What is Fiduciary Alignment and Why Does it Matter in Pharmacy Benefits?

As a sponsor of a health plan, you are a fiduciary under ERISA (the Employee Retirement Income Security Act), which means you have a legal obligation to act in the best interests of your health plan and its members. Choosing vendors that share that commitment, like a fiduciary-aligned PBM, can help ensure you meet those obligations.

This commitment includes:

• Proven alignment of financial interests. PBMs should not profit more from more expensive drugs and should be constantly optimizing for lower drug costs.
• Demonstrated adherence to transparency. PBMs should not have overly complicated contracts, profit from nickel and dime or junk fees, or charge clients for information that is rightfully theirs.
• Prioritizating client experience and patient well-being. PBMs should provide a high standard of care for clients and patients.  

This distinction is crucial when selecting a PBM partner. By choosing a PBM that embraces fiduciary alignment, you can rest easy knowing you’re upholding your legal responsibility and doing right by your employees.

‍Fiduciary: A person or organization legally obligated to always prioritize their client's financial well-being above their own. They must act with transparency, loyalty, and care, ensuring every decision benefits the client they serve.

Fiduciary-aligned: A person or organization that operates with the same high standards as a fiduciary. Their business model is structured so that their financial incentives are aligned with their client’s fiduciary duty. 

Legacy PBMs’ Profit Strategy: No Fiduciary Alignment

Legacy PBMs have built a business model driven by incentives that often conflict with the financial well-being of the clients they serve. Rather than acting as transparent stewards of pharmacy benefits, they deploy opaque pricing tactics, retain a significant share of manufacturer rebates, and structure formularies to favor higher-cost drugs—all to drive revenue at the expense of plan sponsors.

One of the most well-known tactics is spread pricing, where PBMs charge plan sponsors more than they reimburse pharmacies—generating profit from inflated costs. More recently, some have also been slow to adopt or have actively blocked lower-cost biosimilars, a delay that has added unnecessary expense for employers.

These misaligned incentives, often buried in complex contracts and hidden behind a lack of transparency, have steadily eroded trust. Employers are now demanding better—PBM partners who align their success with client savings and employee health outcomes.

Here are three key ways legacy PBMs operate against fiduciary alignment:

1. Spread Pricing and Opaque Discounts
   By profiting from the gap between what they charge plan sponsors and what they pay pharmacies, legacy PBMs benefit when drug costs go up. This model, often hidden in complex contracts, directly conflicts with the financial interests of their clients.
   
   
2. Rebate Retention and Incentives for High List Prices
   Legacy PBMs often retain a portion of manufacturer rebates—giving them a financial incentive to favor drugs with higher list prices and larger rebates, regardless of whether they’re the most cost-effective option for the plan sponsor.
   
   
3. Vertical Integration and Biased Drug Selection
   Many of the largest PBMs own specialty pharmacies and other entities in the supply chain. This creates conflicts of interest that influence formulary decisions. For example, CVS has promoted its own in-house Humira biosimilar despite lower-cost biosimilars being available. Delays in adopting biosimilars are a proven cost driver for plan sponsors.

What Does Fiduciary Alignment Mean in Pharmacy Benefits?

Fiduciary alignment in pharmacy benefits means adopting a business model  that prioritizes the best interests of plan sponsor clients  and their members. It’s about creating a model that easily helps clients fulfill their  fiduciary responsibilities. 

Key principles of fiduciary alignment include:

The PBM is incentivized to supply the lowest net cost drug. This means that the opposite is not true; the PBM doesn’t profit more from specific drugs and therefore be more likely to recommend that drug. Instead, the PBM recommends the right drug taking into account its clinical effectiveness and affordability.

Complete pricing transparency. Employers should know exactly what they are paying for, with clear, accessible reporting that breaks down costs, rebates, and administrative fees.

100% pass-through of rebates and discounts. By passing all manufacturer rebates and negotiated discounts directly to the plan sponsor, the PBM helps reduce overall drug costs.

Fair pharmacy reimbursement practices. Independent pharmacies are reimbursed fairly, fostering a more competitive, sustainable pharmacy ecosystem without overcharging employers.

No conflicts of interest. The PBM remains neutral in pharmacy and drug selection, ensuring decisions are driven by what’s best for patients, not hidden financial incentives.

Understanding these principles empowers employers to make informed choices, ensuring their pharmacy benefits plan truly serves the people who rely on it most.

Why Fiduciary Alignment Matters for Employers

Fiduciary alignment isn’t just a label—it’s an important qualification that ensures your PBM is working with you to fulfill your legal duty, helping to protect your bottom line, supporting your employees, and keeping you ahead of possible regulatory changes. 

Choosing a fiduciary aligned PBM can help you: :

• Make Confident Decisions: You can’t manage what you can’t see. Transparent pricing and clear reporting give you the information you need to make smarter decisions about formularies, benefit designs, and cost-saving strategies—without the guesswork.
• Boost Employee Satisfaction: Your employees depend on you for affordable, accessible healthcare. When your PBM is aligned with your interests, they get the medications they need without the hurdles of inflated costs or restrictive formularies.
• Stay Ahead of Compliance Risks: With increased scrutiny on PBM practices, regulatory compliance is more important than ever. Fiduciary-aligned PBMs help you stay compliant by ensuring full transparency and fair practices that meet evolving regulatory  standards.
• Avoid Potential Legal Risks: Recently several major corporations have faced lawsuits from employees that allege that the company’s legacy prescription drug plans overpaid for prescription drugs driving up expenses for workers. Choosing a fiduciary-aligned PBM might help to avoid this risk. 

“Most employers do not have any fiduciary process on their health and welfare plans, and that's where I think we're going to really start to see the litigation pick up,” said Jamie Greenleaf, co-founder of Fiduciary in a Box, in a Benefit News article. Among her calls to action: advisers should invest in fiduciary training, be transparent with clients about how they price their services, and support clients in building a fiduciary process for plan design and management.

Innovu CEO, Hugh O'Toole, echoed the urgency: “If you're an adviser and don't understand a fiduciary process, don't force providers to be transparent and don't collect data, I would not like the prognosis on your practice over the next three years. Your clients are ahead of you if you're not tooling up in those areas.”

The message is clear: employers—and their advisers—can no longer afford to operate in the dark. Choosing a fiduciary-aligned PBM means gaining control, building trust, and delivering real value to your team.