Your Cheat Sheet for Pharmacy Benefits

Here is a primer containing all the knowledge you need to become wiser in the area of pharmacy benefits.

Your Cheat Sheet for Pharmacy Benefits



Pharmacy benefits can be confusing -- between specialty drugs, trends driven by more than cost and utilization, understanding “carve-ins” vs. “carve-outs,” and pricing factors, there are many moving parts and considerations. First, we start with the basics: the pharmaceutical ecosystem.

The pharmacy ecosystem

Before a medication can make its way to a patient, it starts at the pharmaceutical manufacturer. These companies handle research and development, stimulate medication demand by underwriting clinical studies, test and obtain FDA approval, and market and launch the product.

Manufacturers work under two main models -- brand drugs or generic drugs -- and manage the distribution to drug wholesalers and government purchasers. In rare cases, they distribute to pharmacies and other retailers.

Wholesale distributors purchase drugs from manufacturers, typically at a discounted rate (the wholesale acquisition cost, or WAC). Discounts are based on volume, prompt payments and the sale of short-dated products. The purchase price of medications can vary, depending on drug class competition and the wholesale distributor’s ability to increase market share or volume sold.

The wholesale distributor sells the product at WAC plus a negotiated markup to pharmacies, hospitals, long-term care centers and other medical facilities.

Pharmacies then buy the drugs from wholesalers — and in rare cases, directly from the manufacturers. They may negotiate with wholesalers for purchase discounts and rebates.  Separately, pharmacies negotiate contracts with pharmacy benefits managers for network inclusion and the pharmacy’s reimbursement rate.

Finally, a pharmacy benefit manager (PBM) is a company that administers the prescription drug benefit for clients that offer prescription coverage for members. The PBM is the middleman between the pharmacy, manufacturer, and employer that aims to get all parties a fair deal, minimize pharmacy benefit costs, and increase access to medication for plan members.

Specialty drugs

Specialty drugs accounted for about 38 percent of total drug expenditures in 2015, even though just 1 to 2 percent of the American public uses them, according to Express Scripts 2015 Drug Trend Report.

These drugs are used to impact, treat, and sometimes cure chronic disease states such as sclerosis, arthritis, and cancer that may not have been impacted from a prescription drug benefit in the past. The use of specialty drugs is allowing people to live longer and with a much better quality of life than they would have had 10 or 20 years ago.

These are high-cost prescription medications that often require special handling and administration. There is no official classification of “specialty drugs,” but 85 percent of health plans consider high-cost to be a determining factor in identifying these products, according to the EMD Serono Specialty Digest, 10th Edition. Medicare defines specialty drugs as any pharmaceutical costing $600 or more per month.

In 2016, specialty drug unit costs increased by 6.2 percent, but that increase isn’t scaring away consumers: Utilization rose 7.1 percent that same year.

Tracking the trends

Pharmaceutical trend isn’t just about trending the rising cost of a particular medication. Rather, think of pharmaceutical trend as a multi-lane highway where utilization, price, and therapeutic mix all come into play. Even within these three trend elements, there are many factors to consider.

  1. Changes in drug utilization include:
    • An aging population or workforce
    • New medical standards of care or updated prescribing guidelines
    • New drugs to the market
    • Drug recalls
    • Overall focus on prevention
    • Overall focus on health management and wellness
    • Direct-to-consumer advertising by pharmaceutical manufacturers
    • Plan benefit design changes shifting more cost to members through higher deductibles, copays, and coinsurance
    • Pharmacy channel shifts (retail pharmacy, mail order, specialty pharmacy)
    • National epidemics
  2. Changes in drug price include:
    • Drug inflation across brand, generic and specialty classifications
    • Drug patent expiration
    • Generic drug exclusivity
    • Pharmaceutical manufacturer coupons
    • Drug discount card programs
  3. Changes in therapeutic mix of drugs include:
    • New drugs to market across brand, generic, and specialty
    • New medical standards of care or updated prescribing guidelines
    • Rx medications that switch to over-the-counter (OTC)
    • New PBM clinical management strategies or programs

There is layered complexity behind what influences drug utilization, price, and therapeutic mix. Many employers struggle to juggle these pharmaceutical considerations along side their other benefit plans. To help them take control and understand their pharmacy benefits, employee benefits professionals are now partnering with industry experts like Truveris who use technology to provide clarity into what’s driving pharmacy trend.


Pharmacy carve-out

When it comes to the workplace, employee benefits professionals typically prefer to contract directly with a single provider for all benefits to simplify the administrative burden of managing multiple vendors. However, this may not always be the most effective way to control overall plan costs. Many plans are considering carving-out pharmacy benefit providers to closely manage rising drug costs.

With pharmacy carve-out, the employer contracts directly with a PBM to administer their pharmacy benefit program. A pharmacy carve-out is typically used under the self-insured model— meaning the employer assumes the risks and benefits of managing costs. Carving-out pharmacy benefits provides advantages like flexible plan design, increased transparency, implementation credits, greater access to rebates, and the right to audit. It also allows for more robust reporting and greater insight into how the pharmacy portion of the plan is performing.



Pharmacy benefits are complicated, but technology-driven pharmacy benefit bidding and oversight services are available to help employee benefits professionals understand the complex prescription drug ecosystem. These services give employers and brokers the confidence that they can secure competitively priced PBM contracts, and maintain affordable, high-quality prescription drug coverage for their employees.

 Learn how Truveris can help you save on your next PBM contract

Topics: Trends, Insights & Analysis, Enterprise Employers, Labor Unions, State & Public Employers, Brokers, Pharmacy Benefit Managers

Posted by

Truveris Team