Healthcare is now more advanced than at any other time in history, and it keeps moving forward. However, effective medical treatments come at a high price, and there’s no escaping the rising cost of prescription drugs. As this trend continues, employers and health plan sponsors are turning to pharmacy carve-out plans to manage expenses more effectively. This approach provides flexibility, transparency, and savings opportunities not typically available in carve-in arrangements.
What is Considered a Carve-Out Plan?
A carve-out plan separates pharmacy benefits from the overall health plan, allowing employers to contract directly with a pharmacy benefit manager (PBM) instead of bundling these services with the health insurance provider. This differs from a carve-in approach, where the health plan manages pharmacy benefits along with medical services, often leading to less transparency and higher costs due to administrative bundling practices.
With a carve-out plan, employers have the flexibility to choose a PBM that offers terms tailored to their needs and goals, enhancing cost control and service transparency. An example would be a large employer separating its specialty drug management from the overall health plan. By doing so, the employer can directly negotiate specialty pharmacy services, leveraging PBM expertise to minimize costs and optimize treatment outcomes.
Key Features of Carve-Out Pharmacy Plans
Carve-out pharmacy plans provide numerous benefits for employers seeking more control over their healthcare expenditures. These plans allow employers to collaborate directly with PBMs who specialize in managing pharmacy benefits, offering expert oversight and more effective drug utilization management. Unlike carve-in models that often obscure pricing and rebate structures, carve-out plans provide transparency and the ability to negotiate terms directly. Employers gain access to detailed claims data, which enables them to monitor spending closely and adjust their strategies as needed.
Additionally, carve-out plans offer the flexibility to design drug formularies tailored to employees’ specific needs. This customization allows employers to control costs effectively by creating preferred drug lists and strategically excluding certain medications. Furthermore, direct management of pharmacy benefits maximizes the value of manufacturer rebates leading to substantial savings.
Why Employers Are Choosing Carve-Out Pharmacy Plans
Employers are increasingly adopting carve-out strategies due to their flexibility and potential for significant cost savings. Here are a few reasons why companies may choose this option:
- Managing Specialty Drug Costs: Specialty drugs drive significant pharmacy spending increases, with costs rising between 15 percent and 18 percent annually. Employers with carve-out plans can manage these costs more effectively through direct negotiations and specialized PBM programs.
- Improved Data and Analytics: Carve-out plans offer employers access to detailed claims data, enabling better oversight and strategic planning. With more robust analytics, companies can identify cost trends and implement tailored solutions to mitigate rising drug costs.
- Transition to Self-Insured Models: Employers moving from fully insured to self-insured health models often prefer carve-out plans for their ability to independently control and manage pharmacy spending, giving them leverage in negotiations and the flexibility to optimize their benefits.
Carving out the pharmacy benefit provides transparency, flexibility, and the opportunity for employers to negotiate favorable terms directly. This control often translates into significant savings and a more customized approach to managing employee health.
Use Cases for Carve-Out Pharmacy Benefit Plans
The following table outlines various use cases that highlight the effectiveness of carve-out pharmacy plans for different types of employers, demonstrating how these strategies can optimize cost management and provide targeted benefits.
| Use Case | Description |
| Large Employers | Companies with many employees benefit from carving out pharmacy services, enabling them to independently negotiate PBM contracts that offer competitive pricing and robust rebate optimization, resulting in direct cost savings. |
| Managing Specialty Pharmacy Costs | Employers facing high costs from specialty medications can carve out these benefits to focus resources on managing this expense category. This strategy is especially effective for managing high-cost conditions like cancer or autoimmune diseases. |
| Small and Mid-Sized Employers | Employers who may not have the negotiating power alone sometimes join pharmacy coalitions. These coalitions combine buying power, allowing mid-sized businesses to access the favorable pricing typically reserved for larger employers. |
A Strategic Shift for Employers
More employers are choosing to carve out their pharmacy benefit plan to control rising healthcare costs better while gaining visibility into pharmacy benefit management. By partnering directly with a PBM, companies achieve transparency and customization to tailor pharmacy benefits to their workforce’s needs.
Automated analytics tools like Xevant’s platform enhance these benefits by providing real-time, data-driven insights into the performance of carve-out plans. These tools enable employers to actively monitor PBM effectiveness and ensure transparency, offering a clear, quantifiable view of cost savings and medication utilization. In turn, PBMs can leverage such analytics to demonstrate their value to employers through evidence-backed metrics and visibility. This level of data integration is critical for maximizing the impact of carve-out pharmacy strategies.
Want to learn more about how Xevant’s solutions can support optimized carve-out plans and cost management? Ask us.
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