The short answer
Spread pricing and pass-through pricing are two ways a PBM gets paid. Under spread pricing, the PBM bills the plan more for a drug than it pays the pharmacy and keeps the gap. CMS describes it plainly: PBMs “keep a portion of the amount paid to them by the health plans for prescription drugs instead of passing the full payments on to pharmacies,” leaving a spread between what the plan pays and what the pharmacy is reimbursed. Under pass-through (or “transparent”) pricing, the plan is charged exactly what the pharmacy is paid, and the PBM earns a separate, disclosed administrative fee instead.
Why spread pricing is controversial
The objection is not that PBMs profit — it is that under spread pricing the profit is embedded in the drug price rather than itemised, so payers cannot easily see it or test whether it is fair. The most heavily documented example is Ohio: a 2018 state auditor analysis found two PBMs charged the state’s Medicaid program a $224.8 million spread in a single year, averaging 8.9% across all drugs but 31.4% on generics — more than triple the headline figure. Nationally, the FTC’s 2025 staff report estimated the three largest PBMs earned roughly $1.4 billion from spread pricing on the specialty generic drugs it examined. Critics add that the model misaligns incentives, since a PBM paid through the spread benefits when the gap widens.
Where the rules are heading
Regulators and states have moved to limit the practice, mostly in Medicaid managed care. CMS guidance in 2019 required spread amounts to be excluded from the claims costs used to calculate a plan’s medical-loss ratio — tightening the accounting, though stopping short of a federal ban. Ohio and several other states have since moved their Medicaid programmes to pass-through arrangements, and a growing number of states now ban or restrict spread pricing outright. The state tracker shows, state by state, which jurisdictions have acted.