Pharmacy cost management strategies for self-insured employers.

Pharmacy costs are becoming one of the largest and most difficult parts of the healthcare budget to predict. Effective pharmacy cost management requires more than negotiating larger discounts or shifting costs to employees. Employers need clear pricing, clinically appropriate utilization controls, active management of specialty medications and support that helps members access the right medication at the lowest net cost.

Key highlights:

• Pharmacy cost management is the process employers and plan sponsors use to control prescription drug spending while maintaining appropriate access to medications.
• Effective pharmacy cost control combines transparent contracting, formulary management, clinical oversight, specialty drug strategies, member support and ongoing performance measurement.
• Specialty medications require dedicated clinical, financial and operational controls because a small number of claims can materially affect plan performance.
• Rightway combines transparent pass-through pricing, evidence-based clinical management, pharmacy navigation and a contractual pharmacy spend guarantee to lower costs and improve predictability.

What is pharmacy cost management?

Pharmacy cost management is the process employers and plan sponsors use to control prescription drug spend while maintaining clinically appropriate access for members. It includes the financial, clinical and operational strategies used to determine which drugs are covered, how medications are priced and how members receive support.

A comprehensive cost management approach considers the full cost of the pharmacy benefit. Employers should look at ingredient costs, dispensing fees, rebates, specialty drug markups, utilization patterns, member out-of-pocket costs and the administrative fees earned by their pharmacy benefit manager (PBM).

Why is pharmacy cost management essential for plan sponsors?

Pharmacy cost management is essential because prescription drug costs are growing faster than most employers can absorb through annual budget adjustments alone. This rapid rise stems from higher prices, increased utilization, new therapies and the growing number of members using complex medications.

The most important pharmacy cost pressures include:

• Rising pharmacy spend: Drug spending is increasing because of a combination of price inflation, higher prescription volume and the introduction of new treatments. According to the IQVIA Institute for Human Data Science, U.S. spending on medicines increased 10.6% in 2025, reaching $606 billion at net manufacturer prices.
• Specialty medication growth: These therapies treat complex conditions and can deliver life-changing outcomes, but they also create concentrated financial risk.
• Limited pricing visibility: Traditional PBM arrangements may combine spread pricing, retained rebates, specialty pharmacy markups and unclear administrative fees. This lack of transparency makes it difficult for plan sponsors to determine what medications actually cost or whether the PBM benefits financially when pharmacy spend increases.
• Budget volatility: A handful of new specialty claims, gene therapies or changes in GLP-1 utilization can materially alter annual pharmacy spending. Percentage-based guarantees and broad trend projections may provide some guidance, but they don’t necessarily protect the employer when actual costs exceed expectations.
• Member affordability: Cost containment strategies in healthcare shouldn’t move more expenses onto employees. Higher copays can cause members to delay treatment, abandon prescriptions or disengage from their care plan. According to the CDC, 8.2% of adults ages 18–64 who used prescription medication reported skipping doses, taking less medication or delaying a prescription because of cost

7 best strategies for pharmacy cost management.

The best strategies for pharmacy cost management address the underlying incentives, clinical decisions and member actions that drive prescription costs. Employers should combine these seven strategies rather than relying on any single pricing discount or utilization control.

1. Use transparent PBM contracting.

A transparent PBM should disclose what it earns, what the pharmacy receives and what the plan pays. The contract should prohibit spread pricing and require all rebates, discounts and manufacturer payments to be returned to the plan.

Transparency should extend beyond a promise to provide data. Employers need contract language, reporting and audit rights that allow them to verify that the PBM is following the agreed-upon pricing model.

Employers should require:

• One clearly disclosed administrative fee
• No spread pricing on any prescription claim
• 100% pass-through of rebates and discounts
• Claim-level pricing and rebate reporting

2. Optimize the formulary around clinical value and net cost.

Formulary optimization determines which medications are covered, how they are placed into tiers and what requirements members need to meet before receiving them. An effective drug formulary should balance access, clinical evidence and the medication’s final cost after all rebates and discounts.

Employers shouldn’t judge formulary performance based on the size of the rebate guarantee. A high-rebate medication may still cost more than a lower-priced alternative. The more meaningful question is which clinically appropriate option creates the lowest total cost for the plan and member.

A formulary review needs to evaluate:

• Net cost after rebates and discounts
• Generic and biosimilar availability
• Clinical equivalence among covered options
• Member disruption from proposed changes

Learn the difference between an open and a closed formulary.

3. Apply evidence-based utilization management.

Utilization management helps ensure medications are used for appropriate diagnoses, at appropriate doses and after lower-cost therapies have been considered when clinically suitable. Common tools include prior authorization, step therapy, quantity limits and clinical reviews.

These controls should be based on evidence, not applied to create friction or deny access. Poorly designed processes can delay treatment and frustrate members. Effective utilization management gives clinicians the information needed to make appropriate decisions while preventing avoidable spending.

Employers should evaluate whether their PBM:

• Uses current, evidence-based approval criteria
• Reviews diagnoses and relevant clinical documentation
• Applies appropriate titration and dosing requirements
• Reassesses ongoing treatment when necessary

4. Control specialty pharmacy spend.

Specialty pharmacy spend control requires dedicated attention because these medications are expensive, clinically complex and often handled through separate dispensing channels. Effective specialty drug management manages the full journey from approval and sourcing to adherence and ongoing monitoring.

The right strategy doesn’t block access to necessary treatment. It introduces stronger clinical review, transparent pricing and active member support so the plan pays for the right therapy through the most appropriate channel.

Important specialty medication cost control strategies include:

• Biosimilar adoption: Identify clinically appropriate biosimilars that provide comparable outcomes at a lower net cost.
• Prior authorization criteria: Confirm the diagnosis, treatment history, dose and relevant clinical requirements before approval.
• Dose optimization: Review dosing frequency, weight-based calculations and opportunities to reduce medication waste.
• Ongoing monitoring: Review adherence, response to therapy, adverse events and continued clinical appropriateness.

5. Use pharmacy navigation to guide members to lower-cost options.

Employees can’t act on lower-cost opportunities they do not know exist. Pharmacy navigation gives members access to experts who can explain coverage, compare treatment options, coordinate with prescribers and resolve administrative barriers.

This navigation is especially valuable when a formulary changes or a member is prescribed a high-cost medication. Instead of sending an automated denial, the PBM can help the member and prescriber evaluate a clinically appropriate alternative and complete the necessary next steps.

Effective pharmacy navigation should help with:

• Finding lower-cost generic or therapeutic alternatives
• Comparing retail, mail and specialty pharmacy options
• Coordinating prior authorization requirements
• Supporting members through medication transitions
• Identifying adherence gaps and overdue refills

6. Monitor pharmacy performance continuously.

Pharmacy spend performance monitoring should occur throughout the year, not only during annual renewal or reconciliation. Employers need current information to understand what is changing and intervene before a cost trend becomes a budget problem.

Reporting should move beyond total claims and average discounts. It should show which drugs, conditions, members and channels are driving spend, along with the actions the PBM is taking in response.

A pharmacy performance dashboard should include:

• Employer and member cost trends
• Specialty and non-specialty utilization
• Top cost-driving drugs and therapy classes
• Generic and biosimilar conversion rates
• Performance against contractual guarantees

7. Add contractual pharmacy budget predictability.

Traditional forecasting estimates what a plan might spend based on prior claims, expected trend and anticipated utilization. While useful, a forecast leaves the employer responsible when actual costs exceed the projection.

A stronger model places financial accountability on the pharmacy cost management solution. The PBM establishes a contractual ceiling or guaranteed cost level and assumes responsibility when covered spending exceeds that amount.

Employers should evaluate:

• How rebates are incorporated
• Whether GLP-1s, vaccines and specialty drugs are excluded
• Whether the PBM’s liability is capped
• Who keeps savings when costs fall below the guarantee
• How often performance and rebates are reconciled

What are common pharmacy spend management challenges?

The main pharmacy spend management challenges are limited data visibility, rising specialty costs, unpredictable claims and a lack of support for members. Employers may implement individual cost controls without addressing the PBM incentives or operational barriers that determine whether those controls work.

Restricted visibility into pharmacy claims data.

Employers can’t manage costs they can’t see. Aggregated reports may show total spending or rebates, but they don’t reveal what the pharmacy was paid, which claim generated a rebate or whether a lower-cost alternative was available.

Claim-level data allows the plan sponsor to identify cost drivers and validate contract performance. It also gives consultants and auditors the information needed to test whether the PBM is meeting its commitments.

Employers should have access to:

• Ingredient cost and dispensing fee details
• Pharmacy reimbursement amounts
• Drug-level rebate information
• Formulary and tier placement
• Drug classification changes

Rising specialty medication costs.

Specialty medications create financial concentration because a small number of claims can represent a significant percentage of total pharmacy spend. New indications, higher utilization and the introduction of costly therapies can quickly change a plan’s risk profile.

Employers also need to consider specialty medications paid through the medical benefit. Reviewing only PBM claims can leave infused medications, hospital-administered drugs and site-of-care opportunities outside the pharmacy strategy.

A complete specialty review should examine:

• Pharmacy and medical benefit claims
• Specialty pharmacy pricing and markups
• Biosimilar utilization
• Prior authorization criteria
• Member adherence and clinical outcomes

Unpredictable health spending year over year.

Historical claims can provide a baseline, but they can’t fully predict new diagnoses, high-cost therapies or changes in prescribing patterns. A single gene therapy or surge in GLP-1 utilization can materially affect annual pharmacy costs.

Employers should pair forecasting with active cost controls and contractual protection. This combination creates a plan that can respond to changes during the year instead of explaining the variance after the budget has already been exceeded.

Important protections include:

• Regular cost-driver reviews
• Prospective specialty pipeline analysis
• Guarantees tied to total net spend
• Clear reconciliation and repayment terms

Limited guidance when pharmacy and medical benefits overlap.

Members often experience pharmacy and medical benefits as one healthcare journey, even when employers manage them through separate vendors. A new medication may require lab work, specialist appointments, monitoring or changes to an existing treatment plan.

When no one connects those actions, members may miss follow-up care or struggle to resolve conflicting information. This lack of coordination can increase costs and weaken the value of the pharmacy benefit.

Integrated support should help members:

• Understand prescription and medical coverage
• Schedule necessary follow-up care
• Coordinate with prescribers and pharmacies
• Manage multiple medications

What to look for in pharmacy cost management solutions.

The right pharmacy cost management solution should give employers visibility, control, member support and more predictable spending. Employers should evaluate not only what the vendor promises to save, but also how it earns revenue, how results are measured and what happens when performance falls short.

How does a transparent PBM improve pharmacy cost management?

A transparent, fully aligned PBM improves pharmacy cost management by making costs visible, eliminating revenue tied to prescription prices and aligning the PBM’s compensation with the employer’s goal of reducing total spend. The PBM earns a disclosed administrative fee rather than generating revenue from spread pricing, retained rebates or affiliated dispensing channels.The PBM earns a disclosed administrative fee rather than making more money when prescriptions cost more.

A transparent PBM strengthens pharmacy cost control by:

Enhancing visibility into true pharmacy costs.

Transparent reporting allows employers to see what the pharmacy was reimbursed, what the plan paid and what the member paid. It also identifies rebates, discounts, fees and other sources of compensation associated with each claim.

This level of visibility helps employers lower healthcare costs by identifying hidden markups, evaluating performance and determining whether clinical interventions are producing real savings.

Employers gain greater insight into:

• PBM administrative revenue
• Pharmacy reimbursement
• Rebates and manufacturer payments
• Specialty pharmacy costs
• Formulary and utilization changes

Aligning PBM incentives with employer goals.

A PBM’s revenue model affects the decisions it makes. If revenue increases through spread pricing, retained rebates or pharmacy ownership, lowering drug spend can conflict with the PBM’s financial interests.

A fiduciary-aligned PBM uses a compensation structure designed around the employer’s interests. The PBM earns a fixed, disclosed fee and does not profit from the price, mix or dispensing channel of a medication.

Aligned incentives should include:

• No spread pricing or retained rebates
• No markup on specialty prescriptions
• No incentive to favor an owned pharmacy
• Formulary decisions based on net cost and clinical value

Eliminating reliance on opaque rebate structures.

PBM rebates can lower net pharmacy cost when they are fully returned to the plan. Problems arise when rebates are retained, narrowly defined or used to make a higher-priced medication appear more attractive.

Pass-through PBM models disclose the rebates generated by the plan and return 100% of that value. They also evaluate the net cost of the medication rather than treating the largest rebate as the best financial outcome.

Employers should require:

• Complete definitions of rebates and manufacturer payments
• 100% pass-through with no exclusions
• Drug-level and claim-level reporting
• Independent audit rights
• Formulary decisions that prioritize lowest net cost

Supporting better specialty medication cost control.

Transparent specialty pricing shows employers what the dispensing pharmacy was paid, what the plan was charged and whether the PBM added a markup. This visibility helps prevent specialty medications from becoming a hidden source of PBM revenue.

Employers should also understand the drug pricing models their PBM uses to price specialty medications. No single benchmark reflects the cost of every drug, so the PBM should evaluate each prescription using the pricing source that produces the lowest appropriate net cost.

A stronger specialty strategy includes:

• Evidence-based prior authorization criteria
• Biosimilar and therapeutic alternative reviews
• Site-of-care management
• Ongoing pharmacist support
• Full visibility into rebates and discounts

Helping members find lower-cost options.

Transparent pricing only creates value when members can act on it. Pharmacy experts can identify lower-cost alternatives, explain coverage and coordinate directly with the member’s prescriber.

This is particularly important for generics. Although generic medications are typically less expensive than brand drugs, spread pricing and PBM markups can prevent employers and members from receiving the full savings. Employers should evaluate how their PBM handles generic drug pricing.

Member support should include:

• Generic and therapeutic alternative reviews
• Lower-cost pharmacy comparisons
• Formulary education
• Prior authorization support
• Refill and adherence assistance

Manage your pharmacy costs with Rightway.

With Rightway, self-insured employers manage pharmacy costs through a neutral, transparent PBM model built around the lowest net cost. We charge one clearly disclosed administrative fee, pass through 100% of rebates and earn no revenue from prescription drug prices. Our pharmacy experts also guide members through the decisions and administrative tasks that affect plan performance, helping them access clinically appropriate medications, identify lower-cost alternatives, coordinate with prescribers and resolve coverage issues.

Rightway’s model includes:

• 100% rebate and discount pass-through
• No spread pricing or specialty pharmacy markup
• One transparent administrative fee
• No pharmacy ownership
• Formularies designed around clinical value and lowest net cost
• Pharmacist-led pharmacy navigation
• Transparent, robust reporting through the Rightway Client Portal

With SureSpend™, Rightway sets a guaranteed monthly cost per member based on projected annual pharmacy spending. Core pharmacy costs are covered by the precision pricing guarantee, while high-cost categories commonly excluded by other guarantees are handled at true net cost through a zero-markup structure.

Book a demo today and see how Rightway’s transparent PBM solution enhances pharmacy cost management.