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PBM Spread Pricing

A PBM business practice of charging a health plan more for a drug than the PBM reimburses the pharmacy, retaining the difference as profit.

How It Works

Spread pricing is one of the most controversial PBM revenue streams. A PBM may bill a state Medicaid managed care plan $200 for a generic fill, reimburse the dispensing pharmacy $40 (close to NADAC), and retain the $160 spread as undisclosed compensation. State audits have documented multi-billion-dollar spread totals: Ohio Medicaid's 2018 audit found its three contracted PBMs retained approximately $224 million in spread on generics over one year (an 8.8% effective retention rate). Kentucky, New York, Michigan, and Louisiana ran similar audits and all found spread in the hundreds of millions. The FTC's 2024 interim staff report documented spread exceeding 3,000% on some specialty generics within the "big three" PBMs (CVS Caremark, Express Scripts, OptumRx). In response, more than two dozen states have enacted spread-pricing bans or transparency laws for Medicaid, forcing pass-through pricing models. Spread pricing is distinct from manufacturer rebates (post-sale discounts from manufacturer to PBM) and from DIR fees (pharmacy direct and indirect remuneration fees collected retrospectively). The IRA did not directly address spread pricing, but the Part D redesign's increased plan liability in the catastrophic phase has reduced PBM incentive to steer toward high-list/high-rebate drugs. Federal PBM reform bills (the Pharmacy Benefit Manager Reform Act, the Patients Before Middlemen Act) would ban spread in Medicare and require pass-through contracting.

Related Terms

  • Pharmacy Benefit Manager (PBM), A company that acts as a middleman between drug manufacturers, insurers, and pharmacies, negotiating drug prices, managing formularies, and processing claims.
  • Manufacturer Rebate, A post-sale discount paid by a drug manufacturer to a PBM or insurer in exchange for favorable formulary placement, reducing the effective net price below the list price.
  • National Average Drug Acquisition Cost (NADAC), A CMS-published benchmark reflecting the actual average price retail pharmacies pay to acquire drugs from wholesalers, updated weekly.
  • Wholesale Acquisition Cost (WAC), The manufacturer's list price for a drug sold to wholesalers, often called the "sticker price" before any rebates or discounts.

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About This Definition

This definition is part of the DrugPrice Drug Pricing Glossary, 49 terms explaining how prescription drug pricing works in the United States. All definitions are written in plain language for patients, caregivers, journalists, and healthcare professionals.

this entity is one of the U.S. Medicare prescription-drug pricing concepts that recurs across this site. The definition above is the technical answer; the paragraphs below add the practical context for how the concept connects to the CMS Medicare Part D Drug Spending data data behind every per-entity page on the site.

In the CMS Medicare Part D Drug Spending data data, this concept shapes one or more of the fields that drive the per-entity grades and rankings on this site. The methodology page describes which fields feed into which output; this glossary entry documents the underlying term.

Source: CMS Medicare Part D Spending, 2026.