The Case for a Pharmacy Carve-Out
Bundling pharmacy benefits with your medical TPA is convenient — but convenience has a cost. Employers who carve out their pharmacy benefit and contract with a standalone PBM consistently find better pricing, more transparent rebates, and greater control over one of their fastest-growing cost drivers.
VP of Employee Benefits · BHC Insurance · Independent Benefits Consultant
For many self-funded employers, pharmacy costs are now one of the fastest-growing — and least transparent — parts of the health plan.
The problem is not always the medications themselves. It is often the way the pharmacy benefit is structured.
The problem with bundled pharmacy
When pharmacy coverage is bundled with the medical carrier or TPA, employers may have limited visibility into rebates, specialty drug pricing, spread pricing, contract terms, and the actual net cost of medications. The arrangement may feel convenient, but convenience can be expensive.
What a carve-out actually does
A pharmacy carve-out separates the pharmacy benefit from the medical plan and allows the employer to independently select a PBM based on transparency, clinical performance, contract terms, and total net cost.
Done correctly, this can give employers greater visibility into pharmacy claims and pricing, full or improved access to manufacturer rebates, more control over specialty medications, stronger clinical management programs, better contract guarantees and audit rights, and the ability to replace an underperforming PBM without disrupting the entire health plan.
"The PBM offered through the medical carrier is not necessarily the best PBM available. Self-funding is supposed to give employers greater control over their healthcare dollars. Pharmacy should not be the exception."
The specialty pharmacy opportunity
The biggest opportunity is often specialty pharmacy. A small number of high-cost medications can represent a significant portion of total pharmacy spending. Without the right controls, employers may be paying far more than necessary because of inflated pricing, restricted distribution channels, unnecessary markups, or limited clinical oversight.
A carve-out is not automatically the right answer
A carve-out is not automatically the right answer for every employer. The contract must be carefully reviewed, integrations must be managed, and decisions should be based on the lowest net cost — not simply the largest rebate guarantee.
But employers should understand one thing clearly: the PBM offered through the medical carrier is not necessarily the best PBM available.
Self-funding is supposed to give employers greater control over their healthcare dollars. Pharmacy should not be the exception.
Questions every employer should be asking
Before accepting another pharmacy renewal, employers should ask: Who keeps the rebates? Is the PBM using spread pricing? What is the true net cost after rebates and fees? How are specialty medications being managed? Does the employer own and have access to its claims data? Can the contract be independently audited?
The answers may uncover one of the largest savings opportunities hiding inside the health plan.
Evaluating your pharmacy benefit or considering a carve-out? I'm available for consulting engagements across Northwest Arkansas and beyond.
Sources & Further Reading
- FTC Report: Pharmacy Benefit Managers — Revenues and Fees (2024) — FTC findings on bundled PBM economics and the financial case for carving out pharmacy from the medical carrier.
- Drug Channels Institute: The 2024 Economic Report on U.S. Pharmacies and PBMs — Analysis of specialty pharmacy distribution economics and the cost differential between bundled and carved-out arrangements.
- PBGH: Pharmacy Carve-Out Strategies for Self-Funded Employers — Employer-facing guidance on carve-out structures, vendor selection, and integration with the medical plan.
- KFF: Prescription Drug Spending and PBM Market Concentration — Context on PBM market concentration and why independent pharmacy benefit management can produce better plan economics.
- Health Affairs: Specialty Drug Spending and Employer Plan Design — Research on specialty drug cost drivers and the role of carve-out arrangements in managing specialty spend.
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About the Author
Corry Hull, REBC®, CSFS®
VP of Employee Benefits · BHC Insurance
Corry Hull, REBC® CSFS®, is VP of Employee Benefits at BHC Insurance and the founder of Employer Benefits IQ (www.employerbenefitsiq.com). He is a Certified Health Rosetta Advisor — one of fewer than 200 nationwide — and a multi-year presenter at United Benefit Advisors (UBA) national conferences. He specializes in self-funded health plan design, PBM contract strategy, stop-loss structuring, group medical captives, and ACA/ERISA compliance for mid-market employers. His work has been recognized by Health Rosetta (Rosie Award, 2026), UBA (Producer Peak Performer, 2025–2024), and BHC Insurance (Producer of the Year, 2021–2025). His employer-education content has been referenced in BenefitsPro and cited within the Health Rosetta advisor community. All consulting and brokerage compensation is fully disclosed.