For many pharmacies, negotiating with a pharmacy benefit manager (PBM) can feel like an impossible task. PBMs often appear to hold all the leverage, and many pharmacy owners assume that participation agreements are strictly “take-it-or-leave-it” propositions.
In reality, opportunities to negotiate do exist.
While not every PBM will agree to modify reimbursement rates or contract language, pharmacies that understand the process, leverage available legal protections, and present a compelling business case can often improve their position. We have seen pharmacies successfully negotiate reimbursement increases, obtain access to additional networks, secure favorable contract amendments, and resolve disputes that ultimately resulted in better terms.
Why PBM Negotiations Matter More Than Ever
The landscape for pharmacies has never been more challenging. Independent and specialty pharmacies continue to face declining reimbursements, opaque pricing practices, and increasing consolidation among the nation’s largest PBMs. At the same time, the regulatory environment is shifting in pharmacies’ favor. The Consolidated Appropriations Act (CAA) imposed new transparency and fiduciary obligations on PBMs operating in the Medicare Part D and commercial spaces, empowering the Centers for Medicare & Medicaid Services (CMS) with direct authority to scrutinize PBM contractual arrangements.
Meanwhile, the Federal Trade Commission has taken increasingly aggressive action against major PBMs, including a landmark enforcement proceeding targeting drug pricing and formulary practices, underscoring that federal regulators view PBM market conduct as a serious competitive concern. Meanwhile, state legislatures across the country have continued to enact new protections for pharmacies, expanding any willing provider requirements, minimum reimbursement standards, and audit limitations. Against this backdrop, pharmacies have little choice but to actively negotiate with PBMs to rise to the moment and push back on untenable PBM reimbursement rates.
Strategies for Negotiating with PBMs
Below are several practical strategies pharmacies should consider when engaging with PBMs.
1. Know Your Contract
Before a pharmacy can negotiate effectively, it must understand its current contractual position. Many pharmacies do not maintain complete copies of all PBM agreements, amendments, reimbursement schedules, and network participation documents. Obtaining and reviewing these materials should be the first step in any negotiation strategy.
A careful review of the contract can help identify:
- Existing reimbursement methodologies and pricing guarantees;
- Audit rights and appeal procedures;
- Dispute resolution provisions;
- Network participation requirements;
- Termination rights; and
- Opportunities for renegotiation upon renewal.
Understanding your rights under the agreement is often just as important as understanding the reimbursement rates themselves.
2. Track Renewal and Amendment Opportunities
Many pharmacies focus exclusively on reimbursement rates while overlooking one of the most important aspects of negotiation timing. PBM agreements frequently contain automatic renewal provisions, notice requirements, and amendment periods. Missing these deadlines can significantly reduce negotiating leverage. Pharmacies should maintain a calendar of contract renewal dates and required notice periods. The most successful negotiations often occur before automatic renewals take effect, when both parties have an opportunity to reassess the relationship.
3. Build Relationships with PBM Account Managers
Negotiations are rarely successful when they begin only after a problem arises. Pharmacies should identify the account managers, provider relations representatives, and contracting personnel responsible for their PBM relationships. Establishing and maintaining professional relationships can create opportunities for productive discussions long before a dispute develops. A PBM representative who understands your pharmacy’s services, patient population, and value proposition may be more willing to escalate concerns internally or advocate for exceptions when appropriate.
4. Ask About Every Available Network
Many pharmacies assume they have access to every network a PBM offers. That assumption is often incorrect. PBMs frequently administer multiple networks that differ in reimbursement, participation requirements, and covered lives. A pharmacy that is ineligible for one network may qualify for another.
When speaking with a PBM, pharmacies should specifically ask:
- What networks are currently available?
- What are the eligibility requirements for each network?
- How many covered lives participate in each network?
- Are there specialty, mail-order, home infusion, or other opportunities available?
Simply asking the question can uncover opportunities that otherwise would have gone unnoticed.
5. Bring Data to the Table
Negotiations are most effective when supported by objective data. General complaints about low reimbursement rarely produce results. PBMs are much more likely to engage when a pharmacy can demonstrate that reimbursement is unsustainable, both on a drug-by-drug basis and on a “book of business” level.
Pharmacies should analyze:
- Claim-level profitability;
- Generic and brand reimbursement trends;
- Dispensing fees;
- DIR and performance adjustments;
- Acquisition costs; and
- Overall profitability by PBM and network.
In many cases, demonstrating that an entire book of business is underwater based on the pharmacy’s dispensing mix can be significantly more persuasive than highlighting isolated drug-specific claims. By the same token, if the pharmacy dispenses a key limited distribution drug, showing inverted economics on that particular drug can be equally powerful.
6. Benchmark Contract Terms
Negotiations should not focus exclusively on reimbursement rates. Many PBM agreements contain provisions that can significantly impact a pharmacy’s operational and legal risk. Understanding how those terms compare to competing PBMs can create valuable negotiating leverage.
Examples include:
- Arbitration provisions;
- Audit rights and extrapolation methodologies;
- Recoupment periods;
- Termination provisions;
- Performance-based reimbursement adjustments;
- Network participation requirements; and
- Mail-order restrictions.
Pharmacies should benchmark these provisions against those from other major PBMs and use such favorable language in support of a request for modification.
7. Highlight What Makes Your Pharmacy Unique
Not all pharmacies are interchangeable. PBMs are subject to numerous state and federal network adequacy requirements. As a result, certain pharmacies may provide value that is difficult for a PBM to replace.
Pharmacies should emphasize unique characteristics such as:
- Access to limited distribution drugs;
- Specialty pharmacy expertise;
- Home infusion capabilities;
- Rural pharmacy status;
- Multilingual staff;
- Local delivery services;
- Clinical support programs; and
- Relationships with underserved patient populations.
A pharmacy that helps a PBM satisfy network adequacy obligations may possess more negotiating leverage than it realizes.
8. Be Willing to Walk Away from a Particular Network
One of the most overlooked negotiating tools is the willingness to decline participation in a network that does not make financial sense. Importantly, leaving one network does not necessarily mean terminating participation with the PBM entirely. Many PBMs administer multiple networks, and participation decisions can often be evaluated on a network-by-network basis.
Before accepting unfavorable terms, pharmacies should ask:
- How many covered lives are associated with the network?
- What percentage of existing claims are attributable to the network?
- Are alternative networks available?
Sometimes the strongest negotiating position comes from demonstrating that participation is not economically viable. Alternatively, a pharmacy may be able to dramatically improve its overall net margins simply by shedding unprofitable networks within a particular PBM.
9. Leverage State and Federal Laws
All PBM contract negotiation must be done against the backdrop of applicable state and federal law. Over the last several years, states have enacted numerous laws designed to regulate PBM conduct and protect pharmacy access. Depending on the jurisdiction, pharmacies may have rights relating to:
- Any willing provider requirements;
- Minimum reimbursement standards;
- Network adequacy requirements;
- Prompt payment obligations;
- Restrictions on 340B discrimination;
- Protections for pharmacy mailing and delivery services;
- Audit limitations; and
- Appeal rights.
These laws, and the PBM’s obligations under them, must be brought up tactfully in discussions with PBMs and leveraged when negotiating with PBMs. These laws can also be used to bring a PBM to the table that otherwise refuses to engage voluntarily.
10. Do Not Rule Out Formal Dispute Resolution
When negotiations reach an impasse, pharmacies should not assume that they are out of options. Many pharmacy-PBM disputes have ultimately been resolved through formal dispute resolution processes, including arbitration, litigation, administrative complaints, and regulatory enforcement actions.
Across the country, pharmacies, pharmacy organizations, and PSAOs have successfully challenged PBM practices using state and federal laws. In many cases, the result is not a courtroom victory but a negotiated settlement that improves reimbursement, network access, or other contractual terms. Pharmacies must not be afraid to undertake formal legal action when ultimately necessary to create leverage that may be otherwise unavailable during ordinary business discussions.
Key Takeaways for Pharmacies Negotiating with PBMs
Despite the perception that PBM contracts are entirely non-negotiable, pharmacies often have more leverage than they realize. Success typically depends on preparation, data, timing, relationship-building, and a thorough understanding of both contractual rights and applicable laws.
Whether the goal is improving reimbursement, modifying contract terms, obtaining access to additional networks, or resolving disputes, pharmacies that approach PBM negotiations strategically are often able to achieve meaningful results.
How Frier Levitt Can Help
At Frier Levitt, we have successfully represented pharmacies, health-system pharmacies, specialty pharmacies, mail-order pharmacies, and PSAOs in negotiating with PBMs. Our team has assisted clients in improving reimbursement rates, modifying unfavorable contract provisions, obtaining access to networks, and litigating disputes against PBMs when necessary.
If your pharmacy is evaluating a PBM contract, facing unsustainable reimbursement, or looking to improve its position with a PBM, our team is available to help.
