Breaking Open the Black Box: Transparent PBMs and Pharmacy Benefits with Jake Frenz

Most plan sponsors meet a pharmacy bill the same way: a discount lands, it looks enormous, and the working assumption is that 90 percent off a generic must be a win. Jake Frenz starts somewhere else. “Where else in life do you get ninety percent off of anything?” he asks — the point being that a discount only impresses if you ignore the price it’s calculated from. The number worth attention isn’t the discount. It’s the cost hiding behind it.

Across the conversation, Frenz — who built SmithRx a decade ago as a transparent alternative to that model — takes apart a system that has swelled from a single-digit line item to 35-50 percent of healthcare spend. He walks through where the opacity lives: average wholesale prices marked up so the discount looks generous, rebates that are “no longer a rebate,” and revenue tucked into spread and PBM-owned pharmacies. He’s blunt about the incentives — a rebate check funding the wellness fair is money the plan paid upfront to get back in arrears, and a large implementation credit is a reason to ask what’s going out the door to fund it. His fix is almost anticlimactic: stop chasing discounts, get to a total-cost-of-ownership number per member per month, and demand the contracts behind the plan. “Transparency to me means control.”

A discount is a percentage, and a percentage is not a cost. The one number a PBM can’t dress up is total cash out per member per month — and the plan sponsors gaining ground are the ones who demand to see it. The shift is real but fragile; even the big three PBMs now sell transparency. With consultants already warning that “flat is ten percent” for 2027, the pressure to keep the box open has to come from the employers, not the market.

Highlights from the episode include: