The structure, features, and evolution of pharmacy preferred-provider organizations (PPOs) are described. Pharmacy PPOs may be sponsored by insurers, employers, providers, or independents (wherein the PPO functions as a third-party administrator); insurer and provider sponsorship are the most common. The advantages and disadvantages of these four types of sponsorship are described. Ways that pharmacy PPOs contain costs include the following: using drug product selection formularies (wherein providers are paid at prospective prices for generic products, regardless of the product dispensed or prescribed), reducing drug use by employing use-review mechanisms, and eliminating fraud and abuse through audits. Another cost-management feature being planned is the use of prescribing protocols. PPOs benefit pharmacies by increasing patronage and traffic flow, protecting market share, and improving cash flow by expediting payment of claims. Factors to consider in choosing a pharmacy PPO include the organization's market share, financial health, payment record, quality of claims processing, and long-term goals. As the pharmacy PPO industry matures, PPO financing will evolve from fee-for-service arrangements to moderate-risk contracting to full-risk contracting with plan buyers, using a negotiated amount per subscriber per month. Increasing competition and adoption of a credentialing process should result in more specific quality-of-care and performance standards for pharmacy PPOs.