MasterClass – Rx Risk & Pharmacy’s Fast-Growing Influence on Self-Funding

Pharmacy is no longer a line item managed on the margins of budgets. Pharmacy costs have officially become the single fastest-growing financial risk driver in self-funded health plans. Outpacing other healthcare trends, pharmacy spend now accounts for upwards of 30% of total healthcare spend, compared to less than 10% only a decade ago.

Benefits advisors navigating this rapidly shifting space will learn from Benecon’s in-house pharmacy expert, K. Nick Miller, PharmD, CPBS (Senior Director of Pharmacy Services), who delivered a detailed breakdown of the financial risks in pharmacy, PBM contract blind spots, and targeted cost-containment strategies to help improve plan performance and member experience.

Real pharmacy cost containment is not about denying necessary clinical care or chasing inflated rebate checks that mask high brand-name drug prices. Strategic advisors must instead audit pharmacy spend across three distinct payment channels (retail/mail, specialty, and medical infusions), identify blind spots, and actively deploy interventions that control net costs while protecting the employee experience.

The macroeconomic mechanics of the pharmaceutical industry have fundamentally transformed in recent years. In the past, the pharmacy trend was driven by high-volume, brand-name drugs. As those drugs lost patent exclusivity and became generic, spending dropped, allowing new brands to cycle in at predictable, lower price points.

Today, overall pharmacy trend is projected in the 8-14% range, driven primarily by two forces:

1. Specialty drugs (low volume, high spend): Specialty medications only impact 1-2% of a plan’s total population, but staggeringly account for more than 50% of total pharmacy spend. Oral specialty drugs and self-administered injections often exceed $200,000 per member per year under the pharmacy benefit alone.
2. GLP-1 medications (high volume, high net cost): Non-specialty GLP-1 brands (e.g., Ozempic, Wegovy) represent a massive shift in volume. These types of treatments for individual members may cost $12,000 per year, but the number of members seeking these prescriptions is disrupting total plan spend, and accounts for about 10% in additional trend to a plan’s total pharmacy spend.

Many pharmaceutical manufacturers pitch GLP-1s as a cost-saver for medical claims. However, carrier block-of-business studies tracking members who specifically use GLP-1s for weight loss over 24 months revealed that medical claims actually increased, not decreased. Members needed additional care to manage side effects, and physician visits increased while taking the medication. Lifestyle accountability is also necessary to realize the long-term benefits of using GLP-1s for weight loss.

As Nick describes where to identify actionable cost-containment measures, consultants are urged to evaluate pharmacy claims across three primary payment channels.

Pharmacy Benefit Managers were created decades ago to process high-volume point-of-sale retail transactions, negotiate network discounts, control utilization, contract/aggregate rebates, process claims, manage formularies, and build pathways for specialty pharmacies. While essential for claims administration, traditional PBMs have several blind spots.

• Medical specialty infusions (J-Codes billed under medical, not Rx)
• Hospital site-of-care unit price markups and decisions
• One-off catastrophic claims and gene therapies
• Tying clinical medication effectiveness to health outcomes
• Member access and true adherence (filling medications vs. taking them correctly)

Advisors must educate their clients on how large rebate checks do not mean a plan is performing well. High rebates simply mean the plan is overpaying for expensive, brand-name drugs upfront when cheaper, clinically equivalent generic or biosimilar alternatives are available. Expecting a large rebate check to solve plan costs is like overpaying your federal income taxes all year just to celebrate a large refund in the spring.

Roughly 80% of all prescription volume in the U.S. is controlled by the “Big Three” PBMs— Express Scripts, CVS Caremark, and Optum. These entities are vertically integrated, meaning they own their own mail-order pharmacies, specialty pharmacies, and rebate aggregators. The rebate aggregators collect manufacturer fees and rebates before passing a portion down to the PBM, so the PBM can contractually claim it as passing through “100% of rebates received.” In reality, their parent entity retains significant margins higher up the chain that remain unseen for plan fiduciaries.

To optimize a self-funded drug plan, advisors should ensure the foundation PBM controls are tight before deploying targeted third-party overlays.

Formulary management is one of the most direct plan design levers an advisor can adjust.

• Open Formularies: Offer maximum physician and member choice with no excluded drugs. This relies on strict copay tiers or basic utilization management,resulting in minimal disruption that drives higher net plan costs.
• Closed Formularies: Exclude specific high-cost, low-value brand drugs in therapeutic tiers where clinically effective, lower-cost generics or biosimilars exist. Moving to a closed formulary gives the plan direct financial control. Every FDA-approved drug does not need to be covered by the employer’s health plan, especially when identical clinical outcomes can be achieved at a fraction of the price.

Hospital health systems aggressively markup specialty infusion drugs administered in outpatient hospital settings. The same specialty infusion drug can cost more than double when administered at a hospital outpatient facility compared to an independent physician’s office or through home infusion. Nationally, only about 35% of commercial health plans leverage site-of-care steerage programs, which shows a massive untapped savings potential for self-funded employers.

Multi-million dollar gene and cell therapies (e.g., Zolgensma or Skysona at about $3.0M each) represent single-dose, high-severity events. While currently acting as rare “lightning strikes,” the FDA is expected to approve 10 to 20 new cell and gene therapies annually through 2030, doubling the current market.

Advisors must take caution regarding standalone gene therapy carve-out riders sold by third parties. These riders often carry very high premiums, non-guaranteed renewability provisions, and complex fine-print. Within an aggregated consortium model like VERIS, catastrophic gene therapy claims are absorbed under the standard stop-loss contracts and blended across the entire risk pool.

For members facing recurring, catastrophically high-cost chronic conditions, advisors can utilize alternative sourcing and enrollment solutions. These enrollment optimizers help members move to foundational assistance programs, specialized exchanges, or Medicare pathways. This provides the member with complete financial relief (zero copays or deductibles) whilst removing catastrophic recurring risk from the employer’s plan and stop-loss policy.

To fulfill fiduciary responsibilities under CAA requirements, consultants and plan sponsors must look at every pharmacy decision against a clear Consulting North Star:

“Can we defend this Rx strategy financially and clinically, while also meeting the needs of our employees?”

1. What percentage of total pharmacy spend is driven by specialty drugs, and what specific drug categories are driving overall trend?
2. How are medical specialty infusions (J-codes) tracked, and what percentage are administered at high-cost hospital outpatient facilities versus lower-cost sites of care?
3. Is the PBM contract passing through 100% of rebates from the GPO/aggregator level, or only the rebates received by the domestic PBM entity?
4. Are vendor savings measured based on gross cost, net cost, or total cost of care?
5. What specific clinical criteria and prior authorization guardrails exist for high-volume non-specialty brands like GLP-1s?

1. Baseline Pharmacy Metrics
   1. Rx Trend: Budget for an overall pharmacy trend of 8% to 14% annually. Weight-loss GLP-1s alone add up to an additional 10% trend impact.
   2. Total Healthcare Share: Pharmacy now represents 30%+ of total health plan spend.
   3. Specialty Concentration: Specialty drugs represent 1–2% of member utilization, but account for 50%+ of total drug spend.
   4. Specialty Unit Cost: Oral and self-administered specialty drugs routinely exceed $200k per member per year.
2. Pharmacy Advisory Process (At-a-Glance)
   

   If you see…	Ask your client…	and consider…
   Rising specialty cost trends	Which specific drugs and members drive the trend?	Alternative sourcing models or a biosimilar substitute.
   High medical infusions/J-Codes	Where is care physically being delivered?	Medical infusion site-of-care steerage programs (Outpatient to Home/Independent)
   Recurring catastrophic spend ($200k+)	Is the claim a one-time event or ongoing chronic care?	Plan alternative coverage and enrollment solutions
   High non-preferred brand usage	Are there drug exclusions or copay tiers?	Closed Formulary adoption or strict PA/Step therapy controls
   GLP-1 demand surge	What clinical guardrails and BMI requirements exist?	Lifestyle weight loss exclusion, comprehensive clinical support programs, or enhanced PA policy

3. Core Advisory Takeaways
   1. Audit Before Overlaying: Diagnose the exact payment channel (Retail, Specialty, or Medical J-Code) before buying third-party overlays.
   2. Net Spend Over Rebates: Evaluate pharmacy contracts based on total net spend, not gross costs and rebate checks.
   3. Shift Hospital Infusions: Steer medical specialty infusions away from outpatient hospital systems to cut drug costs by 50% or more without compromising quality.
   4. Consortium protection for rare claims: Rely on aggregated risk-pooling programs, like VERIS, to absorb single-dose $1M+ therapies rather than buying expensive standalone riders with restrictions and fine print.