In our series of opinion pieces on questions that companies should be asking their carrier at all times, one of the most important one is related to non-optimized pharmacy spend and variability in drug costs. Everyone claims to be offering a transparent PBM. The question is, if it really is transparent or not? We have seen drug prices such as $498 and $166 for the same drug in the same region at retail stores depending on the PBM the employer is on. The difference is around $222 to up to $332 per drug. We are talking about savings of anywhere between 1 to 5% on overall healthcare costs.


The above table is based on the following points:

  • Specific brand drug prices being paid above available retail prices
  • Specific specialty drug costs were identified as higher than benchmark
  • Aggregate generic mail-order costs were higher than other PBM options
Are you stuck in a pharmacy carve-in situation?

As an employer, your healthcare plan includes a PBM provision where you receive the services of as part of a bundled total package. What is working against you in this case?

  • Choosing a carve-in option strips you of your ability to negotiate any of the terms and conditions with the PBM.
  • You will never see the contract the PBM must adhere to. You will probably never even meet the PBM but you will certainly pay an extra fee each time your paperwork is passed to or from their desk.
  • As a plan sponsor, you will never have the opportunity to read the important definitions that underlie the terms of pricing, your audit rights or any of the critical definitions that govern the cost of medications.
Pharmacy carve-out

When we ran the data on one of our clients, we were clearly able to pinpoint where PBM carve-out could be achieved based on the drivers of costs. This also helps the employer in figuring out actions to bring down the costs.

Drivers Actions
Prescription drug costs high compared to benchmarks due to: Update incentives to drive use of generics
●        brand over generic use Update incentives to drive use of lower cost channels
●        retail over mail order use Negotiate lower prices (manufacturer discounts) for specialty medications
●        specialty drugs Carve out PBM from carrier
●        price markup for generics and mail order
●        rebates not passed on to employer

With a PBM carve-out, we were able to demonstrate to the client its benefits to them and their employees in the long run.

We were able to identify the following opportunities:
  • Price transparent’ PBM options
  • All rebates passed through to client
  • Admin fee model where all client fees are disclosed
  • Estimated $250k in savings could have been achieved in a year’s time

Our goal is to create innovative solutions that streamline healthcare delivery and that is why we have taken pains to sort out the various benefits of a PBM carve-out so that you can engineer a plan that works best for your firm.

Benefits Why is it important?
Transparency The total cost of most of the services you will receive will be hidden with carve-ins. The cost of drugs, rebates earned, the size of the markup, contract volume pricing concessions and just about any financial incentives- all of which will drive up the total cost to you, the sponsor- will not be available for your approval or disapproval.
Lower Pharmacy Costs Carved out PBMs allow you to engage in very aggressive price negotiations. Choosing carved out PBMs gives you the option to benefit from a broader selection of Request for Proposals (RFP). By separating the prescription drug and medical benefits you can compare prices for each to those from competing plans. Such a direct PBM contract includes access to the terms that control pricing, rebates, discounts, as well as soft dollar programs.
Better Terms of Contract Carved in plans are all in one, take-the-lot-or-leave-it contracts. Carved in Rx plans, for example, rarely offer audit rights to the plan sponsor. They offer little to none of the deterrents that make audits useful. By contrast, carve out PBMs allow the plan sponsor to engage in negotiations over many of the essential details, and the contract will be available in full for your approval.
Superior Data Management Independent PBMs that go with direct contracts and carve out plans report all claims elements to the sponsor. This allows accurate forecasting, modeling, and planning for the future. Data feeds between them and the PBM allow for automated delivery of benefit claims and the integration of medical claims. Under such a plan, advisors and sponsors can use comparative analytics in order to triangulate present and future trends in order to make better decisions.
Greater detailed Analytics Sponsors have access to more refined logic tools, high-fidelity forecasting, and modeling. All of these translate to lower drug spending annually, and superior long-term planning.
Custom Clinical Programs Better information management and refined analytics support licensed pharmacists, either at the PBM or an advisory firm, to offer recommendations, manage and implement custom clinical programs that are based on the unique population which the plan sponsor is serving. These may include opioid management, oncology programs, and diabetes treatments.
Specialty Rx Carved out plans permit you to add in a specialty pharmacy benefit. Since specialty pharmacy access is the most expensive and the fastest growing part of all pharmacy benefit plans, carving out specialty drugs gives you all the advantages we’ve discussed so far. Rx and medical benefits are very different. The main benefit of medical carriers and health plans is the ability to manage discounts with healthcare providers and curating healthcare provider networks.

These perks do not transfer to the management of Rx drugs.

Preparing for the future of the healthcare industry

Specialty Rx drives pharmacy benefits, and the cost of these benefits are expected to increase by 15 to 18 percent over the next ten years. Carving out allows you to potentially save as much as 18% each year on the cost of pharmacy benefits. Any employer with over 100 employees should consider a carve-out strategy for pharmacy benefits before the projected cost increases come into play.