Your PBM Says It Passes Through 100% of Rebates. It's Not Lying. It's Just Not Telling You Everything.

The Rebate You See Isn't Always the Rebate That Started

Some PBMs are transparent. Some really do try to align with the employer. That matters, and it should be said plainly.

The problem is where most of the market still sits. The bulk of prescription volume still moves through the three largest PBMs and their affiliated entities. So even if transparent options exist, most plan sponsors are still buying into a system where key economics can be stripped out before the so-called pass-through ever begins.

Your contract may say 100% rebate pass-through. That may be technically true. But if money is removed upstream through an affiliated Group Purchasing Organization, or GPO, then 100% is being applied to a smaller number than you think.

What the Big PBMs Don't Emphasize

The three largest PBMs use affiliated GPOs to negotiate manufacturer rebates. The FTC's 2024 PBM report documented how vertically integrated PBM structures create layers where economics can be extracted before reaching the plan sponsor. By the time those rebates get passed through to the health plan, administrative fees may already have been retained upstream. That means the full manufacturer rebate never reaches the pass-through pool in the first place.

That does not mean every PBM works this way. It means the dominant players in the market have built structures that can make rebate reporting look cleaner than the underlying economics really are.

Where the Dollars Actually Go

Here is the simplified version.

The drug manufacturer pays rebates tied to utilization and formulary positioning.
An affiliated GPO may receive those funds first.
The GPO retains administrative fees or similar charges.
The remaining balance flows down to the PBM or the client as the reported rebate.

So when a PBM says it passed through 100% of rebates, the real question is this: 100% of what amount?

Rebate Flow Comparison
Step	Transparent Model	Opaque GPO Model
Manufacturer pays rebate	Rebate is accounted for directly	Rebate may first flow through affiliated GPO
Upstream fees	Minimal or contractually disclosed	Admin fees may be retained before pass-through
Reported rebate to plan	Closer to gross rebate value	Only the remainder after upstream deductions
"100% pass-through" claim	Often means what employers assume	May be technically true, but on a reduced base

This Is Really a Market Share Story

The key issue is not that every PBM is hiding something. It is that most drug spend is still concentrated in a few very large PBMs. If roughly 80% of claims are moving through the biggest players, then the market standard is still being set by the least transparent part of the system.

That leaves plan sponsors in a bad spot. They hear “100% pass-through” and assume they are seeing the whole economic picture. In many cases, they are only seeing the remainder after other entities in the chain have taken their cut.

Why This Matters More on High-Cost Drugs

This issue becomes more important as specialty drug spend grows. The biggest rebates tend to sit on the highest-cost therapies. If upstream fees are being calculated off those rebate streams, then the largest dollars are being retained exactly where employer exposure is already the highest.

That is why rebate guarantees alone are not enough. A rebate line item can look strong while total net drug cost still remains inflated.

What Employers Should Ask

You do not need to assume your PBM is acting in bad faith. But you do need to ask better questions.

Does the PBM own, control, or use an affiliated GPO tied to manufacturer rebate contracting?
Are any administrative fees, service fees, or retained amounts taken before rebates are reported to the plan?
Can the PBM disclose gross rebates, retained amounts, and net rebates separately?
Are those disclosures written into the contract, not just promised in a sales presentation?
How does total net drug cost compare to transparent market alternatives?

The Real Question

The question is not whether all PBMs are bad. They are not.

The question is whether your PBM is showing you the full picture, and whether the dominant structure in the market is designed to benefit the plan sponsor or the intermediaries sitting in front of it.

A pass-through promise can be real and still leave out the most important part of the story.

How you structure the pharmacy benefit in the first place shapes what you can even see. The carve-out vs. carve-in decision is where employers gain or lose the leverage to ask these questions at all.