Pharmacy costs are one of the fastest-growing components of healthcare spending, yet they remain a mystery to many plan sponsors. If you’re an employee benefits consultant or a director of benefits, understanding the drivers of these costs is essential to protecting your plan’s financial health while ensuring members receive the care they need.

Let’s delve into the four key drivers of pharmacy costs and how you can take control:

1. Price: What Are You Really Paying?

Price is influenced by the list price of medications, inflation, and the terms negotiated with pharmacy benefit managers (PBMs). Contractual elements like rebates, fees, and discounts can either reduce costs or camouflage hidden markups. For example, PBMs might focus on maximizing rebates rather than minimizing your total drug spend, creating a misaligned incentive structure.

Action Step: Work with a fiduciary PBM to ensure your plan’s best interests come first. A fiduciary model PBM guarantees transparency and ensures cost-reducing strategies directly benefit your plan.

2. Product Mix: The Specialty Drug Dilemma

Specialty medications represent less than 2% of prescriptions but often consume over half of a pharmacy plan’s budget. Additionally, choosing between generics and brand-name drugs—or traditional versus specialty medications—dramatically affects overall costs.

For instance, an increase in the specialty dispensing rate from 1% to 3% can add a staggering $9.1 million to a $10 million annual plan spend. This underscores the importance of proactive management of your plan’s product mix.

Action Step: Adopt a value-based formulary that prioritizes clinically effective and cost-efficient medications. This approach can balance quality care with financial responsibility.

3. Utilization: The Impact of Volume

The frequency and duration of prescriptions, along with the channels through which they’re filled, directly affect your pharmacy spend. Key factors include:

• Number of utilizers: A growing number of plan members taking medications.
• Days’ supply: Long-term prescriptions, like 90-day supplies, may lower refill costs but increase upfront expenses.
• Channel mix: Choosing between retail, mail-order, or specialty pharmacies can significantly influence costs.

Action Step: Implement client-patient-first utilization management programs to ensure prescriptions are appropriate and cost-effective without disrupting care.

4. Cost Share: Influencing Consumer Behavior

Cost share—the portion of expenses covered by members through copays, coinsurance, and deductibles—can shape medication adherence and utilization patterns. A poorly designed cost-share structure might lead to higher downstream medical costs due to nonadherence.

Action Step: Design benefit structures that align cost-sharing with plan goals, ensuring members have access to necessary medications without excessive financial burden.

Your Path to Smarter Pharmacy Spend

Addressing these drivers doesn’t require compromising care quality. By focusing on transparency, informed decision-making, and strategic partnerships, you can significantly reduce costs while supporting positive outcomes.

At TransparentRx, we specialize in empowering plan sponsors with the tools and insights they need to succeed. Let us help you navigate these challenges with confidence.

Learn more about controlling pharmacy costs by partnering with TransparentRx. Visit transparentrx.com today.