Found a Better Deal? Your Contract Says No.
Why Your PBM Has No Obligation to Optimize. And Penalizes You for Trying.
Executive Brief
Here’s a sentence from an actual PBM contract:
“Any agreement or arrangement entered into by Client, directly or indirectly, will invalidate Client’s ability to obtain Rebates.”
The employer found a better deal. The PBM’s response: void all rebates.
Most employers assume their PBM is actively looking for the lowest-cost drug option in each situation. That’s what pharmacy benefit management implies. But read enough PBM contracts and a different picture emerges.
Your PBM probably has no contractual obligation to find you the best price. And if you find it yourself, your contract may penalize you for using it.
You can’t leave. You can’t optimize. You can’t even explore.
Call it the Hotel California of health benefits.
No Obligation to Optimize
We’ve reviewed more than two dozen PBM contracts through Contract X-Ray in the last month. On the question of lowest net cost, 68% score Red Flag. Not one scores Good or above.
Most contracts are simply silent on the question. Silence means no commitment. But silence is not the worst outcome in our database.
The worst outcome is a contract that goes the other direction. One contract contains this language:
“We reserve the right to adjust our rebate guarantee if changes made to our prescription drug list for the purpose of achieving lower net drug cost result in significant reductions to the rebate level.”
Read it carefully. The PBM is reserving the right to penalize the plan if the plan tries to reduce drug costs. The act of optimizing toward lower cost is itself a trigger for financial consequences.
This is not a gap. It’s a wall, built into the contract language.
A separate contract listed the factors that may drive formulary changes. Clinical appropriateness was on the list. So were the PBM’s own financial arrangements with manufacturers.
Notice what’s missing from that list: lowest net cost to the plan.
The drug on your formulary may be there because it generates the most revenue for the PBM, not because it costs you the least. And the contract makes no promise otherwise.
Penalized for Trying
Say you do the work anyway. Your benefits consultant identifies a specialty drug available 40 percent cheaper through an alternative funding program. A GLP-1 available at a fraction of network cost through a direct manufacturer arrangement. A biosimilar your PBM hasn’t put on formulary.
You want to use it. Here’s what your contract may say about that.
The Nuclear Option
One contract gives the PBM unilateral discretion to do one of two things when an employer carves out any service: adjust all financial guarantees in the contract, or disqualify the employer from the contract entirely. Not just the carved-out service. Everything. The penalty is unbounded and determined solely by the PBM.
The Repricing Trigger
Another contract is more direct. Any carve-out activity triggers repricing of all financial terms in the contract. The same contract separately prohibits the employer from participating in Alternative Funding Programs through an exclusivity clause. You can’t go around the PBM to access AFP savings. And if you try anything else, every price in your contract gets renegotiated.
The Exclusivity Violation
A third contract phrases it as a penalty for “violating exclusivity requirements.” The violation in question: using a vendor the PBM didn’t approve. That violation is a formal Pricing Event, triggering repricing across the board.
Why This Isn’t Normal Business Practice
You’ll hear an objection. “If assumptions are baked into a contract, and the employer changes them, the vendor may need to reprice. That’s standard change order logic.”
The objection is reasonable. These contract provisions are not.
These are opening positions, not protections of negotiated terms.
The contracts we reviewed contained these provisions before any specific assumptions had been baked in. The employer hadn’t committed to a formulary structure or volume threshold. The PBM locked in restrictions before there was anything to protect. They’re not defending a deal. They’re preventing alternatives from ever being explored.
Rebates are the lock-in mechanism. Again.
This connects directly to last week’s newsletter. Rebate maximization creates the very leverage PBMs use to constrain you. If you’d pursued Lowest Net Cost from the start, there’d be no rebate guarantee to “adjust” and no rebate forfeiture to threaten. The handcuffs are optional if you don’t put them on in the first place.
The remedies are disproportionate and one-sided.
Even if there were legitimate assumptions to protect, the remedies aren’t proportional. Void all rebates because you used one alternative funding program? Reprice everything because you carved out one drug? Unilateral discretion to disqualify you from the contract entirely?
That’s not protecting deal economics. That’s punishing exploration.
The Closed Loop
The two provisions work together.
Your contract doesn’t require the PBM to find the lowest cost option. And if you find one yourself, the contract makes using it expensive enough that most employers don’t try.
It’s the Hotel California of health benefits. You checked in at contract signing. These provisions are why you never check out.
This is not an accident of drafting. A contract that simultaneously removes the PBM’s obligation to optimize and penalizes the employer for optimizing independently has one practical effect: it keeps costs inside the network, where the PBM captures the margin.
Unless you change the contract.
What Fiduciary-Aligned Contracts Say Instead
On lowest net cost, the standard is explicit:
“PBM shall manage the formulary to achieve the lowest net cost to the Plan and its participants. PBM shall not favor higher-cost medications based on rebate value when clinically appropriate lower-cost alternatives exist.”
On carve-outs, the standard is equally explicit:
“Plan Sponsor may carve out specialty pharmacy, alternative funding programs, rebate aggregation, or clinical programs at any time upon 60 days notice.”
Two protections. Most contracts don’t have either one.
What to Do First Thing Monday
- Search your contract for “lowest net cost.” If the phrase doesn’t appear, your PBM has no contractual obligation to pursue it. Silence is not a commitment.
- Search for “carve-out,” “exclusivity,” “repricing,” and “pricing event.” Identify what happens if you try to use an alternative funding program, specialty carve-out, or outside vendor. Know your exposure before you explore options.
- Ask your PBM a direct question: “Are you contractually obligated to recommend the lowest net cost option when clinically appropriate alternatives exist?” Get the answer in writing.
- Submit your contract for a Contract X-Ray analysis. Email support@nautilushealth.org. We’ll score your contract against fiduciary-aligned contract standards, including lowest net cost and carve-out rights.
In Closing
PBMs are paid to manage pharmacy benefits. The word “manage” implies optimization. It implies someone is looking for the best deal on your behalf.
But the contract tells a different story. No obligation to optimize. Penalties for trying. Rebates used as leverage to keep you inside the network.
The good news: the language exists to fix this. Fiduciary-aligned PBMs accept lowest net cost requirements and carve-out rights. The question is whether your PBM will, or whether you need to find one that does.
Here’s to clearer thinking, stronger plans, and better outcomes for the people who rely on us.
All the best,
P.S. Next week: what employers are learning when they pool contract data, and why collective benchmarking changes the negotiation dynamic. You can’t negotiate what you can’t compare.
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A Note of Appreciation
Barbara Delaney is an accomplished entrepreneur and visionary financial leader responsible for shaping the fiduciary transformation in the retirement industry. She’s now bringing those lessons to healthcare as the founder of SS/RBA A Fiduciary Oversight Company and as a trusted board advisor to the Nautilus Health Institute.
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