What is pharmacy benefit management?
Pharmacy benefit management, or PBM, is the part of a health plan that manages prescription benefits.
A PBM sits between the health plan, pharmacies, drug manufacturers, and members. It can manage the pharmacy network, process prescription claims, apply the formulary, administer prior authorization, manage specialty drugs, and handle manufacturer rebate arrangements.
On paper, that sounds straightforward. The complicated part is the money underneath it.
A pharmacy claim can involve the amount paid to the pharmacy, the amount charged to the health plan, dispensing fees, rebates, administrative fees, and other contractual arrangements. Those pieces determine the actual cost of the prescription benefit.
That is why pharmacy benefit management is not simply about getting prescriptions filled. It is about managing the economics, access, and administration of prescription benefits for the health plan and its members.
How pharmacy benefits fit into a health plan
For an employer-sponsored health plan, pharmacy is one part of the broader healthcare benefit. Understanding how the program connects to health plan benefits helps employers evaluate the full cost of care.
The PBM manages the day-to-day mechanics of prescription benefits while the plan pays for covered pharmacy claims. Depending on the plan structure, the PBM may work alongside an insurer, TPA, benefits administrator, or directly with the employer.
The PBM typically has responsibility for several connected functions:
- Building and managing the pharmacy network
- Processing prescription claims
- Applying the plan's formulary and coverage rules
- Managing prior authorization and other utilization controls
- Managing specialty-drug programs and pharmacy routing
- Negotiating or administering manufacturer rebate arrangements
- Producing pharmacy reports and utilization data
Each function can affect what the plan ultimately spends and how members experience their health plan benefits.
A lower negotiated pharmacy price does not automatically mean a lower net cost if another part of the arrangement adds fees or retains revenue. A large rebate does not automatically mean the plan received all of the value generated.
What employers should examine
These are the parts of pharmacy benefit management that have the biggest effect on cost, auditability, member experience, and prescription benefits.
Prescription claim pricing
Start with the individual prescription. What did the pharmacy receive? What did the plan pay? What was the dispensing fee? Was there a spread or markup between those amounts?
A PBM report may show an average discount or overall savings number. That can be useful, but it does not show what happened on a particular claim.
For a self-funded or level-funded employer, claim-level pricing gives you something much more useful: a number you can actually check against the claim record.
Rebates and manufacturer revenue
Manufacturer rebates are one part of the pharmacy benefit's economics. Employers should know which rebates are generated, how those arrangements work, when payments are received, and how much is credited to the plan.
They should also understand whether other manufacturer-related payments, administrative fees, data fees, or similar revenue streams exist outside the rebate number presented in the report.
The important question is not simply “What is our rebate?” It is “What did the plan actually receive?” That answer affects the true cost of prescription benefits and the value delivered through the pharmacy program.
PBM fees and how the PBM gets paid
The fee structure matters as much as the headline price. Review the administrative fee, dispensing fees, data fees, clinical program fees, network fees, and any other payments connected to the program.
Then ask how the PBM makes money. Is revenue coming from one disclosed administrative fee, or are there multiple sources embedded inside pharmacy pricing and manufacturer arrangements?
A pharmacy program is easier to understand when the employer knows exactly what it is paying and why. That clarity also makes it easier to compare pharmacy costs with the rest of the health plan's spending.
Formulary and prescription benefits
The formulary determines how prescription drugs are covered and how members are directed toward preferred options. It can affect member out-of-pocket costs, employer spending, utilization, and manufacturer revenue.
Employers should know who controls the formulary, how often it changes, what criteria are used, and how changes are communicated to members.
A good pharmacy benefit is not simply inexpensive on paper. It should also make the rules understandable and support the broader goals of the health plan.
Specialty-drug management
Specialty prescriptions can represent a large portion of pharmacy spending even when they represent a smaller portion of total prescriptions.
Look at which pharmacy is filling the prescription, how the price is established, how patients are routed, what clinical support is provided, and whether the process creates additional costs for the plan.
Specialty management should be evaluated on both cost and patient continuity, while remaining consistent with the member's prescription benefits.
Pharmacy network and member access
The network affects where members can fill prescriptions and what they pay at the counter. Network design should therefore be considered alongside pricing and the overall structure of health plan benefits.
A pharmacy benefit that creates unnecessary disruption can create problems even when the financial model looks attractive. Ask how the PBM handles network changes, specialty pharmacies, prior authorizations, open therapies, and member communication during implementation.
The best pharmacy program is one that improves the economics without making the benefit harder for members to use or understand.
Reporting and underlying data
The final test is simple: can you check the numbers?
Employers should understand what data they receive, whether claims are available at the line-item level, how frequently the data is updated, what fields are included, and whether the information can be exported for independent review.
A dashboard tells you what the PBM wants you to see. The underlying claims are what let you check it.
Questions to ask your PBM
- 01Can we see the amount the pharmacy was actually paid for each prescription?
- 02Is there any spread or markup between pharmacy cost and what our plan pays?
- 03Which rebates and manufacturer payments are generated, and how much comes back to the plan?
- 04What fees are charged across the pharmacy program?
- 05Who controls the formulary and utilization-management criteria?
- 06How are specialty prescriptions priced and routed?
- 07Can we export our pharmacy claims and have them reviewed independently?
- 08What happens to member access and existing therapies when we change PBMs?
The answers should be supported by the contract, the data, and the actual claim records. The PBM audit checklist turns these into a working review, and PBM pricing and PBM rebates cover what good answers to the first three look like.
What makes pharmacy benefit management auditable
If your PBM gives you a savings number, you should be able to understand how it was calculated. If it gives you a rebate number, you should be able to see what was credited. If it gives you a claim amount, you should be able to trace it back to the pharmacy cost.
That is what makes a pharmacy benefit auditable and gives employers a clearer view of their prescription benefits.
What you usually get
Summary reporting
- Total prescription spend by month, quarter, or year
- Utilization by generic, brand, and specialty category
- Aggregate discount and rebate metrics
- Summary performance against contractual guarantees
- Standard pharmacy reports prepared by the PBM
What lets you check it
Auditable administration
- Individual pharmacy claims rather than only aggregate totals
- Drug cost and dispensing fees shown separately
- Clear identification of spread, markup, or other pricing differences
- Rebates shown as they are credited to the plan
- Fees identified separately
- Formulary and prior-authorization decisions tied to the criteria used
- Underlying data available for independent review
An auditable pharmacy program helps employers verify prescription benefits while understanding how those costs fit within their broader health plan benefits.
Reporting tells you what happened. Auditing lets you verify it.
How Kanurra works
Kanurra is built around an auditable pharmacy benefit model for small and mid-size self-funded and level-funded employers. Learn more about Kanurra’s approach to making pharmacy benefits more accountable.
The pharmacy cost passes through at the price Kanurra pays the pharmacy. There is $0 spread or markup, 100% of manufacturer rebates received are credited to the plan, and Kanurra’s revenue comes from one flat per-employee-per-month administrative fee disclosed in the contract.
- The plan sees the pharmacy acquisition cost
- The dispensing fee is shown separately
- No spread or markup added by Kanurra
- 100% of received manufacturer rebates credited back to the plan
- One flat administrative fee per employee per month
- Pharmacy claims reviewable at the line-item level
- Formulary and prior-authorization decisions made visible rather than buried in a summary report
- Designed to work without forcing members to change pharmacies
Kanurra also focuses on reducing the friction of changing PBMs. Before implementation, it runs a disruption analysis, supports eligibility and member communication, maintains continuity around existing prior authorizations and specialty therapies, and provides a named human contact at go-live. The full sequence is on switching PBMs.
The point is not simply to give employers another pharmacy program. It is to make the program understandable.
Why auditability matters in prescription benefits
Pharmacy spending is often presented as a single number. But that number is made up of hundreds or thousands of individual decisions:
- What drug was dispensed?
- What did the pharmacy receive?
- What did the plan pay?
- Was a rebate generated?
- Was a fee added?
- Which formulary rule applied?
- Did prior authorization affect access?
- Who made the decision?
When those questions cannot be answered, the employer is managing the benefit without seeing the benefit. When those questions can be answered, pharmacy becomes something the plan can actually manage.
Frequently asked questions
What does pharmacy benefit management include?
Pharmacy benefit management can include claims processing, pharmacy networks, formularies, prior authorization, specialty-drug programs, rebates, member support, and reporting. Services vary by contract and plan structure.
What is a pharmacy benefit manager?
A pharmacy benefit manager manages prescription benefits for a health plan, employer, insurer, or plan sponsor. It connects the plan with pharmacies and manages prescription-benefit operations and costs.
Why do employers need a PBM?
A PBM manages claims, pharmacy networks, formularies, utilization management, and other prescription-benefit services. Employers should also understand how the PBM is paid and what the plan pays for pharmacy care.
What should I look for when evaluating a PBM?
Look for auditable claim pricing, spread or markup, rebate treatment, fees, formulary control, specialty management, network access, and underlying data. Compare total net cost rather than one discount or rebate metric.
What is pass-through pricing?
Pass-through pricing means the plan pays the underlying pharmacy cost without hidden markup or spread. Kanurra charges the pharmacy cost with $0 spread or markup, credits 100% of received rebates to the plan, and charges one flat administrative fee per employee per month.
Does Kanurra keep any rebates?
No. Kanurra credits 100% of received manufacturer rebates back to the plan and shows them in the claim ledger.
Does switching PBMs require employees to change pharmacies?
Not under Kanurra's current model. Members can keep their existing pharmacies, while Kanurra manages disruption analysis, eligibility, communications, and therapy continuity.
How does Kanurra make money?
Kanurra earns revenue through one flat per-employee-per-month administrative fee. It does not rely on spread, retained rebates, formulary placement, pharmacy steering, or additional program and data fees.
See what is happening inside your pharmacy benefit
Your prescription benefit should not be a black box. Review the claims, pricing, rebates, fees, specialty spending, and decisions behind your pharmacy costs.
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