5 Ways to Help Manage Prescription Drug Costs

Key Takeaways

• U.S. prescription drug spending reached $805.9 billion in 2024 — a 10.2% increase over 2023, and is projected to grow another 9–11% in 2025 (IQVIA National Sales Perspectives).
• Specialty drugs, which treat complex conditions like cancer and autoimmune diseases, now account for at least half of all pharmaceutical spending, while representing only a small fraction of total prescriptions.
• Five proven strategies – carve-outs, formulary management, data analytics, generic and biosimilar programs, and specialty drug management – can meaningfully reduce pharmacy costs without cutting employee access to care.
• While 80% of filled prescriptions are generics, brand-name drugs account for approximately 80% of total drug spending, making substitution and formulary design among the highest-impact tools available to employers (ASPE, U.S. Dept. of Health & Human Services).

If prescription drug costs are stretching your benefits budget, now’s the time to take action, without reducing coverage or employee access to care.

Our latest infographic shares five cost-saving strategies, including carve-outs that can give you more pricing control; data insights to help design smarter plans; and formulary options that can lower costs while maintaining quality.

The 5 Strategies Explained

1. What Is a Pharmacy Carve-Out and How Does It Lower Costs?

A pharmacy carve-out separates the prescription drug benefit from the medical benefit, allowing the employer to contract with a standalone Pharmacy Benefit Manager (PBM) rather than bundling pharmacy coverage inside the medical plan.

This creates more pricing transparency, gives the employer direct access to claims data and audit rights, and enables independent negotiation of drug pricing.

For employers whose pharmacy costs are rising faster than their medical costs, a carve-out can be one of the most direct tools for gaining control.

2. How Does Formulary Management Help Employers Control Drug Spending?

A formulary is the list of prescription drugs covered by a health plan, organized into cost tiers that determine what employees pay at the pharmacy. Well-designed formulary management steers employees toward clinically equivalent but less expensive options, placing lower-cost generics and preferred brand drugs in lower tiers while assigning higher cost-sharing to expensive non-preferred alternatives.

Employers can work with their PBM to customize formularies, apply prior authorization requirements to high-cost drugs, and use step therapy protocols that require clinically proven lower-cost options to be tried before more expensive ones are approved.

According to the 2025 Trends in Specialty Drug Benefits Report by the Pharmaceutical Strategies Group, 95% of employers now use prior authorization and 83% use step therapy as part of their formulary management approach.

3. How Can Data Analytics Help Employers Design Smarter Pharmacy Plans?

Pharmacy claims data is one of the most underutilized assets in employer benefits management. By analyzing utilization patterns, which drugs employees are filling, at what cost, through which pharmacy channels, and for which conditions, employers and their advisors can identify high-cost drivers, spot waste or overutilization, and make targeted plan design changes with financial backing.

Data can also reveal opportunities like shifting specialty drugs from the medical benefit to the pharmacy benefit, where net costs are typically lower, or identifying employee populations who would benefit from targeted chronic disease management programs.

Employers who work directly with a PBM under a carve-out arrangement have audit rights and direct claims access, making these data-driven decisions far more actionable.

4. How Do Generic and Biosimilar Programs Reduce Pharmacy Costs?

Generic drugs are FDA-approved to be clinically equivalent to brand-name drugs, same active ingredient, same dosage, same safety profile, but typically at a fraction of the cost. Biosimilars are the biological equivalent: FDA-approved alternatives to complex biologic drugs that can deliver substantial savings on some of the most expensive therapies.

Despite the fact that 80% of prescriptions filled in the U.S. are generic, brand-name drugs still account for approximately 80% of total drug spending

(ASPE, U.S. Department of Health and Human Services), indicating significant room for savings through substitution programs.

Employers can accelerate uptake by structuring plan incentives that make generic and biosimilar options the default, offering lower or zero-dollar copays for preferred alternatives, and working with their PBM to mandate biosimilar use for new prescriptions where clinically appropriate.

5. What Specialty Drug Management Strategies Are Available to Employers?

Specialty drugs, used to treat complex, chronic conditions such as cancer, rheumatoid arthritis, and multiple sclerosis, now account for at least half of all pharmaceutical spending, despite representing a small fraction of total prescriptions.

Specialty drug utilization across all market segments increased by nearly 10% between 2023 and 2024, and employers anticipate an 11–12% increase in overall pharmacy costs in 2026.

According to PSG’s 2025 report, 84% of employers and health plans cite managing overall specialty drug costs as a top goal; up from 75% the prior year.

Frequently Asked Questions

What is a prescription drug carve-out and how does it save employers money?

A prescription drug carve-out separates the pharmacy benefit from the medical benefit, allowing an employer to contract independently with a Pharmacy Benefit Manager (PBM). This structure gives the employer direct access to claims data, audit rights, and more pricing control than is typically available within a bundled “carve-in” arrangement. The result is greater transparency into what is being spent on drugs, and more leverage to negotiate better terms, customize the formulary, and identify cost-saving opportunities.

What is formulary management in an employer health plan?

Formulary management is the process of designing, maintaining, and optimizing the list of prescription drugs covered by a health plan, including how those drugs are organized into cost tiers. A well-managed formulary guides employees toward clinically equivalent but more cost-effective options by assigning lower copays to generic and preferred drugs, and higher cost-sharing to expensive non-preferred alternatives. Employers can further strengthen formulary management by applying prior authorization and step therapy requirements to high-cost medications.

Why are specialty drugs such a large driver of employer pharmacy costs?

Specialty drugs treat complex, chronic conditions, such as cancer, autoimmune diseases, and rare genetic disorders, using biologics and other advanced therapies that are expensive to manufacture and require special handling. A small percentage of employees may be taking specialty medications, but those drugs can account for a disproportionate share of total pharmacy spend. Because each specialty claim can run into tens or hundreds of thousands of dollars annually, employers may benefit significantly from proactive specialty drug management programs, including prior authorization, specialty pharmacy networks, and biosimilar adoption, to keep costs from escalating unpredictably.