Beyond the Discount: Rethinking Pharmacy Benefits with Radical Transparency

Pharmacy benefit managers (PBMs) were originally created to sift through the complexity of the pharmacy supply chain, promising to work with manufacturers and insurers to secure the best deals for plan sponsors. Instead of delivering on that promise, legacy PBMs have built a system that exclusively suits their own interests, leaving employers to combat needless complexity, opacity, and costs at every turn.

Fortunately, this isn’t the only option for plan sponsors. Modern, forward-thinking PBMs have emerged with a radically different focus: aligning their interests with employers and members. 

Alissa Johnson, Senior Director of Clinical Strategy for SmithRx, recently pulled back the curtain on this new class of modern PBMs and the dependable, “open-book” savings they offer with From Day One. Catch the full webinar below, or keep reading, to hear from Alissa on the future of pharmacy benefits.

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Why Pharmacy Costs Keep Climbing

Pharmacy spend now represents 25-30% of total healthcare costs for most employers. The three main drivers of this cost surge are:

• Massive innovation with new, emerging technologies and drug categories such as biologics

• The shift of specialty drugs from a medical service (provider-administered infusions) to at-home administered injections 

• Consistent brand-name inflation and legacy pricing games made possible through handshake deals and vertical integration

"I've been a pharmacist for almost 20 years and one of the greatest things that have happened is tremendous innovation, meaning we have a lot of drugs that act in new ways and treat diseases that we didn't have previously."

Alissa Johnson, Senior Director of Clinical Strategy for SmithRx

Compounding the cost increases due to the natural evolution of the pharmaceutical industry are the poor practices of legacy pharmacy benefit managers. To understand how they can so drastically inflate prices, let’s compare how these PBMs are fundamentally different from more modern benefit managers.

The "Foggy" PBM Industry: Legacy vs. Modern Models

Legacy PBMs often rely on vertical integration (owning the pharmacies, wholesalers, and even manufacturers they negotiate with), which can lead to misaligned incentives. To explain the difference between legacy “discount” based models and true cost-conscious PBM models, let’s make the analogy to shopping for groceries.

Imagine you’re at the grocery store comparing brands of milk. A gallon of milk from brand A is $12 is 50% off, resulting in a $6 cost; this is the legacy “discount” model. Brand B simply sells its gallon for $5 with no discount; this is the modern cost-based model. 

If you look for the best discount, then the legacy milk looks really attractive. In reality, it still falls short of being the better deal. Now imagine this is a common medication, like an asthma inhaler, that plan members likely fill often. At scale, those dollars add up to be millions in unnecessary spend. It’s also not just the plan that suffers, members end up paying more at the pharmacy too. 

You may be wondering how this has gone unnoticed for the over 80% of businesses who work with legacy PBMs—and it’s because legacy PBMs have buried the data employers need to make informed decisions. SmithRx, by contrast, has baked radical transparency into its operations, providing 100% access to the data (down to the claim level) employers need to make the right decisions for their business. 

Aligning PBM Practices to Business Outcomes

To take control of pharmacy spend, employers must shift their focus from front-end discounts to the actual acquisition cost. This requires a move toward fiduciary-aligned models, where the modern PBM acts in alignment with the best interests of the health plan and its members.

A true modern PBM will optimize for the lowest net cost option, rather than favoring its own pharmacies or preferred drug manufacturers. This approach is particularly effective with traditionally high-cost drugs like biologics. While many legacy PBMs claim to support biologic cost-containment measures such as biosimilars (a biological product that is highly similar to an already FDA-approved biologic), actual industry switch rates hover around 40-50%. 

SmithRx, because of its modern structure that isn’t beholden to corporate structures and handshake deals, achieves switch rates above 90% by actively finding the lowest cost biosimilar options and supporting clients 1:1 to transition to these options. This commitment to not only identifying, but also capturing savings is what saves both businesses and members more. 

When costs go down for members, fill rates increase. This overall translates to lower long-term costs for your plan, as members are more likely to remain adherent when financial barriers are removed. Better adherence means generally fewer hospitalizations, serious illnesses, and unexpected bills for your plan. 

“Often when employers switch from a big three to a modern PBM, because those costs go down for the members, they actually see higher fill rates, yet costs are still coming down because they're done in the modern model based on costs instead of discounts."

Alissa Johnson, Senior Director of Clinical Strategy for SmithRx

Futuristic Benefits for Plan Success

As employers look to 2027 benefit planning and beyond, the conversation will be dominated by high-cost segments like GLP-1s and new biosimilar releases. The key question: is your pharmacy benefits manager ready to capitalize on these trends for real savings? 

If the answer is no, then it’s time to explore what a modern PBM can do for your business. The future of pharmacy benefits is built on a clear vision: provide true savings through alignment and transparency. By demanding access to data and focusing on net costs, benefit leaders can finally uphold their responsibility to their employees and their bottom line.

Want to learn more about modern benefits and the quantifiable impact they’re having on businesses’ bottom lines? Ttune in for Alissa’s series, Full Disclosure, where she demystifies pharmacy benefits alongside industry experts.