Pharmacy 101: Carved-in vs. Carved-out Rx

June 24, 2022

As you can probably imagine – I always get asked the question “What can my company do to save money and buy better” My answer is not always what people want to hear, but at the end of the day size of the organization makes a big difference.

Pharmacist holding medicine box in pharmacy drugstore.

There are cost containment measures that do not apply equally to all organizations. Those who are self-funded or have more risk tolerance can benefit. One of these cost containment opportunities where companies can buy better is Carved-Out Pharmacy. For those self-insured employers – this is a big area of opportunity. Especially when you consider that pharmacy spending is approximately 20-25% of total medical spending.  In addition, the pharmacy trend is increasing with increased utilization of Specialty Pharmaceuticals, which accounts for approximately 50% of the pharmacy spend.

Have pharmacy related questions or concerns? Reach out to me directly at [email protected] and we can chat through them together.

Carved-in vs. carved-out

The difference between carved-in and carved-out comes down to whether pharmacy benefits are included in with medical benefits. For carved-in employers, management of the drug benefit is included in the management of the medical benefit, using a single entity and contract to administer the benefit.  In a carved-out arrangement management of the drug benefit is separate from the management of the medical benefit and is outside of the health plan’s influence.

Why it’s worth considering carved-out Rx.

By far the biggest advantage of carve-out Rx is savings. On average clients who leverage carved-out Rx save 20 to 25% of their current spend. Each Employer’s potential savings will vary based on their individual spend, contract terms with their TPA and utilization including where members get their drugs such as in a retail setting like Walgreens or through the mail.  Along with savings, carve-out plans offer greater transparency and control which allow employers and employees to effectively manage prescription drug costs.

Challenges to be aware of

Like with any benefits option there is going to be both advantages and disadvantages for you and your employees. Before utilizing a carve-out arrangement for your organization consider a few key points:

  • How will you optimize communications to manage change and engage members? Note that your workforce will need to be aware of things like having a separate ID care for Rx.
  • How will your organization tackle being more involved with implementation? Consider things like timing of rebates and impact to budget as well having admin personnel to review contracts.
Pharmacy Drugstore Checkout Cashier Counter: Mature Female Pharmacist and Young Woman Using Contactless Payment NFC Smartphone to Buy Prescription Medicine, Vitamins, Beauty, Health Care Products

There are opportunities to buy pharmacy better and quite frankly many of the contracts are clear as mud.  As a result, your consultant needs to have a deep knowledge of this space to help you evaluate the right platform or at the very least use the market as leverage to bring down the cost.  Please hit me up if you would like to learn more and how your organization can position itself with a strategic advantage.

Welcome to Carlozo’s Corner! I’m Anthony Carlozo, a client executive at Marsh McLennan Agency (MMA), the employee benefits division of Marsh.

At Marsh McLennan Agency, I work with organizations of all sizes to help them minimize their risk and maximize the value of their benefits programs.

Here I’ll be sharing insights about a current market trend and the strategies I’m seeing employers adopt to adapt to today’s evolving business landscape.