Pharmacy Carve-Out

A pharmacy carve-out is when a self-funded employer separates the pharmacy benefit from the medical benefit and contracts with a standalone PBM rather than using the bundled PBM services offered by their medical TPA or carrier. The carve-out gives the employer direct visibility and control over pharmacy spend, contract terms, formulary design, and rebate arrangements — visibility that's often obscured when the pharmacy benefit is bundled inside a "one contract" carrier arrangement.

The strategic case for carving out has strengthened as pharmacy spend has grown as a share of total plan cost — often 25 to 35 percent of total claims on self-funded plans, driven by specialty drug growth. Bundled arrangements historically made it hard for employers to see the true acquisition cost of drugs, the rebate flow, or the spread the PBM might be taking on generics. Standalone PBM contracts — particularly with transparent pass-through PBMs like Navitus, Rightway, and Capital Rx — require the PBM to disclose actual net cost per unit, pass 100 percent of rebates to the plan, and charge a defined per-script administrative fee. The trade-off is complexity: carving out means managing a separate vendor relationship, separate data feeds, separate member ID cards (or dual-branded cards), and a separate implementation. Employers generally see 8 to 20 percent reduction in pharmacy spend from a well-executed carve-out to a transparent PBM.

The takeaway: if you're a self-funded employer over about 200 lives and pharmacy is a meaningful share of your claims, a pharmacy carve-out to a transparent PBM is one of the more reliable cost-control moves available. Model it seriously at each renewal cycle.