How to Reduce Pharmacy Costs Without Cutting Benefits

I’ve written before about how the way employer pharmacy benefits are structured can slowly push drug costs higher without most people realizing it. Between complicated rebate deals, not fully using lower cost alternatives like biosimilars, unclear decision making around which drugs are covered, and limited visibility into real pricing, it becomes easy for spending to rise year after year.

But here’s the good news, there are practical steps employers can take to meaningfully lower pharmacy costs, sometimes by 20% or more, while also improving care for employees. The key starting point is getting clear, detailed information about what’s actually driving your drug spend.

Here are five important questions to start asking.

1. How Is Everyone Getting Paid?

Many people agree that incentives in the pharmacy benefits world are not always aligned with employers’ best interests. So the first step is simple, ask every vendor and advisor you work with to fully disclose how they make money.

Your broker or consultant may receive compensation not just from you, but also from PBMs or other vendors. Sometimes those payments are flat fees, other times they are tied to how much a service is used, like per prescription filled or per test performed.

That does not automatically mean something improper is happening, but it does mean you need transparency. If someone is being paid by multiple parties, you deserve to understand how that could influence their recommendations. You want partners whose advice is based on what is best for your plan and your employees, not what generates the most revenue for them.

2. What Are We Actually Paying for Each Drug?

Rebates are often marketed as a major cost saving tool. In reality, they can be complicated. Rebates are typically paid after the fact and are often tied to higher list prices. That means a drug with a big rebate may still have a high upfront cost, and employees’ cost sharing is often based on that higher list price.

Instead of focusing on rebate size, employers should focus on net cost, what the drug truly costs after all discounts and fees. Ask your PBM whether pricing decisions are based on achieving the lowest overall net cost, rather than maximizing rebate dollars.

When you understand the real cost of each medication, you gain more control, more transparency, and often better alignment between affordability and clinical value.

3. Do We Have Full Access to Our Data?

You cannot manage what you cannot see.

Employers generally have the right to access their claims data, including detailed claims level information. This level of detail is essential if you want to properly oversee spending and ensure costs are reasonable.

If your vendor generates the data, it is important to review it independently when possible. Vendors can provide reports, but relying solely on their analysis limits your oversight. Independent review, whether internal or through a separate partner, helps ensure objective evaluation.

In short, make sure you know how to access your data, and make sure someone is truly digging into it.

4. Are We Too Dependent on One Vendor?

Many employers rely on their PBM to handle everything, claims processing, formulary management, specialty drugs, prior authorizations, and clinical programs. It is convenient, but it also concentrates a lot of control in one place.

When one organization manages every moving part, oversight can become more difficult. One way to reduce potential conflicts is to carve out certain services and have independent vendors manage them, such as formulary oversight, specialty drug review, or clinical programs.

Not every carve out makes sense for every employer, but it is worth asking which services could be handled separately to improve transparency and accountability.

5. How Are Formulary Decisions Being Made?

Your formulary, the list of drugs covered by your plan, has a huge impact on both cost and patient care.

Ask how decisions are made. Is there a Pharmacy and Therapeutics Committee involved? Are decisions based on clinical evidence and comparative effectiveness? Is cost effectiveness considered? How often are drugs reviewed?

Rebates may influence some formularies in the broader market, but employers should ensure their plan prioritizes evidence based decision making and clinical value first.

The Main Point

Your pharmacy benefits plan will not improve on its own. If you want lower costs and better outcomes, it starts with asking better questions, demanding transparency, and making sure your partners are aligned with your goals. These five questions are a practical place to begin taking back control of your pharmacy spend.