The Illusion Of PBM Transparency: What Plan Sponsors Must Learn From The OPM OIG Audit Of CVS Caremark

Plan sponsors have been told for years that the answer to rising prescription drug costs is simple. Move to a pass-through PBM arrangement, require transparency, and the incentives will finally align. That message has been repeated so often that many employers now treat it as a settled truth rather than a claim that must be tested.

The latest audit from the Office of Inspector General should put that assumption to rest. In March 2026, the OPM OIG issued Report No. 2024-SAG-013, an audit of the Blue Cross Blue Shield Association’s Service Benefit Plan retail and mail order pharmacy programs as administered by CVS Caremark for contract years 2018 through 2021. The OIG concluded that CVS Caremark overcharged the Carrier and the Federal Employees Health Benefits Program by $615M, including lost investment income, by failing to pass through all discounts, credits and financial benefits tied to prescription drug pricing as required under the applicable PBM transparency standards.

That is a blunt reminder that a contract labeled 'transparent' does not necessarily yield transparent results. It also confirms something plan sponsors in the commercial market should already understand: the real fight is not over labels. It is over definitions, controls, data access and the PBM’s ability to decide what counts as its cost and what value must be shared with the plan.

The CVS Caremark audit is especially important because it did not arise from a lightly regulated environment. It arose in a federal program with a sophisticated contractual framework and government oversight. Yet even there, the OIG found that substantial value did not make its way back to the plan. For commercial employers and other self-funded plan sponsors, the lesson is obvious. If these issues can persist in the FEHBP context, the risk is not lower in the private market. It is likely higher.

At the center of the audit is a problem that continues to distort how plan sponsors think about pass-through pricing. Many employers assume that pass-through means the PBM charges the plan no more than what it actually pays the pharmacy, adds a clearly stated administrative fee and then passes through all rebates, discounts, credits and other financial concessions. That is the sales pitch. The audit shows how easily that understanding can break down in practice.

The OIG focused on the governing transparency language requiring pricing in which the carrier receives the value and later the full value of the PBM’s negotiated discounts, rebates, credits and other financial benefits. The dispute in the audit was not merely about arithmetic. It was about contractual control. CVS Caremark and the Carrier took the position that their arrangement complied with the contract. The OIG disagreed and found that the plan was entitled to more than it actually received. That difference in interpretation translated into hundreds of millions of dollars.

One of the largest findings involved negotiated discounts with two of the largest retail pharmacy chains. According to the OIG, CVS Caremark did not pass through those negotiated discounts, resulting in an overcharge of $478M to the Carrier and FEHBP. That finding matters because it goes to the heart of what plan sponsors believe they are purchasing in a pass-through arrangement. If a PBM can negotiate better economics at the pharmacy level but not fully reflect those economics in what the plan is charged, then the plan is not getting true pass-through pricing, no matter what the contract is called.

The audit also identified another form of retained value that many plan sponsors never clearly see: pharmacy-side fees that reduce the PBM’s real net cost. The OIG found that CVS Caremark failed to return $108M in credits tied to transmission fees collected from retail pharmacies. According to the audit, those fees reduced what CVS Caremark actually paid pharmacies, but the lower net payment was not passed through to the plan. Instead, the FEHBP was charged a higher amount than what was actually paid to the retail pharmacies. That is spread pricing in substance, even if it appears under a different name and sits in a different part of the arrangement.

That finding deserves close attention from every plan sponsor. Spread pricing does not disappear merely because a PBM says the contract is pass-through. It can move into offsets, credits, network charges, transaction fees and other adjustments that are less visible to the client. The CVS Caremark audit shows exactly how that happens. The PBM collected transmission fees from pharmacies, used those amounts to offset claim costs and yet the plan allegedly did not receive the full benefit of those offsets. The label remained transparent. The economics did not.

The OIG also challenged incentive payments made on top of the PBM’s ordinary compensation. It found that the Carrier overcharged the FEHBP $27M by paying CVS Caremark incentive compensation tied to savings above certain retail claims pricing guarantees in 2018, 2019 and 2021. The OIG’s point was straightforward. If the PBM was already obligated to provide pass through transparent pricing and if the pricing delivered was already supposedly better than the guarantee, then there was no legitimate basis to layer substantial additional incentive payments on top of that structure. In the OIG’s view, those extra payments effectively offset the value the plan was supposed to receive and created profit beyond the clearly identified administrative fee.

This issue should resonate with plan sponsors well beyond the federal space. Many PBM contracts include performance-based payments, market-check-style promises, savings-share provisions, or other incentive compensation mechanisms that sound reasonable in theory. But if those payments are not tightly drafted and carefully reconciled against actual claim economics, they can become another way for the PBM to extract value after the fact. Once again, the problem is structural. If the PBM is already being paid an administrative fee, every additional revenue stream deserves scrutiny.

The audit also exposes another weakness that shows up repeatedly in commercial arrangements: the absence of meaningful reconciliation. Plans often rely on aggregate guarantees and high-level reporting. If the guarantee is technically met, the plan assumes the arrangement is functioning properly. That assumption is dangerous. The CVS Caremark audit shows that broad pricing guarantees can coexist with claim-level economics that still fail to deliver the full value owed to the plan. Without a true reconciliation process that measures what was charged, what the PBM actually paid, what credits it received and what amounts should have been passed through, a plan sponsor is operating on trust rather than verification.

Data access remains the choke point. The OIG was able to press for information, test claims, review credits and evaluate the contractual framework because it had audit authority and regulatory leverage. Most commercial plan sponsors do not. They receive summary reports prepared by the PBM, sometimes filtered through a consultant and are expected to accept those reports as proof that the arrangement is working. That is not enough. Without direct access to detailed claims data, pharmacy reimbursement data, rebate data, credit data and all forms of PBM compensation, plan sponsors cannot independently validate whether the arrangement matches the contract.

The larger lesson is simple. PBMs operate within the room the contract gives them. If key terms are vague, if offsets and credits are not expressly addressed, if audit rights are narrow and if reconciliation is missing, then the PBM will retain control over the financial story. That is not about bad faith. It is about incentives. The CVS Caremark audit is a case study in what happens when a plan sponsor assumes that a transparency clause will do the hard work on its own. It will not.

Plan sponsors should take several practical lessons from this audit. First, the contract must define drug cost with precision and must state clearly that the plan is entitled to the full value of all discounts, rebates, credits, fees, chargebacks, offsets, guarantees and other financial benefits connected to its claims. Second, the contract must identify every source of PBM compensation, not just the administrative fee and manufacturer rebates. Third, audit rights must be real, not ornamental and must include access to the underlying data necessary to test the economics at the claim level. Fourth, the plan must require routine reconciliation, not merely periodic performance reports. And finally, the plan sponsor must assume that anything not expressly addressed in the agreement may become a retained revenue stream for the PBM.

The OPM OIG audit of CVS Caremark should not be dismissed as a dispute unique to a federal contract. It should be read for what it is: a warning. It shows that even under a pass-through model, even under a transparency standard and even within a regulated federal framework, a PBM can still retain substantial value unless the contract is drafted carefully and enforced aggressively.

Plan sponsors that assume their PBM arrangement is functioning as intended because the contract uses the right language are taking an avoidable risk. Prescription drug spend remains one of the most expensive and least understood parts of the health plan. The only way to manage that cost is to understand the actual economics of the arrangement, not the marketing description. The sponsors that do that work will be better positioned to reduce spread pricing, capture the full value of rebates and credits and impose real discipline on pharmacy benefit spending. The ones that do not will keep paying into a system where the most important financial details remain out of sight.

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