Pharmacy Carve Out: Why it Makes Sense for Employers

Pharmacy Carve Out: Why it Makes Sense for Employers


Although one-stop shopping may seem like the easy route, you could be missing out on potential savings and benefits by leaving your prescription drug management to someone else.

What Does it Mean to “Carve-Out”?

Pharmacy costs currently represent nearly 30 percent of total health care dollars, and pharmacy spend is expected to double over the next five years. As the introduction of specialty drugs contributes to the ever-rising cost of prescriptions, your employees’ wallets, and morale, may be taking a hit. By “carving out,” aka contracting directly with a pharmacy benefit manager (PBM), many companies from large Fortune 500s to small and medium-sized business are gaining better control over their pharmacy benefit costs when compared to traditional carve in plans.

Pharmacy carve-out plans have the potential to save you a significant amount of money over time, but they’re not without their own set of considerations. So, how do you know if carving out your pharmacy benefits is right for you? Let’s a take a look at the advantages and disadvantages of each.

The Advantages of a Pharmacy Carve-Out Plan

Pharmacy carve-out plans offer significant advantages to both employers and employees. First, unlike combined medical and pharmacy contracts, contracting directly with a PBM allows for greater access to useful pharmacy claims data, and more control over costs. This means you’ll no longer be in the dark about specific drug mark ups or other factors that could increase the cost of your pharmacy benefits.

Second, working with a PBM will help you to better negotiate drug prices within your plan, instead of just accepting whatever a carve in plan offers. This includes negotiations on expensive specialty drugs that are growing in both cost and popularity. A flexible carve-out plan and additional clinical programs can help reduce costs for your company, while annual market check provisions keep your rates competitive and visible. Plus, you may now have access to an annual administration allowance and implementation credits to offset your expenses.

Standard language in PBM contracts grant you audit rights, a benefit that is almost never included with traditional carve in plans. These improved contract terms outline your costs and put the decision making power in the hands of your company and your PBM.

What to Consider with a Pharmacy Carve-Out Plan

It’s common for HR professionals, benefits leaders, and CFOs to feel overwhelmed and intimidated by confusing, jargon-heavy terms in a PBM contract. For someone who is an outsider in the pharmaceutical industry, carving out benefits can feel like a difficult and time-consuming task.

Now that we’ve summarized the many benefits of pharmacy carve-out plans, let’s take a look at why some companies shy away from the idea.

Barrier to Entry

Without easy access to information and supporting data, some employers may not even know that a pharmacy carve-out plan is an option. Other benefits managers, who have followed the traditional path of carved in plans for the entirety of their career, likely don’t know how to make the transition.

Lack of Trust

Compounding this confusion is a general mistrust of PBMs from the beginning. The relationship between PBMs, pharmaceutical companies, and employers is often fraught with anxiety and misinformation. HR and benefits leaders worry that no one is preventing PBMs from taking advantage of loopholes and overcharging for their work. As PBMs continue to consolidate and get bigger, employers are left with fewer choices and less negotiating power. This makes the already intimidating task of negotiating a pharmacy benefits contract seem less and less appealing.

Fear of Cost Shift

Lastly, carving out pharmacy benefits can sometimes lead to employees shouldering more of the costs, if an employer chooses to shift the burden from company to patient. While this decision does reduce your company’s drug spend, it’s usually not a welcome change. Choosing to shift too much of your costs on to your employees can lead to medication abandonment and general career dissatisfaction. When balanced correctly, however, carved out pharmacy plans can help you save money without sacrificing quality benefits.

So, is a Pharmacy Carve-Out Plan the Right Move?

Now that we’ve laid out what to keep in mind when considering a pharmacy carve-out plan, hopefully you’re in a better place to decide what’s right for your company.

Despite common reservations about carving out, most of the above problems can be solved through education and PBM relationship management. Truveris’ technology, combined with our team of pharmacy benefit experts, can help your company navigate the PBM process and get the best contract price available. Plus, Truveris can help you access detailed analytics about your company’s pharmacy benefits which can help you lower your annual spend and better plan for the future.

Our mission is to bring more transparency to the complex prescription drug ecosystem by helping companies manage their PBM relationships. That means you can feel certain that you are not being misadvised or taken advantage of.

Are you interested in hearing more about how Truveris can help you carve-out your company’s pharmacy benefits and manage your relationship with a new or existing PBM? Get in touch with one of our experts to learn how we can help you save money, avoid confusion, and maintain affordable and high quality pharmaceutical benefits for your employees.

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Topics: Trends, Insights & Analysis, Enterprise Employers, Brokers, Pharmacy Carve Out

Posted by

Truveris Team