Carving Out Pharmacy Benefits: When It Makes Sense, When It Doesn’t.

As pharmacy costs continue to be one of the fastest-growing components of healthcare spend, employers are increasingly evaluating whether carving out pharmacy benefits from their medical plan makes strategic and financial sense. While the decision can offer greater control and cost savings in some scenarios, it can also introduce new administrative complexities and hidden costs.

In this article, we break down the key considerations plan sponsors must weigh when determining if a pharmacy carve-out aligns with their organization’s goals.

What Is a Pharmacy Carve-Out?

A pharmacy carve-out is the practice of separating the administration of prescription drug benefits from the medical benefits plan. Instead of bundling both with a single carrier, an employer contracts directly with a pharmacy benefits manager (PBM) to handle the pharmacy portion.

This approach can provide greater transparency into drug pricing, improved formulary management, and enhanced clinical oversight. But it’s not without trade-offs – especially for smaller groups or employers with limited internal benefits administration support.

When a Carve-Out Makes Sense

1. You Want Transparency and Control Over Drug Spend
   Working directly with a PBM can give employers insight into rebate structures, drug utilization trends, and actual claims costs – something that’s often murky in bundled arrangements.
2. You Have a Large or Self-Funded Group
   Self-funded employers have the leverage to negotiate better terms with PBMs and can benefit more from tailored pharmacy strategies.
3. You Need Specialty Drug Management
   High-cost specialty medications are a primary driver of pharmacy inflation. A carve-out can provide access to better utilization controls, alternative funding strategies, and manufacturer support programs.
4. You’re Pursuing Cost-Mitigation Programs
   MSI clients have saved significantly by combining carve-outs with innovative cost-containment tools like international sourcing and manufacturer copay assistance. Learn more in our article on GLP-1s, Gene Therapies, and the New Frontier in Drug Costs.

When a Carve-Out Might Not Be the Right Move

1. You’re a Small Employer with Limited Resources
   Administrative complexity increases when benefits are split between vendors. Billing, reporting, member support, and integration can require more oversight than some HR teams are prepared to handle.
2. Your Current Carrier Offers Competitive Pharmacy Terms
   In some cases, bundled arrangements through fully insured plans or integrated carrier PBMs are cost-effective – especially when they leverage volume discounts or rebate pass-throughs.
3. Integration and Data Flow Matter to You
   Separated vendors may not share data seamlessly, which could impact disease management programs, care coordination, and reporting. If clinical integration is a priority, a carve-out could work against your goals.
4. You Haven’t Conducted a Full ROI Analysis
   Carving out pharmacy might save money on the surface, but without a holistic view including rebate offsets, vendor fees, member disruption, and administrative overhead – it could backfire.

Highlights at a Glance

✅ Carving out pharmacy benefits gives employers more control over drug pricing and rebates.
✅ Self-funded employers may benefit most from working directly with a PBM.
✅ Specialty drug costs can be better managed through tailored carve-out strategies.
✅ Smaller employers may face added administrative complexity with separate vendors.
✅ MSI Benefits Group provides data-driven guidance to evaluate carve-out ROI and impact.

Key Questions to Ask Before Making a Decision

• Is our pharmacy spend high enough to justify unbundling?
• Do we have access to transparent PBM pricing and rebate data?
• Will our members benefit from improved drug access or savings?
• Can our team manage multiple vendors and coordinate care effectively?
• Have we modeled both the short-term savings and long-term risks?

MSI’s Approach: Evidence-Driven Guidance

At MSI Benefits Group, we help plan sponsors evaluate carve-out options using data-driven analysis, industry benchmarking, and real-world results. We don’t just look at cost – we consider impact on employee experience, compliance, and administration.

For example, our Mid-Year Compliance Check-Up outlines how to assess your plan structure as part of a broader audit. Pharmacy carve-outs are often part of that conversation when aligning benefits with financial and organizational goals.

Additionally, we remain informed through ongoing updates from independent research sources like the Kaiser Family Foundation (KFF) – which provides critical insight into drug pricing trends and policy implications.

Final Thoughts

Pharmacy carve-outs can offer powerful advantages—but only if the conditions are right. Employers must carefully weigh cost savings against administrative burden, data fragmentation, and the risk of member disruption. With the right guidance, the move can be a strategic win.

Ready to Evaluate Your Pharmacy Benefits Strategy?

Let MSI Benefits Group help you assess whether a pharmacy carve-out is right for your organization. From data modeling to PBM negotiations and compliance support, we bring clarity to a complex decision.

📩 Contact Us Today to schedule a personalized carve-out review.