The Journey of a Medication Price: Legacy PBMs vs. SmithRx

Imagine a single medication claim—same drug, same pharmacy, same day. How much that drug ultimately costs your plan depends entirely on the pharmacy benefit manager (PBM) guiding the journey.

Under the coverage of a legacy PBM (or ‘Big 3’), this journey is paved with discounts that appear deep and rebates that seem generous. Beneath the surface, their vertically integrated models often obscure the true cost to employers. Spread pricing, rebate retention, and formulary decisions influenced by internal profit centers can distort the economics of care.

SmithRx is a full-service PBM. We manage networks, claims, specialty drugs, clinical programs, and member support—just like the Big 3. But we’ve rebuilt the pricing architecture from the ground up: transparent, pass-through, and free from hidden incentives. Because we don’t own pharmacies or manufacture our own drugs, we’re free to optimize for what matters most: lowest net cost and best-fit therapy.

That independence is what powers our 30% average savings for clients who switch from legacy PBMs. Below, we map the full journey of a medication price under both models—and where the divergence truly begins.

Here’s how that plays out—step by step.

Pharmacy Network Contracts

Legacy PBMs: Legacy PBMs use their scale to negotiate steep discounts with pharmacies. On paper, the rates look great—headline numbers that suggest major savings. But what employers actually see is just the tip of the iceberg. Beneath that surface, the true cost structure is buried in bundling, hidden adjustments, and opaque terms. The result? An unexpectedly high price tag that’s hard to reconcile with the discounts they were promised.

SmithRx: We’re upfront about the tradeoff. We don’t have the purchasing volume of legacy PBMs, so our contracted rates may not always appear as steep. But the numbers we share are real. We pass through the exact price we’ve negotiated with the pharmacy—no markups, no margin games. You know exactly what you’re paying, and exactly where your dollars are going.

Spread Pricing vs True Pass-through

Legacy PBMs: With legacy PBMs, every claim is an opportunity to skim more funds. The difference between what’s billed to the plan and what’s paid to the pharmacy—known as the “spread”—is retained as profit, and often scales with volume. It’s a model built to benefit from opacity, rewarding higher prices rather than better value.

SmithRx: At SmithRx, we pass through every dollar we negotiate back to employers—no spread, no markup. Instead, we charge a flat per-member-per-month fee. That’s it. Because cost control starts with aligned incentives and full transparency.

Rebate Positioning – Where We Sit in the Supply Chain

Legacy PBMs: Yes, they negotiate big rebates. As owners of the GPOs that broker deals with manufacturers, they’re well-positioned to extract significant rebate dollars. But what matters isn’t just how much they get– it’s how much they keep. In many cases, those rebates are partially retained, bundled into other fees, or used to justify formulary placement of more expensive drugs. 

SmithRx: We aren’t a manufacturer, wholesaler, or GPO–we’re a PBM and we stay in our lane. That means we may receive lower gross rebates than the Big 3, but because we pass through 100% of what we do receive, your net value is often higher. You get full access, full transparency, and full control. 

Step 4: Drug Mix Optimization — Where Real Savings Happen

Legacy PBMs: They own the specialty, mail order, and sometimes even the retail pharmacies. They own the GPOs. They benefit from keeping expensive brand drugs on formulary. In many cases, these PBMs earn more when plans pay more for medications—particularly for high-rebate drugs that drive formulary placement.

SmithRx: Because we’re independent, we can optimize every claim for net cost and clinical appropriateness. Our proprietary Drug Pathways Engine analyzes real-time claims data to identify better-value options—biosimilars, generics, and lower cost pharmacies.

If a member prefers or needs to stay on a specific drug, such as a brand name, our Drug Pathways Engine can use the medication as the starting point. It then diligently searches for and applies the lowest-cost combination of all available savings opportunities for that exact drug. Our patient navigation team then proactively engages members to explore these optimal pathways, whether that involves considering a switch or ensuring they access the best possible price for their current therapy.

The Final Stop: Net Cost to the Plan

When you stack up all the stops along the way, the result is clear:

If you’re a visual learner, think of it like this:

• The legacy path starts with low sticker prices but climbs steadily—adding back spread, rebate retention, and inefficient drug use.
  
  
• The SmithRx path might start slightly higher, but it steps down at every turn—through transparency, pass-through savings, and smarter utilization.
  
  

In the end, you pay less with SmithRx—because we’re built to deliver savings, not extract margin.