For many employers, pharmacy costs feel unpredictable. They rise year after year, and it can seem like there’s little you can do about it.
But pharmacy often represents 25 to 35 percent of a health plan’s total spend. And a meaningful portion of that spend is influenced by how your program is structured.
What many employers don’t realize is that the same medication can be priced very differently within the same plan. One employee may pay $45 for a 30-day supply, while another pays $180 for the same drug and dose. The variation isn’t about the medication itself. It’s about how the pricing model works.
Most PBM contracts are built around complex rebate and pricing structures. Without full visibility into how those arrangements function, it’s difficult to know whether your plan is optimized for lower net cost or simply moving dollars around.
At renewal, pharmacy is often summarized as a line item within total spend. But behind that number are trends, contract terms, sourcing strategies, and utilization patterns that deserve deeper review.
The medications themselves are not the issue. The real opportunity is in transparency, alignment, and smarter structuring.
When you understand what is driving pharmacy spend, you can start making decisions that actually reduce it.
What Most Brokers Will Not Tell You
Most brokers do not dig into pharmacy because it requires work. Data analysis. Formulary review. PBM contract audits. Rebate reconciliation.
Some brokers have financial relationships with PBMs. Overrides. Volume bonuses. Steering agreements. These create incentives to maintain the status quo, not fix the problem.
It is easier to negotiate a lower renewal increase and call it a win.
If your pharmacy spend is climbing 12 to 15 percent annually, a 6 percent premium increase is not a victory. The carrier absorbed some of the hit this year and will pass it back next year.
The right approach focuses on the cost drivers hiding inside the plan.
What This Actually Looks Like
We worked with a manufacturer with 240 employees, spending $1.8 million on their health plan. Pharmacy was 32 percent of total spend. Their broker said the increase was “market standard” and recommended cost-shifting to employees.
We ran a PBM audit. Found $340,000 in annual waste. Same medications. Different formulary strategy and contract structure.
After implementation, they saved $290,000 in year one while keeping the exact same drug access. No disruption. No complaints. Just lower costs.
What to Do Next
Ask your advisor these questions.
- What percentage of our plan spend is pharmacy, and what is driving the increases?
- Have you audited our PBM contract for pricing transparency and rebate pass-through?
- What compensation do you receive from our PBM?
If they cannot answer all three with specifics, you are not getting the transparency you need.
Pharmacy is the rare area where you can materially reduce costs without disrupting employees. Same medications. Lower spend. Better outcomes.
We can walk through your current structure and see where there’s room to improve. DM me for more information.
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