Understanding pharmacy benefits carve-in and carve-out.

For employers, pharmacy benefits can be one of the most expensive and least understood parts of the health plan. Prescription costs are rising, specialty drugs are consuming a larger share of overall spend and many organizations still have limited visibility into how their pharmacy benefits manager (PBM) makes money, how rebates are handled or whether members are being guided to the most cost-effective therapies.

That is why understanding pharmacy benefits carve-in and carve-out options is so important. The structure you choose affects pricing transparency, vendor flexibility, data-sharing, formulary control, member support and your ability to manage total healthcare costs.

Key highlights:

• Carved-in pharmacy benefits mean the pharmacy benefit is administered alongside the medical plan, usually through the same carrier or an integrated health plan.
• Carved-out pharmacy benefits mean the employer separates prescription drug benefits from the medical plan and works directly with a PBM.
• Pharmacy benefits that are carved-out can give employers more visibility and control, but outcomes depend on plan design, utilization, vendor structure, reporting and implementation.
• Rightway offers a carve-out PBM model that combines transparent pharmacy benefit management with integrated care navigation to help employers control costs and support members.

What is pharmacy benefits carve-in?

Pharmacy benefits carve-in is a model where prescription drug benefits are administered together with the medical plan, typically through the same carrier or integrated health plan. In this arrangement, the employer keeps pharmacy and medical benefits bundled under one carrier relationship.

For some employers, a pharmacy benefits carve-in model can feel simpler, as the carrier likely manages:

• Pharmacy claims
• Network access
• Member ID cards
• Service support
• Reporting
• Plan administration

With only one portal and card, members have a centralized place to go for medical and pharmacy questions. The tradeoff is control. When pharmacy benefits are carved in, employers may have less direct visibility into pharmaceutical rebate flows, drug pricing, PBM revenue, specialty pharmacy economics and formulary decisions. That can make it harder to understand whether the pharmacy benefit is actually optimized for the lowest net cost.

An arrangement with pharmacy benefits carved in may work for organizations that prioritize fewer vendor relationships. But as pharmacy spend grows, many self-funded employers are evaluating carve-out options to achieve greater transparency and accountability.

What does carve out mean in pharmacy benefits?

A pharmacy benefits carve-out means an employer separates prescription drug coverage from their health plan. Instead of keeping drug benefits bundled with the medical carrier, the employer selects a pharmacy partner to oversee claims, networks, formulary strategy, rebates, clinical programs, reporting and member support.

For self-funded employers, this structure can create more direct control over one of the largest areas of healthcare spend. A model with pharmacy benefits carved out can make it easier to:

• Evaluate PBM pricing
• Understand rebate treatment
• Manage specialty drug costs
• Align pharmacy decisions with the plan’s goals

A simple carve-out plan example would be an employer that keeps its medical plan with a national carrier but moves prescription drug benefits to an independent PBM. Members still have medical coverage through the carrier, but their pharmacy benefit is administered by the employer-selected vendor.

The right plan depends on what the employer wants to solve. Some organizations want clearer drug pricing. Others want stronger specialty oversight, more flexible formulary strategy, better member support or a more accountable pharmacy carve-out partner.

Pharmacy benefits carve-out vs. carve-in: What’s the difference?

For employers comparing pharmacy benefits carve-in and carve-out, the decision should be based on pricing, preferred drug pricing models, formulary strategy, rebates, reporting, data-sharing, member support and accountability.

Here is how the two models compare:

Main limitations of carve-in pharmacy benefits.

While a carve-in model can simplify administration, it can also make it harder for employers to fully understand and manage pharmacy spend. As prescription costs rise and specialty drugs take up a larger share of budgets, these limitations can become more significant.

The main limitations of carved-in models are:

• Reduced cost transparency: Employers may not see the full financial picture behind pharmacy spend. Rebates, spread pricing, administrative fees, manufacturer payments and specialty pharmacy economics can be difficult to separate from the broader carrier contract.
• Limited pharmacy vendor flexibility: The model usually ties the employer to the carrier’s preferred PBM arrangement. That can make it harder to choose a PBM based on transparency, clinical programs, specialty oversight or member support.
• Potential conflicts of interest: In some arrangements, the carrier, PBM, rebate aggregator, mail-order pharmacy and specialty pharmacy may have financial relationships that are not fully visible. Employers should understand whether the vendor profits from higher prices, retained rebates or pharmacy steering.
• Less control over formulary strategy: A formulary determines which drugs are covered, how they are tiered and what members pay. In a carve-in, formulary decisions may be influenced by the carrier’s PBM contract or rebate strategy rather than the employer’s lowest-net-cost goals.
• Disconnected medical and pharmacy insights: Models are often positioned as integrated, but integration should be measured by usable data and coordinated action. Without connected pharmacy and medical insights, employers may miss adherence issues, duplicate therapies or avoidable spend.

Benefits of pharmacy carve-out plans.

Employers often choose pharmacy carve-out plans to gain greater control over pricing, reporting, clinical strategy and member support. This model is not automatically better, but it can create a stronger foundation with the right PBM partner.

Greater pricing transparency.

A pharmacy carve-out can give employers a clearer view into pharmacy dollars. Instead of relying on bundled carrier reporting, employers can negotiate directly with the PBM and require visibility into claims, rebates, fees and specialty drug costs.

This transparency works best when employers can answer these contract term questions:

• Does the PBM use spread pricing?
• Will rebates be passed through in full?
• Are administrative fees clearly defined?
• Can specialty drugs be managed for the lowest net cost?
• Is reporting claim-level and audit-ready?

See why Rightway is one of the top pass-through PBMs for eliminating hidden rebate markups.

More control over formulary and strategy.

A carve-out model can give employers more say in utilization management, prior authorization, step therapy, specialty programs and member cost-sharing. The drug formulary should support clinical appropriateness and the lowest net cost, not just high rebates.

This control can help employers manage spend by:

• Encouraging clinically appropriate generics and biosimilars
• Reducing reliance on high-cost drugs when lower-cost alternatives are available
• Managing specialty therapies with evidence-based criteria
• Aligning member cost-sharing with clinical and financial goals

Specialized clinical programs.

Pharmacy spend is increasingly driven by complex therapies, including GLP-1s, biologics, oncology medications, autoimmune treatments and rare disease drugs. These categories need clinical oversight, not just claims processing.

Employers should look for PBMs with programs that include:

• Pharmacist-led member guidance
• Specialty drug oversight
• GLP-1 utilization management
• Biosimilar adoption strategy
• Prior authorization and step therapy support
• Adherence monitoring and refill outreach

Independent pharmacy oversight.

A pharmacy benefits carve-out can give employers more independent oversight. If a PBM owns pharmacies, retains rebates or profits from higher drug prices, employers should understand how those incentives may influence recommendations.

Before selecting a PBM, employers should ask:

• Does the PBM own or steer members to its own pharmacies?
• Will the PBM retain any rebates, fees or discounts?
• Can the PBM profit when drug prices rise?
• Are all costs disclosed and auditable?
• Do formulary decisions get made independently?

Flexible vendor selection.

A carve-out gives employers the ability to choose a PBM that matches their goals, whether that is cost transparency, specialty expertise, stronger reporting, better support or flexible implementation. This helps employers evaluate PBMs on performance, not convenience.

When carving out, employers have the flexibility to:

• Choose a PBM aligned with cost transparency goals
• Select partners with strong specialty or clinical expertise
• Prioritize vendors with robust reporting and analytics
• Evaluate member support and navigation capabilities
• Maintain flexibility to change vendors based on performance

How much can employers save by carving out their pharmacy benefit?

Employers may save money by carving out their pharmacy benefit, but savings vary based on plan design, utilization, specialty drug spend, rebate structure, contract terms, member engagement and PBM pricing model.

A carve-out creates the opportunity for more control, but it does not guarantee savings on its own. The biggest opportunities usually come from improving transparency and changing the incentives behind pharmacy decisions. If the current arrangement includes spread pricing, retained rebates, limited specialty oversight or a formulary strategy that favors high-rebate drugs over the lowest net cost, this model may uncover avoidable spend.

Employers may reduce unnecessary spending through several pharmacy benefit optimization levers:

• Switching members to clinically appropriate lower-cost alternatives
• Improving generic and biosimilar adoption
• Managing specialty drug utilization
• Passing through rebates instead of allowing the PBM to retain them
• Giving members access to real-time drug cost information and pharmacist guidance

How employers carve out pharmacy benefits from a health plan.

Employers carve out pharmacy benefits by separating prescription drug coverage from the medical plan and contracting directly with a PBM. The process requires analysis, vendor selection, data coordination, member communication and ongoing performance management.

A pharmacy benefits carve-out changes how benefits are administered, how members get support and how employers evaluate pharmacy spend. These steps can help employers manage the process.

1. Evaluate the current pharmacy benefits structure.

Start by reviewing the current carrier contract, PBM arrangement, claims data, formulary, rebates, specialty drug utilization, member disruption risks and reporting limitations. This is also the time to identify what is not working.

Some employers look for a transparent PBM because they cannot verify rebates, net drug costs or PBM revenue sources.

2. Select a pharmacy benefit manager.

Next, select a pharmacy benefits manager that aligns with the organization’s goals. Employers should evaluate pricing transparency, formulary strategy, clinical programs, reporting, member support and implementation experience.

Employers should ask whether the PBM passes through 100% of rebates, uses spread pricing, owns pharmacies, provides audit rights and supports members during the transition.

3. Align pharmacy and medical data-sharing workflows.

A pharmacy carve-out should not create a new data silo. Employers need clear workflows for sharing pharmacy and medical data between the PBM, medical carrier, care navigation partner, analytics vendors and benefits teams.

This matters because pharmacy data often reveals broader healthcare needs. A missed refill may signal adherence risk, while a high-cost medication may require care coordination or benefit guidance.

4. Transition member communications and support.

Member communication is one of the most important parts of a successful PBM transition. Employees need to know what is changing, when it is changing, how to access medications and where to go for help.

The highest-risk members should receive extra support, including members on specialty medications, mail-order prescriptions, controlled substances, prior authorizations or drugs affected by formulary changes.

5. Monitor performance, reporting and pharmacy spend.

After go-live, employers should monitor financial performance, clinical outcomes, member experience, operational accuracy and vendor responsiveness. Reporting should show what is driving spend and where action is needed.

Useful metrics include:

• Total pharmacy spend
• Net cost after rebates
• Specialty trend rate
• Generic and biosimilar utilization
• Member out-of-pocket costs
• Claims accuracy
• Prior authorization turnaround times
• Member satisfaction

How to evaluate PBMs for a pharmacy carve-out strategy.

Employers evaluating PBMs for a pharmacy carve-out strategy should look for partners that support transparent pricing, clinical alignment, coordinated healthcare experiences and strong member support. A vendor should not only process claims. It should help employers manage spending while making the benefit easier for members to use.

The table below outlines what to evaluate when selecting a PBM for a carve-out strategy:

Get integrated pharmacy and healthcare benefits with Rightway.

Rightway gives employers a carve-out pharmacy benefits model designed for greater transparency, accountability and member support. By separating pharmacy benefits from the traditional carrier model, employers can gain more direct visibility into PBM economics, formulary strategy, clinical programs and spending.

Rightway’s carve-out PBM model is built around alignment: one clear admin fee, 100% pass-through rebates, no spread pricing, no pharmacy ownership and a focus on the lowest net cost.

Through its integrated PBM and care navigation model, Rightway connects pharmacy benefits with care navigation services, helping members access support from:

• Health guides
• Nurses
• Pharmacists
• Social workers
• Billing specialists

Book a demo today and explore how Rightway can help improve healthcare outcomes for your organization.