Understanding PBM Transparency and Pharmacy Carve-Outs | RxBenefits

Pharmacy Benefits 101: PBM Transparency and Carve-Out Advantages

As a fund administrator, you’re constantly looking for new ways to maximize the value of the health benefits you provide for your members. Understanding the differences between carve-in and carve-out pharmacy benefits is essential for making informed decisions that align with your fund's goals and budget.

By carving out pharmacy benefits, funds gain greater flexibility in plan design and more control over drug spending. This approach enables you to partner with the right pharmacy benefits manager (PBM) that prioritizes true transparency and can meet the unique needs of your fund.

The Benefits of a Carve-Out Pharmacy Model

In a traditional carve-in model, pharmacy benefits are integrated into your fund’s overall healthcare plan, with an insurer or managed care organization administering the entire package. While this approach might seem convenient, it often leaves funds in the dark regarding actual drug costs and rebate distribution.

Carving out pharmacy benefits takes a different approach. This model separates pharmacy benefits from the core healthcare plan and outsources them to a specialized PBM.

The PBM acts as a third-party administrator that manages your fund’s prescription drug program. PBMs are responsible for negotiating prices and rebates with drug manufacturers, processing claims, managing drug formularies, overseeing pharmacy networks, and more. When pharmacy benefits are managed by a PBM, plan sponsors have the opportunity to further customize their plans to the needs of their members.

Flexibility and Cost Savings

Carve-out arrangements afford greater flexibility in benefit design. Funds gain further access to targeted cost-saving opportunities, such as preferred pharmacy networks and direct rebate negotiations.

This model also facilitates additional cost savings through tailored clinical programs. Funds can proactively manage high-cost specialty medications, which often represent a significant portion of overall pharmacy spend. By ensuring these specialty drugs are only covered in appropriate cases, funds can contain rising costs while ensuring members get the high-quality care they need.

Enhanced Visibility

Carve-out pharmacy benefits also offer enhanced opportunities for cost transparency compared to carve-in models. By separating the pharmacy plan, plan sponsors gain absolute visibility into drug spending. This enables you to identify specific cost drivers (such as high-cost drugs), evaluate the effectiveness of clinical programs, and implement other targeted cost-saving initiatives depending on your member population.

What Is a Transparent PBM?

While PBMs can help funds control drug spending, not all PBMs are created equally. The traditional PBM market is dominated by a few large companies called the Big 3, whose control over the market has led to low competition. This has resulted in:

• High prices for PBM services.

• Incomplete rebate pass-through, where negotiated rebates often do not fully reach the fund or its members.

• Higher insurance premiums across the board.

• Lower reimbursement rates for pharmacies.

Finding True Transparency

Transparency in pharmacy benefits refers to the level of visibility plan sponsors have into pricing structures, rebate flows, administrative fees, and contract terms. A truly transparent PBM shares these financial, contractual, and operational details openly and consistently with clients.

Unfortunately, the word "transparency" gets thrown around loosely when it comes to PBMs. Some PBMs claim to be transparent, yet they continue to retain revenue through hidden spread pricing, rebates, or unclear administrative fees.

To determine whether a PBM actually practices transparency or simply uses it as a marketing buzzword, it’s important to look closely at their policies and day-to-day practices.

Standards of a Transparent PBM

A transparent PBM will protect your members and your bottom line by following these core principles:

• No spread pricing: A transparent PBM should never create hidden margins from rebates, discounts, or pharmacy network contracts.

• 100% rebate pass-through: A PBM should pass every dollar of all negotiated rebates and fees directly back to their clients.

• Complete data access: A truly transparent PBM will give clients full, unrestricted access to their data, all the way down to the individual claim level.

• Aligned incentives: It’s important to partner with a PBM whose financial incentives align fully with the success of your pharmacy benefits program.

Administering a labor fund requires balancing member care with fiscal responsibility. And choosing the right structure for your pharmacy plan is key to containing costs and ensuring members have access to quality benefits for years to come.

By investing in a carve-out model and partnering with a PBM like Illuminate Rx—a new, fully transparent PBM designed to solve common industry challenges—you can secure the control and clarity necessary to achieve the right balance for your fund.