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  • Writer's pictureTroy Vermillion

Discover Effective Strategies to Tackle Rising Pharmacy Expenses

Updated: Aug 2, 2023

Discover Effective Strategies to Tackle Rising Pharmacy Expenses - Group Benefits - TROYVERMILLION.COM

As healthcare costs continue to rise, the increasing expenses of pharmacy benefit plans have become a significant burden for many employers. With the growing complexity of pharmacy contracts and the lack of transparency, it is challenging for businesses to determine if they are receiving the best value for their pharmacy spending.

The consequences of high pharmacy costs are not just financial, but can also impact employee satisfaction and overall health outcomes. In this blog post, I will discuss the Consolidated Appropriations Act (CAA) and how a Pharmacy Contract Review can help employers understand their pharmacy contracts and identify cost-saving opportunities.

Manufacturer Rebates

PBMs receive these payments from drug manufacturers, accounting for approximately 33% of total pharmacy costs for employers. In addition, manufacturer rebates often motivate PBMs to include higher priced medications in their formularies even when cheaper alternatives are available.

Spread Pricing

This occurs when insurers or PBMs charge the employer a more than what the pharmacy is reimbursed, profiting on the difference. Spread pricing represents 3% of total healthcare costs for businesses; however, it generates substantial profits for PBMs.

Broker Coalitions

This setup allows smaller employers to take advantage of larger organizations' buying power. Unfortunately, there is usually no transparency in the deal between brokers and PBMs, concealing additional revenue sources from participating employers.

It is evident that insurance companies and PBMs are profiting from the ever increasing cost of prescriptions, yet there is still no impetus to help employers keep their costs down. As such, it is important for businesses to stay vigilant and thoroughly investigate all options available when selecting a PBM partner.

* The image below demonstrates some of the complexity involved in the pharmacy side of the equation and sheds some light on why it is the fastest growing line item on employer sponsored health plans.

US Pharmacy Distribution: Costly for Everyone

The Consolidated Appropriations Act (CAA)

The CAA, which was passed in December 2020, includes provisions aimed at increasing transparency and reducing costs associated with pharmacy benefit plans. These provisions require pharmacy benefit managers (PBM) to provide information such as drug pricing and rebates, the amount paid to pharmacies, and any fees charged to plan sponsors.

The act also includes provisions that limit the spread pricing, which is the difference between what PBMs collect from insurance companies and what they pay pharmacies for prescription drugs. These provisions aim to increase transparency in pharmacy contracts and reduce the costs of prescription drugs for plan sponsors and patients.

What Is The Solution?

A Pharmacy Contract Review is designed to help employers navigate the complicated world of pharmacy benefit plans. The analysis would include a team of experts who review pharmacy contracts and identify opportunities to reduce costs.

By leveraging a team with this type of expertise, employers can make informed decisions about their pharmacy benefit plans and ensure that they are getting the best value for their pharmacy spending.

Pharmacy Contract Review Process

A pharmacy contract review process includes a comprehensive analysis of pharmacy contracts to identify cost drivers and areas for savings. The team assesses contract provisions related to drug pricing, rebates, fees, and administrative costs to determine the actual costs of the plan.

They also assess the contract’s clinical provisions related to formulary management, generic drug utilization, and utilization management programs, which can impact overall health outcomes. Based on this analysis, this help determine what specific recommendations and strategies would be prioritized and deployed to optimize the plan.


The increasing costs of pharmacy benefit plans are a significant problem for employers, and the consequences can impact employee satisfaction and overall health outcomes. The Consolidated Appropriations Act (CAA) aims to increase transparency and reduce costs related to pharmacy contracts. However, navigating the complexities of pharmacy contracts can be challenging for businesses.

A Pharmacy Contract Review can help employers understand their contracts, identify opportunities for savings, and optimize their pharmacy benefit plans and ensure employers are getting the best value for their pharmacy spending, improving employee satisfaction, and ultimately improving overall health outcomes.

Troy Vermillion - Author



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