Spread pricing is a practice where a pharmacy benefit manager (PBM) charges your health plan one price for a medication and pays the pharmacy a lower price, pocketing the difference as profit. If a PBM reimburses a pharmacy $30 for a prescription but bills the insurer or employer $45, that $15 “spread” goes straight to the PBM. The practice has become a flashpoint in debates over drug costs, drawing regulatory action at both the state and federal level.
How the Money Flows
To understand spread pricing, you need to know who’s involved. When you fill a prescription, three parties handle the financial side behind the scenes: your health plan (the employer or insurer paying for coverage), the PBM (the middleman managing the drug benefit), and the pharmacy dispensing your medication. The PBM sits between the other two and controls pricing in both directions.
In a spread pricing arrangement, the PBM negotiates a reimbursement rate with the pharmacy and a separate, higher rate with the health plan. Neither side typically sees the other’s number. The PBM’s profit isn’t a disclosed fee for its services. It’s a hidden margin baked into the gap between two prices that the PBM itself sets.
A 2021 analysis of Medicare Part D claims for commonly used generic drugs illustrates how large that gap can be. Researchers found that on an average claim of $22.50, the money broke down this way: about $9.18 (40.8%) represented the PBM’s gross profit, $6.73 (29.9%) went to the drug manufacturer, $3.87 (17.2%) was the pharmacy’s gross profit, and $2.71 (12.0%) went to the wholesaler. The PBM captured the single largest share of every dollar spent, and the researchers noted their estimates may actually undercount the true spread.
Why Some Employers Choose It
Spread pricing isn’t always imposed on unsuspecting buyers. Some employers deliberately opt for it. The Pharmaceutical Care Management Association, which represents PBMs, describes the model as “risk mitigation pricing” because it gives employers a fixed, predictable cost per prescription regardless of which pharmacy their employees use. The PBM guarantees a set price to the plan sponsor and absorbs the risk that pharmacy reimbursement rates might fluctuate.
For employers who want simplicity and budget certainty in their drug spending, this can be appealing. The tradeoff is that they lose visibility into the actual cost of the drugs they’re paying for, and the PBM has a financial incentive to widen the spread by pushing pharmacy reimbursement as low as possible while keeping the plan’s price high.
How It Differs From Pass-Through Pricing
The alternative to spread pricing is a pass-through model. In pass-through arrangements, the PBM charges the health plan exactly what it pays the pharmacy, dollar for dollar. The PBM earns its revenue through a transparent administrative fee instead of a hidden margin. The Congressional Research Service has described pass-through pricing as a model “in which the price that the plan or program pays to the PBM is equivalent to the PBM’s payment to the pharmacy.”
The core difference is transparency. Under pass-through pricing, the employer can see exactly what drugs cost and exactly what the PBM earns. Under spread pricing, those numbers are concealed, and the PBM’s profit is whatever it can negotiate between the two sides without either knowing the other’s rate.
The Impact on Pharmacies and Patients
Independent pharmacies bear a disproportionate burden from spread pricing. Because PBMs profit by widening the gap between what they collect and what they pay out, there’s constant downward pressure on pharmacy reimbursement. A PBM can increase its margins by reimbursing pharmacies less without lowering the price it charges the health plan. For small, independent pharmacies operating on thin margins (pharmacy profit margins averaged just 3.2% across the industry in 2022, compared to 31.2% for PBMs), this dynamic can be existential.
For patients, the effects are less direct but still real. PBMs control which drugs are covered, how they’re tiered, and what your copay looks like. Some patients report feeling pushed toward PBM-affiliated pharmacies through higher copays or reduced day supplies at independent pharmacies. While spread pricing doesn’t typically change what you pay at the counter on a given prescription, it inflates overall drug spending for your health plan, which can drive up premiums, deductibles, and cost-sharing over time.
The Scale of PBM Profits
Spread pricing is one piece of a broader revenue picture for PBMs, and the total numbers are striking. A 2022 analysis from the Office of the Assistant Secretary for Planning and Evaluation estimated PBM profit margins at $60.6 billion, representing a 31.2% margin. By comparison, wholesalers earned $23.4 billion (6.3% margin) and pharmacies earned $12.2 billion (3.2% margin). PBMs have become the most profitable link in the pharmaceutical supply chain, and spread pricing is a key mechanism driving that profitability.
State and Federal Crackdowns
Regulators have been moving aggressively against spread pricing. In 2024 alone, 24 states passed 33 bills regulating PBM practices. Idaho and Vermont both enacted laws specifically prohibiting spread pricing, and Mississippi advanced similar legislation in early 2025. The momentum has been building for years as state audits revealed the size of the spreads PBMs were collecting on taxpayer-funded programs like Medicaid.
At the federal level, Congress has included provisions in its 2025 budget legislation that would ban spread pricing in Medicaid and require that PBM payments reflect actual pharmacy costs plus a fair-market-value administrative fee. Those requirements would take effect 18 months after enactment. The Federal Trade Commission has also gotten involved: in a settlement with Express Scripts, one of the three largest PBMs, the FTC required the company to offer all plan sponsors the option to move away from both spread pricing and rebate guarantees.
These regulatory moves reflect a growing consensus that spread pricing creates misaligned incentives. When a middleman profits by obscuring costs from both the buyer and the seller, neither side can make informed decisions, and the system as a whole pays more than it should.