency to PBM selection, optimizing financial performance, and aligning benefit strategy with clinical and operational goals.

PBMs and the Hospital Landscape

Acting as intermediaries between insurers, pharmacies, and drug manufacturers, PBMs are responsible for administering formularies, negotiating drug prices, and managing prescription benefit programs for employers, health plans, and other third-party payers.

In the hospital setting, however, their role extends beyond employee benefit administration. PBMs directly affect both what the hospital pays for employee prescriptions and the reimbursement it earns when those prescriptions are filled internally through hospital-owned outpatient or retail pharmacies.

As a result of this unique dual exposure, transparency into PBM pricing, contract terms, and reimbursement structures is essential. For hospitals, these factors are not just administrative concerns; they are strategic levers that influence drug spend, care access, and the financial performance of the health system’s pharmacy operations.

PBMs Under Scrutiny

PBMs have come under increasing scrutiny in recent years from policymakers, media, and healthcare stakeholders due to concerns that their business practices are contributing to rising prescription drug costs. Central to the debate are claims of inflated pricing structures, rebates designed to influence drug usage, and a lack of transparency — all of which raise broader concerns about fairness, accountability, and market dynamics.

A primary concern is spread pricing, where PBMs charge health plans more than they reimburse pharmacies for the same drug. This lack of transparency makes it difficult for hospitals and other plan sponsors to fully understand their pharmacy spend or assess the value of PBM services.

Vertical integration is another issue drawing scrutiny, in which some PBMs are part of larger organizations that also own retail pharmacies. This structure allows a PBM to manage the drug benefit while directing prescriptions to its own pharmacies — effectively controlling both the pricing and the dispensing of medications. Lawmakers worry that this reduces competition and limits patient choice.

Across the country, state legislators are beginning to respond by pursuing new regulations, reflecting a broader movement toward promoting competition, transparency, and fairness in how PBMs operate.

  • Arkansas enacted a law in April 2025 prohibiting PBMs or their subsidiaries from owning or acquiring retail pharmacy permits, in an effort to reduce conflicts of interest and support market competition.
  • Indiana’s Senate Bill 140 requires PBMs to maintain accessible and adequate pharmacy networks, ensuring patients are not restricted by narrow formularies or limited pharmacy access.
  • Iowa’s Senate File 383 passed June 2025 limits PBMs’ ability to steer patients or profit through spread pricing, while establishing an appeals process to protect rural and independent pharmacies from below-cost reimbursements.

As regulatory momentum builds, hospitals should stay informed about PBM-related policies, as these changes may directly impact employee health plans, pharmacy reimbursement, and patient access to medications, as well as impact on 340B pricing.

Case Study: Selecting a Strategic PBM Partner

Pathstone Partners recently supported a health system facing increased challenges with their PBM, who provided limited transparency around current pricing structures, discount/rebate guarantees, and data access, creating a lack of visibility and accountability that prompted the need for change. Thus, we partnered to conduct a comprehensive RFP process to evaluate, identify, and select a long-term, strategic PBM partner offering competitive and transparent pricing.

To support a robust and objective evaluation, a cross-functional committee with representatives from Human Resources, Finance, Pharmacy, Revenue Cycle, IT, and Nursing was established. This diverse team ensured a comprehensive review of vendors, balancing financial goals with operational and clinical priorities.

Vendor Types Considered

Three distinct PBM models were included in the RFP process, each offering a different approach to managing pharmacy benefits:

  1. PBM Coalitions: Collective of employers, health plans, and other entities that jointly negotiate and manage pharmacy benefits to achieve better terms and pricing through scale.
  2. Pharmacy Benefit Optimizers (PBOs): Independent organizations working with benefit consultants to optimize pharmacy arrangements with a focus on tailoring clinical programs, direct member services, and more aggressive pricing structures.
  3. Traditional (Direct) PBMs: Full-service third-party administrators that manage prescription drug plans for self-funded employers, health plans, and other entities, providing end-to-end pharmacy benefit services.
Financial Evaluation Criteria

To ensure meaningful financial outcomes, Pathstone evaluated vendors using several key cost metrics:

  • Drug Discounts: The competitiveness of discount rates, often expressed as a percentage off the Average Wholesale Price, is a key determinant of projected pharmacy spend. These rates vary by drug class (specialty, retail, and generic) and reflect the PBM’s ability to negotiate favorable pricing on behalf of the health system.
  • Rebates: Rebate guarantees, negotiated between PBMs and drug manufacturers, directly reduce net drug costs. The size and structure of rebates, often varying by drug class, represent a significant portion of overall pharmacy benefit savings.
  • Formulary Flexibility: Flexibility within a PBM’s standard formulary can reduce administrative burden and cost. The ability to adjust brand and generic coverage without creating a fully custom formulary is particularly important for hospitals seeking to balance cost control with clinical appropriateness.
Value-Added Services Evaluated

Beyond core financial components, several program features were identified as opportunities to enhance value for the hospital and its employees:

  • Biosimilar Conversion Support: Strategic support for transitioning to biosimilars (lower-cost, clinically equivalent alternatives to specialty drugs) and driving adoption within the employee health plan due to the required clinical stakeholder buy-in.
  • Co-Pay Assistance Programs: Programs that reduce out-of-pocket costs for employees through manufacturer support or co-pay offset mechanisms can improve medication adherence and affordability.
  • Clinical Programs: Integrated clinical services, such as medication therapy management, adherence monitoring, and chronic disease support, contribute to better outcomes and long-term cost control.
  • Other Innovations: Additional offerings, such as utilization management tools, digital engagement platforms, or reporting dashboards, which can provide operational efficiencies and enhanced oversight.
How Pathstone Partners Can Help

At Pathstone, we take a vendor-agnostic approach to PBM evaluations, helping health systems navigate the complexities of PBM selection with a focus on transparency, long-term value, and strategic alignment.

Our services include:

  • Procurement Support: Facilitating a fair and methodical sourcing process to identify and assess PBM options through a fully vendor-agnostic lens.
  • Pharmacy Benefit Strategy: Providing guidance on long-term PBM and pharmaceutical health plan strategy, including recommendations for formulary design and biosimilar adoption to maximize value across the health plan.
  • Model Evaluation and Fit: Supporting a structured comparison of the full range of PBM models by outlining the benefits, drawbacks, and trade-offs of each to identify the model that best aligns with your organization’s current needs and long-term goals.

Delivering Benefits Through Biosimilar Conversion

Health Care Financial Consultant Pharmacy Cost
Pathstone developed drove $767K in expected annual net margin enhancement.

A large 11-hospital health system in the southern region recognized a need for external support to identify and implement solutions to enhance net margin within their pharmacy operations. Upon analyzing initial core data, the pharmacy to convert several reference drugs to biosimilars, which are biological products that have no clinically meaningful differences in terms of safety, purity, and potency, to reference drugs. For example, the reference drug for Pegfilgrastim, an injection received after receiving chemotherapy to promote white blood cell development, is Neulasta, while approved biosimilars for Pegfilgrastim include Nyvepria, Fulphila, Udenyca, and Ziextenzo.

Initial opportunity was identified at ~$750K in annual net margin opportunity through converting Pegfilgrastim, Bevacizumab, and Trastuzumab to biosimilar products with higher net margins.

Pathstone’s pharmacy consultants began by segmenting purchases by reference drug category (e.g., Pegfilgrastim) and account type (e.g., 340B, GPO), and charges by account type and payor type (e.g., Medicare, Commercial). It was quickly determined that there was significant financial opportunity through converting biosimilar products for 340B Medicare.

Pathstone began the analysis focusing on Medicare given the reimbursement rates are publicly set by CMS through Healthcare Common Procedure Coding System (HCPCS). The highest net margin biosimilars for 340B Medicare were Nyvepria (Pegfilgrastim), Zirabev (Bevacizumab), and Ontruzand (Trastuzumab).

Pathstone subsequently investigated opportunity on the 340B Commercial side by examining fee schedules by payor for the top five commercial payors. The highest net margin biosimilars on the Commercial side were very similar to Medicare, with minor variance in the biosimilar with the highest net margin for a given reference drug. However, payors do not always reimburse for all biosimilars.

Over a ~six-month period of working with , biosimilar identification strategy that Pathstone developed drove $767K in expected annual net margin enhancement. As costs and reimbursement are subject to fluctuation, Pathstone developed methodology for tracking and monitoring realized net margin gains on a monthly basis to be able to pivot if and when other biosimilar products yield higher net margins.

Driving Value in Recurring Pharmacy Revenue

Health Care Financial Consultant Pharmacy
Over a 9-month period of working with our client, Pathstone was able to drive $5.56M in recurring revenue enhancements.

A large 4-campus health system in the southern region recognized the need for external support to identify and implement sustainable solutions to increase & maximize revenues within pharmacy. Pathstone was initially engaged to conduct a full-scale business case to identify opportunities within the pharmacy space, of which, 3 specific areas of pharmacy revenue cycle were moved to implementation.

Initial opportunity was identified at over $3.0M in recurring annual value through focusing on the following workstreams:

  • Rx Strategic Pricing: Restructuring pharmacy pricing methodology to be more transparent, more easily maintained and make up lost revenue during the client’s transition to charge on administration.
  • NDC Cost Update: Optimizing NDC cost updates through an evaluation and mapping of the current drug update processes and current technology capabilities.
    Rx Revenue Capture: Maximizing the revenue simultaneously improving on missed revenues

Pathstone formed a comprehensive team of stakeholders throughout the organization consisting of key leaders and operational owners within: Pharmacy, Revenue Cycle, Finance and Supply Chain. Recurring touchpoints with this team and other subcommittees generated the necessary momentum and buy-in to achieve maximum value and sustainable success.

Pathstone’s original business case gave excellent insight into the historical performance of this client, but ever-changing regulations and innovations made it necessary to garner new and refreshed data around billing & claims detail, charge master, drug database, revenue & usage, wholesaler catalog(s) and other policies and procedures.

Within each of the identified 3 workstreams the Pathstone pharmacy consulting team utilized a collaborative approach to tailor a solution that fit within the client’s department and organizational goals and objectives:

Rx Strategic Pricing

  • Meet net revenue goals by modifying markups and/or to include within annual increase in budgeted revenue
  • Mitigate lost net revenue during transition to charge on admin
  • Transition to charge on administration
  • Create strategy to modify markups to meet net revenue goals
  • Increase collaboration with Rx, care contract management and rev cycle
  • Simplify charges with increased transparency and defensibility

NDC Cost Update

  • Sustainability and maintenance of drug cost database
  • Streamline technology and database updates to optimize daily, weekly, monthly, quarterly and annual drug update processes
  • Evaluate other opportunities to optimize technology related to the drug database and revenue cycle

Rx Revenue Capture

  • Identify and recoup missed revenue on specific drugs
  • Complete full audit of pharmacy HCPCS code assignment, usage, correlating bills and collections

Key drivers of the significant value stream were concentrated on increasing the gross revenue by $195M, mitigating losses by transitioning to charge on administration, identification of over 165 ERX IDs without HCPCS codes.

Over a 9-month period of working with our client, Pathstone was able to drive $5.56M in recurring revenue enhancements.

Employee Health Plan Prescription Drug Revenue & Net Margin

Health Care Financial Consultant Lower Prescription Dug Cost
Pathstone worked to ensure CMM program met 340B Drug Pricing Program requirements and increased overall 340B capture rate.

A multi-hospital health system on the west coast partnered with Pathstone to evaluate Employee Health Plan pre-rebate prescription drug spend ($40M+ annually). The health system was interested in internalizing services where the quality of care could be improved, and financial value could also be achieved. Pathstone identified an opportunity to develop a Comprehensive Medication Management (CMM) program for health plan patients and achieve maximum system annual benefit of $8.2M by capturing 519 covered lives in the first and second phases of implementation.

CMM is defined as the standard of care that ensures each patient’s medication (i.e., prescription, nonprescription, alternative, traditional, vitamins, or nutritional supplements) are individually assessed to determine that each medication is appropriate for the patient, effective for the medical condition, safe given the comorbidities and other medications being taken, and able to be taken by the patient as intended. CMM includes an individualized care plan that achieves the intended goals of therapy with appropriate follow-up to determine actual patient outcomes. This all occurs because the patient understands, agrees with, and actively participates in the treatment regimen, thus optimizing each patient’s medication experience and clinical outcomes.

Pathstone reviewed claims data for the full scope of Employee Health Plan members (28,000+) to better understand the current prescription drug landscape. Our pharmacy consulting experts synthesized relevant information to identify the following:

  • Dispensing Pharmacy Landscape – prescription drug revenue varies based on dispensing pharmacy’s relation to health system (hospital-owned pharmacy, contracted pharmacy, other pharmacy).
  • 340B Capture Rate – prescription drug net margin varies based on account type (340B, GPO, WAC).

Upon review, Pathstone determined that only 10% of claims spend was being dispensed at a hospital-owned pharmacy and determined significant opportunity ($11M+) to increase 340B capture rate via qualification of the 340B Drug Pricing Program.

The 340B Drug Pricing Program is a federally based drug purchasing program that enables hospitals to save millions of dollars annually. As a requirement for their medications to be covered by Medicaid, manufacturers must agree to provide medications to certain covered entities at significantly reduced prices (i.e., 340B price). To participate in the program, covered entities must meet certain criteria and comply with program requirements (e.g., maintain OPAIS data, recertify eligibility, prevent diversion to ineligible patients, prepare for audits).

Pathstone formed a cross-functional team of C-Suite, Supply Chain, Pharmacy, and Health Plan stakeholders to develop a CMM service for a subset of targeted qualified members. The team worked closely to establish a comprehensive workflow including steps for patient identification and outreach, referral process, and prescription qualification measures for the program to achieve maximum value:

  • Increase Drug Revenue: Pathstone partnered with the pharmacy team to optimize the dispensing pharmacy landscape by routing the maximum number of prescriptions to either a hospital-owned pharmacy or contracted pharmacy
  • Increase Net Margin: Pathstone worked with the health system to ensure CMM program met 340B Drug Pricing Program requirements and increased overall 340B capture rate

How Supply Chain Management Can Reduce Hospital Costs

Health Care Financial Consultant Supply Chain

SCM & Hospitals

Supply chain leaders within healthcare are under immense pressure to reduce cost across their systems. In the US alone, hospitals are estimated to lose $54 billion in net income in 2021.

Robust utilization data is one way that healthcare supply chain leaders can increase their bottom line and improve the revenue management cycle. Dynamic access to “centralized, consumable, and real-time data allow health systems to determine what’s needed, what’s in stock, and the scope of future demand.” Hospital supply chain systems employ data across their system to capture demand, eliminate waste, and avoid redundancy.

Eliminating waste and redundancy across the medical supply chain is just one example. Supply chain knowledge and data can be employed across a health system to achieve price reductions, utilization optimization, and standardization that drive value to the health system.

Does the Healthcare Supply Chain Affect Patient Outcomes?

In today’s value-based care model, health system leaders are required to improve patient outcomes despite the necessity to reduce cost. In particular, supply chain management in the healthcare industry plays a critical role in improving patient outcomes to achieve reimbursement through incentive alignment.

For example, decisions surrounding supply selection solicit feedback from the hospital supply chain teams and clinicians to optimize patient outcomes and source cost-effective supplies. These teams can be aligned through detailed data. Utilization and clinical outcomes data provide the opportunity for medical supply chain teams and clinicians to make decisions that achieve the goals of the health system. Linking supply chain related items such as product standardization to patient outcomes enable these teams to align on the most cost-effective and clinically optimal choice.

What is the Future of the Healthcare Supply Chain?

Supply chain management is a critical function in the healthcare industry. The elimination of unnecessary costs, patient outcome improvement, and increased reimbursement are only a few of the significant benefits optimal supply chain management provides. Emphasis on data collection and employment, incentive alignment, and vendor management are a few avenues that healthcare organizations can utilize to achieve these goals in the future.

At Pathstone Partners, we specialize in helping healthcare systems across several different markets navigate the complexities of their supply chain. With our years of experience in clinical purchased service and supplies, we can assist with everything from supplier contract review to price negotiations.

Contact us online to learn more about our healthcare consulting solutions and how we can help create efficiency in your supply chain.