Plans Negotiate the Price. PBMs Write the Rules.

The terms nobody owns decide what the negotiated terms are worth

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Executive Brief

The contracts we review show clear signs of negotiation. Discount guarantees move. Rebate guarantees move. Dispensing fees, administrative fees, and performance guarantees move. Compare a PBM’s contracts across different employers and the pricing grids differ from client to client.

But the governance language stays put. Audit scope, data ownership, rebate definitions, conflict-of-interest limits, and termination rights read almost word for word from one employer to the next. These are the PBM’s standard terms, signed as written.

That split has a consequence most renewal scorecards miss, and it’s the reason this issue is written to legal counsel.

What Moves and What Doesn’t

The pattern reflects who sits at the table rather than anyone’s inattention.

Consultants and brokers negotiate price, usually through a spreadsheet-driven RFP with dozens of pricing cells and a scoring model behind it. Legal counsel reviews indemnification, liability caps, HIPAA, and governing law.

The terms that let a plan sponsor carry out its fiduciary duties fall between them. In the procurements we’ve watched, consultants treat those provisions as legal terms and lawyers treat them as business terms. Nobody owns them, so they arrive as drafted and leave as drafted.

Mark Cuban has spent years making this argument to the people who sign the deals. He also named the mechanism that produces the signature, and it describes this gap exactly. Of executives, he told Axios: "They have no idea what they're doing with health care and so they defer to somebody who defers to somebody else."

That deferral chain has an end point. It ends in the provisions nobody was assigned, where the last person to defer hands the pen back to the PBM. And the terms nobody owns decide what the negotiated terms are worth.

The employer negotiates the number. The PBM writes the definition.

Nine Steps, Now on the Record

Until this month, a compliant PBM contract had no operational definition. Everyone agreed CAA 2026 changed things. Nobody had published what to actually look at.

Susan Nash and Jim Patton have now done that. Nash is a partner practicing in health and welfare benefits and a member of the American College of Employee Benefits Counsel. Patton has served on the Association of Corporate Counsel’s global board. They wrote a 2022 analysis of ERISA disclosure obligations when CAA 2021 was new, and their follow-up sets out nine review steps, each tied to a specific provision and a specific statutory basis.

That matters for a practical reason. A published checklist is citable. An internal opinion is not.

Read the full nine steps and the statutory analysis behind each one in the latest issue of Corporate Counsel Now: Health Plan Transparency - What Has Changed?​

What follows is a map of their framework. Each of the nine steps carries the statutory analysis behind it, which is the part that makes the checklist usable in a memo and the reason to read the original.

Contract X-Ray scoring is separate work. Read side by side, though, the two documents do different halves of the same job. The nine steps say what to review. The scores say which provisions fail most often and should be prioritized.

Three findings show up as language a reviewer can search for:

Auditor gag clauses. Several agreements bar the employer’s own auditor from reporting findings back to the employer who commissioned and paid for the audit. CAA 2026 now prohibits PBMs from paying any portion of audit costs, which puts the whole arrangement in tension with the statute.

Blanket repricing triggers. Direct a single drug to an outside vendor and the PBM reserves the right to reprice the entire remaining contract retroactively. One agreement prohibited participation in alternative funding programs outright.

Repricing trigger for lower costs. One contract reserves the right to adjust pricing if formulary changes are made "for the purpose of achieving lower net drug cost..." Whichever direction a given adjustment runs, the clause makes the plan's own cost-reduction efforts a repricing event. Eighty-six percent of the sample scored Red Flag on formulary management, and no contract exceeded 50.

An Invitation to Counsel

Cuban has been working on the people who sign. Nash and Patton have now given the people who review something to review against. The gap that remains is the negotiating table itself, where the price gets contested and the rules do not.

The timing changed in February. CAA 2026 extended covered service provider status to PBMs by amending ERISA section 408(b)(2)(B), and that expansion reaches contracts entered into, extended, or renewed on or after February 3, 2026. The rebate pass-through and reporting rules attach later, for plan years beginning on or after August 3, 2028. The disclosure piece is live now.

So the agreement signed this month is already inside the framework, and so is every contract that auto-renewed quietly this year.

The ask is narrower than a full contract review, and that is what makes it workable. Somebody has to own the six or seven provisions that fall between the pricing negotiation and the standard legal review. Audit scope. Data ownership. Rebate definition. Carve-out rights. Termination. Conflict-of-interest limits. Counsel is the only party at the table positioned to own them, because they are legal instruments that happen to carry financial consequences and impact the ability to meet fiduciary obligations.

For in-house counsel. Run the review before the renewal rather than after. Walking into committee with the gaps already identified, each tied to a statutory basis, means you set the agenda instead of responding to someone else’s. A documented provision-by-provision review against a published standard is procedural prudence in the form ERISA asks for, whether the outcome is renegotiate, go to market, or accept a gap for stated reasons.

For outside counsel. A PBM contract review is hard to scope and harder to sell. No client authorizes eighty open-ended hours against an eighty-page agreement. A baseline score changes the proposal: here is where the contract stands, here are the three provisions below the bar, here is the statutory basis and the fix for each. That is a bounded engagement a client approves.

One boundary worth stating plainly. Scoring informs the review, counsel performs it. A score is an analytical baseline rather than a legal opinion, and it isn't privileged standing alone. Commissioned through counsel as part of a privileged review, the analysis sits where you'd want it.

What to Do First Thing Monday

1. Forward this to your general counsel. If you are on the benefits side, this is the issue that gets legal into the room without anyone having to say the last contract was a mistake. Nobody dropped the ball. The ball was never assigned.
2. Send the article, not the summary. Nash and Patton’s nine steps come with the statutory analysis behind each one. Forward the original to whoever owns the pharmacy relationship. It is short, it is specific, and it comes from benefits counsel.
3. Pull your renewal dates. Any PBM agreement entered into, extended, or renewed on or after February 3, 2026 is already reached by the amended section 408(b)(2)(B) disclosure requirement. Find out which of yours crossed that line.
4. Name an owner for the middle. Write down who is responsible for audit scope, data ownership, rebate definition, carve-out rights, and termination. If the answer takes more than a moment, that is the finding.
5. Get the baseline before the reading starts. Submit the agreement at contractxray.com and work from the gap list. Directing counsel at six provisions beats directing them at eighty pages.

In Closing

Nobody in this process has been careless. Consultants negotiated the price they were hired to negotiate. Counsel reviewed the provisions they were sent. The contracts came back with better pricing than they started with, which is exactly what everyone was asked to deliver.

The gap is structural, and structural problems get fixed by assigning them to someone. These provisions are legal instruments. They belong with counsel, and counsel is welcome in this fight.

Cuban put the responsibility on the people who sign. That was the right place to start and it moved the conversation further than anything else has. The next move is the table where the deal actually gets made, because a signature only ratifies what somebody already agreed to.

Here's to clearer thinking, stronger plans, and better outcomes for the people who rely on us.

All the best,

P.S. Next week we write to the advisors and consultants who run these procurements. If that’s you, your work product is discoverable, and there’s one line that documents you set a bar.

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Tools and Resources

Mark Cuban inspired me to write The Middleman’s Cut. The book draws on his public comments, used with his permission. The Foreword is particularly compelling building the case for change. I’m including a free version for readers of this newsletter to download.

→ Download the Foreword​

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Employers pay far more than they should to middlemen most executives have never heard of. Change the status quo and reap the benefits. Employers who act are recovering 20% to 30% of pharmacy spend, and returning it to wages and benefits.
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