Pass-through pricing

Pass-through pricing is a PBM pricing model in which the plan sponsor pays the PBM exactly what the PBM pays the dispensing pharmacy plus a disclosed administrative fee, eliminating the spread the PBM would otherwise retain. Pass-through is the structural alternative to spread pricing and has been mandated in a growing number of state Medicaid managed care contracts since the 2019 Ohio single-PBM Medicaid restructuring. Commercial PBM contracts may use pass-through, spread, or hybrid structures depending on the negotiation.

How pass-through pricing works

Under pass-through, the contractual flow is direct: pharmacy submits a claim at the contracted reimbursement rate; PBM reimburses the pharmacy; PBM bills the plan sponsor for the same amount plus the disclosed administrative fee per claim or per member per month. The plan sponsor's economic position is transparent at the claim level. The PBM's revenue is constrained to the administrative fee plus rebate aggregation, network design, and ancillary economics, removing the spread as a profit source.

Pass-through does not eliminate every PBM economic lever. Rebate aggregation (the difference between manufacturer-paid rebates and the share passed through to the plan) remains a source of PBM revenue. Network steering and audit-driven recoupment also continue. State PBM laws addressing pass-through often separately regulate rebate aggregation transparency and network access protections.

When pass-through pricing applies

Pass-through pricing applies where the network contract specifies pass-through. Ohio led the shift in 2019 with a state-mandated single-PBM Medicaid contract requiring pass-through. Kentucky, West Virginia, Louisiana, Mississippi, and over a dozen other states followed in Medicaid managed care contracting. Commercial PBM contracts may be negotiated as pass-through, especially for self-funded plan sponsors with the leverage to demand transparency. Medicare Part D operates under its own DIR fee economic framework distinct from both pass-through and spread.

The pharmacy's exposure under pass-through pricing

Pass-through changes the economic incentive structure but does not eliminate audit exposure. PBM audit findings under a pass-through contract produce the same recoupment, network discipline, and state board referral risks as under a spread contract. The dispensing economics are typically more favorable to pharmacies under pass-through than under spread, which can reduce some structural pressures on reimbursement. The defense framework for audit and recoupment matters runs the same across both pricing structures; the contractual provisions about audit rights, appeal mechanics, and reconciliation differ in detail but not in pattern.

Related terms

• Spread pricing The PBM pricing model that pass-through replaces in state Medicaid and certain commercial contracts.
• MAC pricing The generic reimbursement mechanism that operates alongside both pass-through and spread structures.
• DIR fees The Medicare Part D economic mechanic distinct from commercial pass-through and spread.
• Provider manual The PBM document that sets operational rules under either pricing model.

See also

• Practice area
  PBM Audit Defense

  The PBM audit defense framework covering both pass-through and spread contract structures.

• Practice area
  Recoupment Defense

  Defense framework for recoupment demands across PBM pricing structures.