2022 Q2 Rx Newsletter: PBM contracts – carve-in vs. carve-out

August 1, 2022

What does Carve-In & Carve-Out Reference?

When referencing “Carve-In” or “Carve-Out,” we are talking about how the PBM contract is set up. A Carve-In contract is when the medical vendor also acts as the pharmacy vendor. A Carve-Out contract is when the medical vendor is separate from the pharmacy vendor.


A Carve-In contract is ideal for small, fully-insured plans and at times mandated for small, self-insured clients. For example, Cigna, Anthem, and UHC all have rules on if carve-outs will be allowed under certain employee or member size segments like 500 employees.


  • Having both medical and pharmacy with one vendor can make operations easier to manage
  • Coordination of care between medical and pharmacy benefits may improve
  • Stop-loss insurance coordination is easier for administration


  • Little flexibility with plan design setup
  • Combined medical and pharmacy does not provide contract transparency
  • Rebates retained or partially retained by vendor
  • Claims data experience is limited which provides little clarity and uncertainty into the performance of the Carve-In model.
  • Audit rights are limited
  • The contract typically includes penalty fees if the employer wants to change to a carve-out in the future


A Carve-Out contract is a contract in which the medical vendor is separate from the pharmacy vendor. These clients are self-funded and tend to have more flexibility and contract clarity. Although, not all PBM contracts have the same level of detail and not all have the guaranteed financial contract terms and conditions.


  • Flexible plan design and clinical programs that can help reduce costs
  • Transparency for both pricing and rebates guarantees
  • Plan customization and control of data.
  • Contract clarity.
  • Plan sponsor has audit rights to review:
    • Claims, Rebates, Pricing, Operations
  • An annual market check clause that keeps the rates current and competitive after each year.


  • Pharmacy is now separate from medical which adds an additional vendor and puts an administrative strain on the plan sponsor
  • If pharmacy and medical integrators need to be combined the vendors must collaborate together
  • Most employers have a need to purchase stop-loss insurance to protect themselves against catastrophic losses.

Employers should always consider the advantages and disadvantages of both a carve-in and carve-out contract and work with their insurance counterparts to determine the right fit.

  1. Pharmacy Carve-in vs Care-out: CalBrokerMag.com accessed June 3, 2022. https://www.calbrokermag.com/in-this-issue/pharmacy-carve-in-vs-carve-out/
  2. Healthcare Costs Rising: Why Carving Out Pharmacy Benefits is Worth Considering: com accessed, June 3 2022.  https://hrexecutive.com/healthcare-costs-rising-why-carving-out-pharmacy-benefits-is-worth-considering/

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