Escalating Pharmacy Costs and Carving out the Pharmacy Benefit Program

Benefits Case Study Insurance

As we near the end of a decade that has seen dramatic increases in healthcare costs, employers’ efforts to curtail their organization’s healthcare spending have ramped up in response. A primary target in these efforts has been pharmacy spending; a subcategory of overall healthcare spending that has risen in cost at a much faster rate than other medical-related costs.

The health status of a group can change drastically in the span of just a year or two, and larger self-funded clients may find themselves bound to an outdated or underperforming pharmacy contract. One employee taking many brand name or specialty medications can account for tens of thousands of dollars in claims and will result in unfavorable rate increases come renewal time.

With many of our clients this is an ongoing crisis. Fortunately, there are some creative solutions available in today’s market, particularly for self-funded clients. One such instance occurred with a large manufacturing firm with over 10,000 plan members who had a carve-in pharmacy plan. They needed to address the continuing rise in their pharmacy spending, which was exceeding the average 8% inflation rate and trending over 20% of their total medical spend. These plan costs were not sustainable for the group long-term.

Summit’s Solution

Summit successfully leveraged an alternate carve-out pharmacy benefit program to compare drug pricing, estimated pharmacy rebates, formulary disruption, and the total amount spent per-employee per-year. Summit’s team was able to use this data to successfully negotiate a stronger pharmacy contract with the incumbent carve-in pharmacy plan. The revisions to the contract resulted in over $600,000 in additional savings to the client over a 3-year period and incorporated performance guarantees for an optimal result at each years’ end.

Ultimately, this group elected to stay with the incumbent pharmacy plan and remain bundled with their medical carrier. However, this case represents how a deeper pharmacy analysis and considering carving out the pharmacy benefit to an alternate provider can produce significant savings and control the burden of pharmacy expenses.

Alicia Tiefenthaler, MHR

Senior Account Manager-Group Benefits

Alicia Tiefenthaler is not affiliated with Cetera Advisor Networks LLC.