Pharmacy is the line item nobody negotiates until it is too late.
Prescription trend now outpaces medical trend at almost every group we see, and most pharmacy contracts are written in a way that makes that difficult to verify from an invoice. The contract is the product. Reading it is the work. Pharmacy trend is one of the numbers in the quarterly review of our health and cost strategy.
The definitions section is where the money is.
Pharmacy arrangements are priced on discount guarantees, dispensing fees and rebates, all of which are measured against definitions written by the party being measured. Four clauses decide whether a guarantee means anything.
Spread Versus Pass-Through
In a spread arrangement the manager can bill the plan more than it pays the pharmacy and keep the difference. In a pass-through arrangement it cannot. Both can quote an attractive discount; only one of them tells you what the drug cost.
How a Generic Is Defined
Discount guarantees are measured separately for brand and generic drugs, and the contract decides which list a drug sits on. Reclassifying a handful of high-volume drugs can satisfy both guarantees while the plan pays more. Ask for the definition in writing, including how multi-source brands and authorized generics are classified, and for a year-end reconciliation that shows which drugs were counted on which list. A guarantee means little if the manager controls the list it is measured against.
What Counts as a Rebate
Rebate guarantees are usually stated per brand script and exclude whole categories — specialty, limited distribution, sometimes anything dispensed through a particular channel. The exclusions, not the guarantee, determine the check. Ask for the full list of excluded categories, and for rebates to be defined as all manufacturer payments rather than only those labeled rebates, since fees paid by manufacturers under another name can sit outside the definition.
Running the Bid
Every term above is set in the bid, not in the renewal letter. Taking the contract to market on a defined specification, with the audit rights written in while you still have leverage, is what makes the guarantees testable later.
A handful of claims can move a renewal more than plan design does.
Specialty and high-cost therapies are where pharmacy stops being a predictable line and becomes underwriting. They need to be tracked as they develop, not discovered in the renewal letter.
Track the Outliers Early
A high-cost therapy that starts in month four is something you can still plan and negotiate around. The same therapy found at renewal is a number you absorb. That takes regular claims reporting that flags new specialty starts, so there is time to look at site of care or manufacturer assistance before the renewal is priced.
Weight-Management and Other Fast Categories
Categories can move from marginal to material inside a single plan year. The decision to cover, to cover with criteria, or to exclude is a budget decision and an employee-relations decision at once, and it should be made deliberately rather than by default.
Carve-Out, Honestly Assessed
A separate pharmacy arrangement can save real money and can also cost you integration, data and leverage on the medical side. We model it rather than advocate for it. We price both options on the same claims data and the same contract terms, and we count what a carve-out adds: a second vendor, data feeds and any change in how the medical carrier prices the plan.
Pharmacy brings filings with it, and they are easy to miss.
Prescription Drug Data Reporting
Group health plans are required to submit annual prescription drug and health care spending data. It is a plan obligation, usually executed by vendors, and the plan sponsor remains responsible for it having happened. Get written confirmation each year that your carrier or pharmacy manager filed on the plan’s behalf. On a self-funded plan with several vendors, someone also has to confirm that each vendor’s piece was submitted.
The Gag-Clause Attestation
Plans must attest annually that their contracts do not restrict access to cost and quality data. That attestation is a statement about your pharmacy and network contracts — which means somebody has to have read them. It is due December 31 each year and applies to fully insured and self-funded plans alike. Carriers often attest for insured plans, but a self-funded sponsor usually has to confirm its own contracts or delegate the attestation in writing.
Creditable Coverage
Whether your drug coverage is creditable against Medicare Part D drives a notice obligation with no employer size exemption: to individuals before October 15 each year, and to the agency within sixty days of the plan year start. Your carrier or pharmacy manager can usually tell you whether the coverage is creditable, but sending the notice and the disclosure is yours. The notice also has to reach Medicare-eligible dependents and retirees on the plan, not only active employees.
What employers ask about pharmacy.
Why is pharmacy growing faster than medical?
Specialty drugs. A small number of members on high-cost therapies can move an entire plan’s trend, which is why a line that was a rounding error a few years ago now drives the renewal conversation. Weight-management drugs added a second driver, because they are expensive and often taken long term. Tracking specialty starts and these categories separately is what makes the next renewal predictable.
What is worth asking a PBM?
How the contract defines a generic, how spread pricing works, and what actually counts as a rebate. Those three definitions decide what you pay, and they vary between contracts that otherwise look identical. Add one more: what audit rights you have, how often and with an auditor you choose. A guarantee you cannot test is a promise, not a term.
Is carving out pharmacy the answer?
Sometimes, and it should be tested rather than assumed. A carve-out can improve pricing and transparency, but it adds a vendor relationship and can complicate the medical carrier’s view of the member. It is most worth testing when the current pharmacy contract cannot be audited or benchmarked, because that is the problem a separate arrangement actually solves.
Pharmacy Benefit Consulting in Bloomfield Hills That Shows Where Your Drug Dollars Go
Many employers open their renewal and see prescription drugs taking a bigger share of the cost every year. Often nobody can explain why. Our pharmacy benefit consulting in Bloomfield Hills starts with that question. We look at what your plan pays for drugs and who sets those prices.
We are an independent employee benefits consulting firm, in business since 2007. No carrier owns us. That lets us give you a straight answer about your drug spend, whether you are in Birmingham, Troy, Southfield or anywhere else in Michigan.
Pharmacy Benefit Consulting
Most health plans hand the drug side to a pharmacy benefit manager, or PBM. A PBM is the middleman that builds the drug list, sets pharmacy prices and works out rebates with drug makers. The drug list is called a formulary. Where a drug sits on it decides what your employees pay at the counter.
Here is how our pharmacy benefit consulting in Bloomfield Hills works:
- We read your PBM contract and explain rebates, fees and pricing terms in plain words.
- We review how your plan covers GLP-1 drugs. These diabetes and weight-loss medicines have become a major cost driver. Our GLP-1 coverage guide for employers sets out the 2026 numbers and the four options employers use.
- We check prior authorization and step therapy rules. These make a member get approval, or try one drug first, before another.
- We compare your options at renewal and hold the PBM to its contract.
Michigan licenses pharmacy benefit managers under Public Act 11 of 2022, with licensing in place since 2024.
Should our health plan cover GLP-1 weight-loss drugs?
There is no single right answer. Coverage for diabetes is common. Coverage for weight loss alone is a choice each employer makes. These drugs cost a lot, and members often take them for a long time. So the choice can move your renewal.
Options we walk through with you:
- Cover them, with prior authorization.
- Cover them only for diabetes.
- Cover them only for members who join a lifestyle program.
- Exclude weight-loss use.
We show you what each choice means for your costs and your people before you decide.
Can employees save money with GoodRx or SingleCare instead of the plan?
Sometimes. For some generic drugs, the cash price with a discount card like GoodRx or SingleCare is lower than the plan copay. Employees can check those prices before they fill a prescription. The catch is simple. A cash purchase outside the plan may not count toward the plan deductible or out-of-pocket maximum. We help you explain that trade-off in your open enrollment materials, so no one is surprised.
Common questions
Do small employers need pharmacy benefit consulting?
It still helps. In Michigan, small groups of 50 or fewer employees have rates set by carrier filings. We show you which plan designs keep member drug costs down. The levers are the plan designs carriers offer: formulary tiers, generic incentives and, where a carrier makes it an option, coverage of weight-loss drugs. Each one shows up in what employees pay at the counter.
What is a PBM rebate?
It is a payment from a drug maker to the PBM, tied to where a drug sits on the formulary. We check how much of it reaches your plan. On a fully insured plan, rebates generally reduce the carrier’s cost and reach you, if at all, through the rate. On a self-funded plan, the contract decides whether they pass through, when and on which drugs.
When should we review our drug benefit?
Before renewal. Most January 1 renewals arrive in October and November, so late summer is a good time to start. Starting then leaves time to request drug utilization reports, model formulary or weight-loss coverage changes, and have them priced into the renewal rather than considered after it.
Talk to us about pharmacy benefit consulting in Bloomfield Hills
Send us your renewal or book a 30-minute call, and we will show you where your drug money goes. Visit us at 41000 Woodward Avenue, Suite 350 East, Bloomfield Hills, MI 48304, or call 248.370.8853.
Send us your renewal.
We’ll tell you whether it looks competitive, where we see opportunity, and the five questions we’d put to your carrier. No cost, and no obligation to move anything.
The renewal letter
Your current plan summary
Contribution split by tier
Enrolled counts by tier
Four documents — two more if your group is 50 or more. Nothing else; every extra one is a reason to postpone.
An independent employee benefits consulting firm. We look at the entire benefits program — cost, plan performance, risk and administration.
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