Pharmacy costs have become one of the most pressing challenges for employers. What used to be a smaller part of the benefits budget is now a major driver of total healthcare spending. Costs are rising quickly, projections are harder to manage, and many employers are struggling to understand the true sources of their pharmacy spend.
Prescription drug spending in the United States has climbed above 487 billion dollars. Year-over-year costs increased 11.4 percent, and pharmacy spending now accounts for more than a quarter of many employers’ total healthcare costs. Specialty medications remain the biggest pressure point. They represent only a small share of total prescriptions but account for more than half of total drug spend. New and emerging therapies such as GLP-1 medications, advanced oncology drugs, and gene and cell therapies are accelerating the trend even further.
Rising costs are only part of the story. The greater challenge is the complexity behind those costs. Many employers do not have a clear view of how pricing works, what they actually pay for, or why pharmacy spending continues to grow despite their efforts to control it. As more information comes to the surface, a stronger understanding of the forces behind pharmacy spend has become essential for organizations that want to make smarter decisions.
Specialty Medications Are Reshaping Employer Spending
Specialty medications continue to be the primary source of cost escalation. These drugs are used to treat chronic, complex, or rare medical conditions. They provide meaningful clinical value but often carry high price tags and require extensive clinical management.
Key trends include:
- Specialty drugs account for less than 2 percent of total prescriptions but more than 50 percent of total pharmacy spending.
- Utilization continues to rise in high-impact categories such as oncology, autoimmune conditions, and dermatology.
- GLP-1 drugs for diabetes and weight management are rapidly increasing total plan costs.
Employers without a defined specialty strategy are likely to face ongoing volatility in their pharmacy budgets. Clinical review programs, utilization oversight, and alternative sourcing models can help stabilize these expenses.
The Growth of GLP-1 Drugs Is Outpacing Employer Expectations
GLP-1 receptor agonists have quickly become one of the most discussed cost drivers in pharmacy benefits. Although originally developed for diabetes management, these medications are now widely used for weight loss. Member interest is rising each quarter and is reshaping cost projections for many employers.
Important considerations include:
- Monthly costs often exceed 1,000 to 1,300 dollars per member.
- Coverage policies require careful evaluation to balance clinical needs and financial sustainability.
- Utilization is expanding much faster than most benefit plans initially predicted.
Employers are now revisiting their coverage rules, prior authorization requirements, and long-term strategy to ensure responsible and predictable benefit management.
PBM Pricing Structures Create Hidden and Difficult to Predict Costs
The pharmacy supply chain contains many pricing layers, and these layers often lack transparency. Employers may see terms like Wholesale Acquisition Cost, Average Wholesale Price, or net cost after rebates without fully understanding how these numbers affect their plan.
Common challenges include:
- Formularies that prioritize rebates instead of clinical value.
- Spread pricing arrangements that obscure the true cost of a medication.
- Contracts that limit visibility into rebates, fees, and pass-through arrangements.
Unclear definitions of “savings” that do not reflect net costs.
Because of these complexities, many employers unknowingly miss opportunities to reduce spend. Transparent models, independent audits, or alternative PBM structures provide clearer insight into true pricing and performance.
Formulary Design Has a Direct Impact on Cost and Member Experience
Formulary management is one of the strongest tools employers can use to control pharmacy spend, yet it is often overlooked. A well-designed formulary supports both clinical outcomes and financial performance.
An effective formulary strategy can:
- Encourage the use of clinically effective, lower-cost medications.
- Reduce the use of unnecessary or low-value drugs.
- Improve member access to appropriate therapies.
- Lower wasteful spending created by combination drugs, duplicates, or patent extenders.
Organizations that regularly review their formulary and adjust it based on data trends often see meaningful savings. Many achieve four to eight dollars per member per month in year one, with ongoing savings in future years.
Rebate Structures Do Not Always Align With Employer Savings
Rebates can be helpful, but they are not always the primary driver of lower net costs. They are paid retroactively and may encourage the use of higher-cost drugs that generate significant rebate dollars but still result in higher total plan costs.
Rebate challenges include:
- High-rebate drugs may not deliver the lowest net price.
- PBM-owned rebate aggregators may keep a share of rebate value.
- Guarantees may not reflect true savings potential.
- Limited visibility into full rebate categories makes it difficult to track performance.
Employers that shift from rebate-focused decisions to net-cost-focused strategies often uncover more effective and sustainable cost control opportunities.
Member Experience and Adherence Affect Total Spend
Pharmacy spending is shaped not only by drug pricing but also by how members manage their medications. Without adequate support, members may face challenges that increase both pharmacy and medical costs.
Examples include:
- Delayed or complex prior authorizations
- Missed doses or skipped refills
- Lack of clinical support for specialty therapies
- Adverse events that go unaddressed
- Poor medication engagement that leads to emergency care or additional medical claims
Member-facing clinical support and thoughtful benefit design improve outcomes and reduce unnecessary spending.
Regulatory Changes Add Ongoing Complexity
Federal and state policies continue to influence pharmacy benefits. The Inflation Reduction Act, evolving 340B guidance, and state-level PBM regulations have created a changing landscape for plan sponsors. Employers must navigate shifting rules around pricing, reimbursement, and reporting.
A proactive and informed approach helps organizations stay ahead of regulatory changes rather than reacting to them after costs increase.
A More Strategic and Transparent Approach Is Now Essential
Understanding the drivers of pharmacy spend is the first step. Employers also need a strategic plan that balances financial sustainability, clinical effectiveness, and member access. A thoughtful pharmacy strategy can:
- Reduce total spend
- Improve member health and engagement
- Support long-term cost predictability
- Strengthen the overall employee benefits program
Pharmacy benefits are complex, but with the right partner, employers can move from reactive spending to strategic decision-making. A clear, transparent approach provides the clarity and confidence needed to manage one of the fastest-growing components of healthcare costs today.
