What is the defining characteristic of a capitated contract for Pharmacy Benefit Managers?

A capitated contract is a payment arrangement commonly used in healthcare, including for Pharmacy Benefit Managers (PBMs), where a fixed amount is paid per member per month regardless of the number or nature of services provided. This contract structure shifts financial risk from the insurer to the PBM. The defining characteristic of a capitated contract is that the PBM assumes financial risk for drug spending, meaning that the PBM must manage the costs of medications within the fixed payment they receive. This incentivizes the PBM to implement cost-effective strategies and manage drug utilization wisely to stay within budget while ensuring that patients have access to necessary medications.

The options related to drug prices, administrative spending, and negotiating discounts, while relevant to the overall function of PBMs, do not capture the essence of a capitated contract. These aspects focus more on the operational strategies or cost-management techniques rather than the fundamental risk-bearing component that characterizes such financial agreements. Therefore, recognizing that a capitated contract inherently involves assuming financial risk is crucial to understanding its defining quality in the context of pharmacy benefit management.