The Benefits of Pharmacy Carve-Out Plans

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Do you know how much your company spends on pharmacy benefits? If you don’t, you’re not alone. Many employers and plan sponsors feel stuck in a plan that they can’t oversee or control. With the cost of pharmacy benefits rising each year, businesses are turning to carve-out plans that allow them to work directly with a pharmacy benefit manager (PBM) for more oversight and less cost.

What does pharmacy carve-out mean?

To “carve out” means to separate some facet of the benefit plan from the overall health benefit. Employers who use a pharmacy benefit carve-out are contracting with a separate company for the pharmacy portion of the benefit — typically due to the high cost of specialty drugs. The idea is that by negotiating with a PBM directly for their pharmacy needs, they may be able to better control costs.

A similar cost-saving motivation has influenced many plan sponsors to explore alternative funding options in recent years, although a carve-out approaches things from a different angle.

What is a pharmacy carve-out plan vs. a carve-in plan?

The first thing to know when comparing carve-in vs carve-out pharmacy plans is that both are viable ways for employers to manage and provide medical benefits and specialty pharmacy drug access to their employees. They’re simply different ways of managing the benefit.

Carve-out pharmacy plans enable employers to contract with a separate company to “carve-out” benefits that focus on a specific disease, like diabetes, cancer or other specialty treatments. Employers can also carve-out a particular service, like a specialty pharmacy carve out for prescription drugs (as a part of the overall pharmacy benefit).

Carve-in pharmacy plans, by comparison, leave all healthcare arrangements under one roof, controlled by a single medical provider. In the case of a pharmacy benefits plan that’s carved in, a company’s medical provider holds the PBM contracts, handling the benefits and costs while the company remains one step removed.

More details on what a pharmacy carve-out plan entails

A pharmacy carve-out is when an employer separates, or carves out, their pharmacy benefits from their major medical plan to contract directly with a PBM. Today, many companies, from large Fortune 500s to small and medium-sized businesses, are carving out pharmacy benefits, and for good reason. In contrast to a carve-in strategy, carve-out plans give employers better control over pharmacy benefit costs, a crucial consideration as the costs of prescription drugs continue to rise.

Pharmacy benefit carve-out plans give employers transparency into their pharmacy benefits, allowing them to have greater understanding and control of spending, negotiate better deals, and ensure the program is performing as promised. Contracting directly with a PBM gives employers direct access to the cost of their pharmacy benefits, and the data to evaluate program performance.

Why companies are increasingly carving out pharmacy

Prescription drug coverage is the single most utilized health care benefit — trending annually at 15 to 25 percent. With the cost of prescription drugs rising, the resulting increase in healthcare spending is impacting the bottom line. Carved-in employers often feel out-of-the-loop as they can’t access accurate data about their pharmacy benefits spend.

Carve-out plans, however, can offer greater transparency and control, both critical components for helping employers and employees manage prescription drug costs. They also give employers direct access to PBMs who are knowledgeable about pharmacy benefits. With many high-priced prescription drugs, such as new specialty medications, a carve-out plan allows companies to focus attention on managing pharmacy benefits costs separately from the rest of their medical plan. In addition, maintaining an effective pharmacy benefits plan keeps patients from shouldering too much of the cost of prescription drugs.

A pharmacy benefit carve-out plan can offer employers another strong solution for offering a complete pharmacy benefits program while also keeping spending in line. One food manufacturer, for example, was able to leverage a pharmacy carve-out plan to generate 22% savings over their original carved-in plan. The first step is to work with your PBM to achieve the transparency and cost savings every employer needs.

For companies considering a carve-out plan, Truveris can help. Our technology, combined with our team of experts from across the pharmacy benefits chain, help companies get the best PBM contract prices without sacrificing the quality and flexibility necessary for plan members.