Why Legacy PBMs Are Still Failing Employers

Employers have their work cut out for them: they must maximize employee wellbeing and benefits while also managing increasing overhead costs. An already stressful process is made even more harrowing by some players in the healthcare industry misrepresenting which choices will keep up with their needs. Nowhere is this more evident than at the pharmacy. 

While Pharmacy Benefit Managers (PBMs) may have started as a way to manage prescription claims and negotiate lower costs, they have since evolved into a system that prioritizes their own agenda over employers and members. These traditional, or legacy, PBMs have had countless chances to evolve and meet changing needs—but they haven’t. 

Employers and members are continuing to face the consequences of legacy PBMs’ opaque pricing, outdated contracts, and a lack of transparency. Let’s dive deeper into why legacy PBMs are still failing employers, how modern PBMs are fundamentally different, and why employers should invest in a transparent, people-first solution.

What is a Legacy PBM?

Legacy PBMs are third-party companies that act as middlemen between employers’ insurance, pharmaceutical manufacturers, and pharmacies. They originally provided a logistical solution that helped ensure that pharmacies charged the best and correct price to members. Pharmacy Benefit Managers would:

• Build and manage lists of covered medications, or formularies 

• Negotiate drug prices and rebates

• Establish a pharmacy network

• Process prescription claims

Now, a few legacy PBMs control over 80% of the market—and they’ve used this power to take the transparency out of price negotiations and pad their bottom line rather than pass fair prices onto patients. 

What does this look like in practice? Legacy PBMs are notorious for:

• Spread Pricing: This involves legacy PBMs charging employers more for a drug than they reimburse the pharmacy, pocketing the difference without disclosure.

• Opaque Pricing and Rebate Structures: Employers often have little to no visibility into how legacy PBMs negotiate drug prices or how they distribute rebates.

• Pocketing Rebates: Rather than passing rebates back to clients, legacy PBMs often keep a significant portion for themselves.

• Fixed Contracts: Employers are locked into rigid contracts with limited flexibility to make plan adjustments as needs change.

• Hidden Fees: Many legacy PBMs add vague or bundled fees under terms like “clinical services” or “utilization management,” making true costs difficult to track.

• Vertical Integration: Large PBMs have merged with insurers, wholesalers, and pharmacy chains, creating conflicts of interest that prioritize corporate agendas over affordable care.

• Lack of Alternatives: Employers may find it hard to access lower-cost drug options, as formularies are often closed off or steered toward high-rebate drugs.

• Outdated Systems: Legacy PBMs often operate with clunky processes and old technology that aren’t able to adapt to employers’ evolving needs.

Why Legacy PBMs are Still Failing Employers

Legacy PBMs aren’t just outdated, they’re actively hurting employers and their employees through their opaque practices and conflicts of interest. 

What’s more, employers have been duped into thinking they’re getting the best option with legacy PBMs thanks to their inflated influence and control over most of the market. Even the methods businesses use to evaluate their pharmacy benefits are fundamentally flawed. Traditional Requests for Proposal (RFP) and rubrics are designed to fit into and perpetuate the broken system that legacy PBMs have created. 

This often keeps businesses with legacy Pharmacy Benefit Managers—and keeps employers believing they’re getting the best value when in reality they’re seeing higher drug costs, reduced employee satisfaction, and increased risk of litigation. 

How Modern PBMs Are Fundamentally Different From Legacy PBMs

There’s an incredible amount at stake when it comes to making the right decisions for businesses’ benefits. A misstep can not only cost an employer millions of dollars from their budget, it can also ruin the satisfaction of their most valuable resource: their employees. So, what are businesses to do?

It all comes down to fundamentals of good business and good healthcare: partner with organizations that lead with integrity and transparency. Though legacy PBMs may hold sway over a good portion of the benefits market, there are honest, transparent organizations that are shaking up the way pharmacy benefits are managed. 

Meet the Modern PBM

Modern PBMs stand apart because, unlike legacy organizations, they:

• Act Solely in the Client’s Best Interest: Modern PBMs act in the client’s best interest in every aspect of business: financial, clinical, operational. This practice, called fiduciary alignment, means that pricing is transparent and conflict-free, health outcomes are prioritized, and service always aims to reduce complexity and bolster the employer and member experience.

• Offer Full Transparency, No Games: To modern PBMs, transparency isn’t a buzz word, it’s the foundation of how they operate. They’ve built true transparency into their DNA: cost clarity and data access are automatic, not optional. 

• Turn Recommendations into Results: Rather than relying on employers, prescribers, or even members to hunt down the best prices and options for medications, modern PBMs have built, and are constantly improving upon, the infrastructure needed to deliver the promise of the best prices as a default.

• Operate on One, Unified Model for Every Client: Legacy PBMs have built a complex web of differing models and conditions for each client, all designed to prioritize their own interests over employer and member outcomes. Modern PBMs have rejected this system for something radically simple: eliminate fragmentation to deliver a great, transparent experience for every client.

• Are Built for People, Not Just Plans: Modern PBMs are true benefits partners that are committed to providing the best possible experience for employers and members. In practice, this means they’re fostering a personalized, smooth experience for every member with exceptional service.

SmithRx: Radically Transparent Pharmacy Benefits

At SmithRx, we’re redefining what a PBM should be. We believe employers deserve better than opaque practices, misaligned incentives, and hidden markups—they deserve a partner that’s transparent and focused on lowering pharmacy benefit costs without compromising on care. By prioritizing cost-savings, transparency, along with client and member satisfaction, SmithRx helps employers maximize the ROI of their pharmacy benefits.

Here’s some of what you get when you partner with SmithRx:

• Fiduciary Alignment: SmithRx is a fiduciary-aligned PBM. Our success is directly tied to your outcomes, meaning we operate with your best interests in mind. We don’t make money off drug markups—we make it by helping you save.

• Full Transparency: No spread pricing. No hidden fees. You see exactly what you’re paying for, and why. We believe in giving employers complete control and clarity over their pharmacy spend.

• Our Savings Are Yours: All negotiated savings, rebates, and discounts flow 100% back to you, the employer—not into our pockets.

• Clear Pricing: With our flat administrative fee model, there’s no guesswork. You’ll always know exactly what your pharmacy benefit program costs—no hidden fees or vague service charges.

• Robust Account and Member Support: Our dedicated, in-house support teams are here to help whenever you need us. Whether through phone, email, or chat, our multi-channel approach ensures that both employers and members receive fast, excellent service.

Modern PBMs: Pharmacy Benefits, Redefined 

Time and time again, legacy PBMs have failed to adapt to the changing needs of employers. Through opaque pricing, rebate tricks, and detrimental practices, they’ve shifted pharmacy benefits from a cost-saver to a liability that’s hard to ignore. But employers have better options.

Modern, transparent PBMs offer a new way forward. Through transparency, pass-through pricing, flexible solutions, fiduciary alignment, and a people-first approach we deliver on the original promise of PBMs: lowering costs and improving access to care.

Ready to experience the SmithRx difference? Let’s talk. Learn how we can help you take control of your pharmacy benefits and start saving today.