At AMCP Nexus 2025, Jennifer Cruz, PharmD, and Nguyen-Khang Tran-Tan, PharmD, RPh, MBA, ALM, presented a pragmatic view of how pharmacy benefit manager (PBM) contracting is evolving. Their message was clear: PBM contracts must be treated as living strategic documents, not static agreements. When written and managed correctly, they safeguard compliance, improve clinical alignment, and deliver measurable financial performance.

Building Transparency Into the Contract

Cruz began by addressing the central theme of transparency—a term frequently used but often poorly defined in practice. True transparency, she explained, is not a marketing slogan but a contractual right to access the data and mechanisms that shape total drug cost. This includes clarity around pricing sources, rebate flows, fee structures, and auditability. Even subtle differences in contract wording can have significant implications; a misplaced conjunction can alter financial outcomes or weaken oversight.

She drew a key distinction between spread pricing and pass-through (transparent) pricing. In a spread model, the PBM retains the margin between what it charges the plan and what it pays the dispensing pharmacy. A pass-through arrangement, by contrast, reimburses the PBM through a stated administrative fee, either per claim or per member. The latter, Cruz argued, provides a foundation for genuine visibility and accountability.

Equally vital are the reference points underpinning these arrangements—National Average Drug Acquisition Cost (NADAC), Average Wholesale Price (AWP), and Maximum Allowable Cost (MAC) lists. Cruz emphasized that MAC lists should be treated as contractual artifacts. Health plans must retain the right to access them, be notified of any updates, and understand how those changes affect reimbursement and guarantees. Without such provisions, pricing oversight becomes nearly impossible.

The Complexities of Value-Based Design

Value-based contracting remains a popular aspiration but is still rare in comprehensive PBM agreements. Cruz noted that most current models incorporate a traditional administrative-fee structure supplemented with performance guarantees tied to clinical outcomes. Success depends on precise definitions: what is being measured, how often data are reviewed, and what qualifies as an “intervention.”

She described a recent negotiation involving a program billed “per engaged member per month,” where the ambiguity of the term “engaged” risked confusion and dispute. Engagement must be explicitly defined—such as verified 2-way contact over multiple interactions—so that the resulting metrics can be enforced. Similarly, performance guarantees should be measurable, realistic, and fully understood by both contracting parties. A misunderstanding between a help desk and a member call center, for example, once led to a year of inaccurate reporting.

Cruz also warned against offsetting performance across different contractual areas. Overperformance in one channel, such as mail order, should not erase underperformance in another. Likewise, rebate guarantees and pricing guarantees should remain financially separate to preserve their individual integrity.

Knowing When to Renegotiate

Cruz encouraged attendees to be proactive in addressing underperformance or dissatisfaction with a PBM rather than waiting for gradual improvement. Common warning signs include repeated missed deadlines, unresolved member complaints, and declines in financial return. Well-drafted contracts should provide mechanisms to address these issues through audits, annual market checks, and termination clauses that allow timely disengagement, ideally within 6 months rather than a year.

Contract duration is another strategic consideration. A 3-year term with an immediate market check provides flexibility, while a 5-year term demands early planning for renewal or renegotiation. Cruz also stressed the need for flexible language that can adapt to a rapidly changing marketplace. Recent announcements around point-of-sale discounts and evolving rebate structures underscore the volatility of the sector. Contracts should define what constitutes a “market event,” set a reasonable threshold for material change, and establish a process for renegotiation without constant reopening of terms.

A Managed Care Playbook for PBM Procurement

Tran-Tan expanded the discussion by outlining the organizational processes required to manage PBM procurement successfully. In his experience at Community Health Choice, effective contracting begins long before the first request for proposal (RFP) is issued.

The process starts with a thorough internal assessment that examines delegated and retained functions across departments such as pharmacy, finance, compliance, and IT. Pain points must be clearly identified—whether related to network pricing, rebate guarantees, prior authorization management, or system integration. Often, the most impactful improvements come from operational transparency and technology access rather than from headline rebate numbers.

He emphasized the importance of executive sponsorship and organizational capacity. Implementing a new PBM or renegotiating an existing contract is an enterprise-wide effort that may require up to a year of preparation and system alignment. One of his teams, despite identifying considerable savings, ultimately postponed a switch after realizing the organization lacked the resources to execute the transition without disrupting ongoing initiatives.

When determining whether to renegotiate or pursue a full request for proposal (RFP), plans must weigh their goals. Incremental improvements to pricing or rebate terms can often be achieved through targeted renegotiation supported by a market check. Broader reform or dissatisfaction with service quality may justify a full procurement cycle.

During evaluation, Tran-Tan advised combining qualitative and quantitative analyses. Proposals from competing PBMs are typically extensive, requiring weeks of review and cross-departmental scoring. Financial modeling should apply each PBM’s proposed pricing and rebate structures to actual plan utilization data. Implementation costs, transition timelines, and potential credits offered by PBMs must all be incorporated into the total economic assessment.

In negotiation, prioritization becomes crucial. Not every provision can be optimized, and efforts should focus on the elements that most directly influence performance: network pricing, rebate transparency, specialty management, and audit rights. When talks reach an impasse, data transparency and executive involvement often provide a path forward.

Carve-Outs and New Entrants: Opportunity or Risk?

Audience questions about “modular” PBM contracts—where plans carve out specific services such as prior authorization or rebate management—sparked a nuanced discussion. Cruz acknowledged that carve-outs can deliver cost savings but warned that they introduce additional layers of coordination among vendors. Integration across data systems and consistent definitions of drug categories and performance measures are essential to prevent operational fragmentation.

Both speakers also cautioned about emerging PBMs entering the market. While smaller vendors may promise lower prices, many rely on the infrastructure of larger PBMs for adjudication platforms or rebate negotiations, meaning that portions of their economics flow back to the same dominant entities. In addition, some lack experience managing Medicare or Medicaid programs, which can create compliance risks for managed care organizations.

A Framework for Sustainable Partnership

Throughout the session, both speakers emphasized that success in PBM contracting is not measured by one-time savings but by the establishment of a sustainable, data-driven partnership. Key features of such agreements include consistent drug classification across pricing and rebate systems, clear MAC governance, separation of pricing and rebate guarantees, defined ownership of data for value-based programs, and built-in flexibility for market change.

In closing, Cruz and Tran-Tan underscored that managed care pharmacists occupy a central role in this evolution. Their understanding of both clinical nuance and operational detail enables them to shape contracts that are not only compliant but also strategically aligned with patient outcomes and organizational stability.

Effective PBM contracting, they concluded, is less about winning individual terms and more about constructing a framework that can perform reliably amid regulatory scrutiny and continual industry change. In that sense, it is not just a contract, it is a cornerstone of managed care strategy.

Reference

Cruz J, Tran-Tan NK. PBM Contracting for Managed Care Plans: Emerging Trends and Best Practices. Presented at: AMCP Nexus 2025; October 27-30; National Harbor, MD.