Rethinking How Employers Source High-Cost Specialty Medications

Specialty medications now account for more than 50% of total pharmacy spend for most self-funded employers, despite representing a small fraction of total prescriptions. A single specialty drug — a biologic for rheumatoid arthritis, a GLP-1 for obesity, a gene therapy for a rare condition — can cost tens of thousands or even hundreds of thousands of dollars per patient per year.

The traditional PBM model was designed for a world where most pharmacy spend was on generic and branded small-molecule drugs. The economics of specialty drugs are fundamentally different, and the PBM model has not always adapted well. Rebates on specialty drugs can be substantial, but they often flow primarily to the PBM rather than the plan. Spread on specialty drugs can be significant. And the PBM's incentives are not always aligned with the employer's interest in finding the lowest net cost.

A growing number of employers are exploring alternative sourcing strategies for high-cost specialty medications. These include specialty carve-outs, where the specialty pharmacy benefit is managed separately from the medical and retail pharmacy benefit; international sourcing programs, where certain medications are sourced from licensed pharmacies in countries where prices are significantly lower; and manufacturer patient assistance programs, which can provide medications at no cost for eligible patients.

Each of these strategies has tradeoffs. Specialty carve-outs can deliver significant savings but require careful vendor selection and contract negotiation. International sourcing programs are legal for personal importation in many cases but involve regulatory complexity. Patient assistance programs can be highly effective for individual patients but are not a systematic solution for plan-level cost management.

International sourcing of specialty medications has moved from a fringe strategy to a mainstream conversation among self-funded employers. The price differential between the United States and other developed countries for the same medications — often 50% to 80% lower — is simply too large to ignore when a single drug is costing a plan hundreds of thousands of dollars per year.

The legal framework for international sourcing is complex and evolving. Personal importation for individual patients has been tolerated by the FDA for years under an enforcement discretion policy. Employer-sponsored programs that facilitate international sourcing for plan participants are newer and involve more regulatory uncertainty. Employers considering this approach should work with legal counsel and a vendor that has deep experience navigating the regulatory environment.

A specialty carve-out separates the specialty pharmacy benefit from the rest of the pharmacy benefit and manages it through a dedicated specialty pharmacy or specialty benefit manager. The goal is to apply more intensive management to the drugs that drive the most cost — ensuring appropriate utilization, optimizing site of care, maximizing manufacturer assistance program participation, and negotiating better net pricing.

For employers with significant specialty drug spend, a well-executed carve-out can deliver savings of 20% to 40% on specialty costs. The key is vendor selection and contract structure. Not all specialty pharmacy vendors are equally effective, and the contract terms — particularly around transparency, pass-through pricing, and performance guarantees — matter enormously.

If your plan has significant specialty drug spend — and most plans with more than 100 employees do — it is worth having a conversation with your benefits advisor about whether your current approach to specialty pharmacy is optimal. Ask for a specialty drug spend analysis. Understand what your PBM is earning on your specialty claims. And explore whether alternative sourcing strategies might be appropriate for your plan.

The employers who are managing specialty drug costs most effectively are not accepting the status quo. They are asking hard questions, demanding transparency, and being willing to consider approaches that were not on the table five years ago. The savings available to employers who engage seriously with this issue are substantial.