What is a PBM Admin Fee?

Prescription drug costs are often a persistent challenge for employers and their employees. Employers often rely on Pharmacy Benefit Managers (PBMs) to help manage and control these expenses. But exactly how PBMs operate, and how they make money, isn’t common knowledge and can sometimes be unclear. One key component of PBM costs is the administrative (admin) fee. Let’s break down what a PBM admin fee is and how it impacts employers.

How PBMs Make Money

Pharmacy Benefit Managers play a central role in managing prescription drug plans for health insurers, employers, and government programs. Their services include negotiating drug prices, determining formularies (which drugs are covered by the plan), and managing relationships with pharmacies, but generating revenue typically can be generated in several ways.

1. Rebates

Many PBMs negotiate rebates with drug manufacturers, typically in exchange for including  certain drugs on their formularies. While these rebates can result in savings, how much of those savings actually reach the employer depends on the PBM contract. Legacy PBMs often retain a portion of the rebate as part of their compensation. This disparity has sparked debates over transparency and the equitable distribution of savings within the pharmaceutical supply chain.

2. Spread Pricing

Legacy PBMs may charge an employer or health plan more for a drug than what they pay the pharmacy, pocketing the difference. This practice is known as spread pricing. While it provides legacy PBMs with additional revenue, it often leads to higher drug costs for employers. 

Because the legacy PBM’s profit is directly tied to the size of the spread, it may incentivize them to negotiate lower reimbursement rates with pharmacies while maintaining higher prices for employers. This lack of transparency can make it difficult for employers to fully understand the true cost of the medications being covered under their plan, and may ultimately inflate the costs passed on to employees in the form of higher premiums, copays, or out-of-pocket expenses.

3. Admin Fees

Admin fees are another way PBMs generate revenue. These fees are charged for any actions the PBM takes that fall under the very broad umbrella of administrative services.

What is a PBM Admin Fee?

A PBM admin fee is a charge that a PBM imposes on its clients for managing the administrative aspects of a prescription drug plan. These tasks may include:

• Processing claims
  • Example: Automating claim submissions to verify drug coverage and instantly approve or deny requests, reducing wait times for members at the pharmacy.
• Managing drug formularies
  • Example: Regularly reviewing and updating drug lists to include cost-effective generics or biosimilars.
• Negotiating prices with drug manufacturers and pharmacies
  • Example: Securing bulk discounts on high-demand drugs and negotiating rebates for placing certain medications on the formulary.
• Providing customer service and support
  • Example: Offering 24/7 member helplines for assistance with drug coverage queries and pharmacy issues.
• Handling reporting and analytics
  • Example: Creating custom dashboards that provide real-time data on drug utilization and cost trends, enabling employers to adjust plan designs to control expenses.

Admin fees are usually a flat rate per claim or per member per month (PMPM). These fees are often bundled into the overall costs of the PBM's services, making it essential for employers and brokers to fully understand what they are being charged for.

What is a Typical PBM Admin Fee?

The range for PBM admin fees can vary widely. Typically, admin fees can range from $1 to $5 per claim or $3 to $10 PMPM. However, it's important to note that some PBMs may charge significantly more, especially if their pricing structure isn’t straightforward.

When evaluating PBM admin fees, employers should prioritize transparency. PBMs should be able to clearly outline what services any admin fee covers, and ensure there are no hidden charges buried in the fine print.

What’s the Difference Between a PBM Admin Fee and a PBM DIR Fee?

While PBM admin fees cover the administrative costs of managing a prescription drug plan, DIR fees are a separate type of fee that applies primarily to Medicare Part D plans. 

DIR fees, or Direct and Indirect Remuneration fees, are payments that PBMs collect from pharmacies after the point of sale. These fees were originally intended to ensure that CMS (Centers for Medicare & Medicaid Services) was accurately paying for the actual drug costs after any rebates or price concessions. But they have become a controversial aspect of the pharmacy-PBM relationship.

DIR fees can be applied retroactively, which can cause financial uncertainty for pharmacies. While both admin fees and DIR fees are charged by PBMs, they serve different purposes and affect different parties within the prescription drug ecosystem. Admin fees are typically charged to the employer or plan sponsor, while DIR fees impact pharmacies and, indirectly, patients.

SmithRx: A PBM that Breaks Tradition

SmithRx brings simplicity and clarity to pharmacy benefits management through transparent, cost-effective strategies and partnerships. Unlike many legacy PBMs that rely on hidden fees and complex pricing models, SmithRx operates with full visibility into spend and savings, ensuring that employers and plan sponsors know exactly what they’re paying for. Here’s what we promise:

• No Spread Pricing. SmithRx uses a pass-through pricing model, which means the price you pay for a drug is the exact price the pharmacy is paid. There’s no hidden markup or profit from the difference.
• Rebate Transparency. SmithRx ensures that 100% of manufacturer rebates are passed directly to the employer or plan sponsor, reducing overall drug costs.
• Lower Admin Fees. SmithRx charges a flat, transparent admin fee with no hidden costs. This straightforward pricing model helps employers budget more accurately and reduces the risk of unexpected expenses.
• Focus on Client Success. With a team of dedicated customer support specialists and advanced reporting tools, SmithRx helps employers make data-driven decisions that improve the health outcomes of their employees while controlling costs.

Choosing the right PBM can make a significant difference in controlling prescription drug costs and providing employees with access to the medications they need. By partnering with SmithRx, employers can ensure they’re getting a transparent, cost-effective solution that aligns with their goals. Connect with us today to find out how we can help your business optimize prescription drug plans with no unexpected spend while protecting employee access to critical medications and care.