Getting Pharmacy Spend Under Control: A CFO's Guide to Margin Protection

For a long time, pharmacy benefits were a check-the-box task for employers. They renewed the coverage alongside the health plan, which got most of the attention. And, while pharmacy costs moved modestly year over year, nobody lost sleep over the numbers. Times have changed. 

Today, prescription costs are a major driver of overall healthcare costs, accounting for up to 30% of employer healthcare spending. The cost pressures are projected to continue, with pharmacy trend expected to increase 11% in 2026. 

Pharmacy can no longer be treated as a fixed cost of doing business. Instead, it’s a structural driver of margin that’s often the first topic in renewal conversations, especially for self‑funded employers that feel every high‑cost claim directly on the company’s P&L. 

 

What's Driving the Increase 

The mix of what employers are paying for has changed dramatically. A growing share of pharmacy dollars is going to specialty drugs – high-cost therapies for conditions like cancer, autoimmune disease, and rare genetic disorders. Specialty medications now account for more than half, and in some cases 60%, of total pharmacy spend, even though they’re used by a very small fraction of members.  

Oncology is a prime example. New cancer drugs have expanded treatment options and improved outcomes – but they often come with six‑ or seven‑figure price tags and limited lower‑cost alternatives. At the extreme end, gene and cell therapies can cost hundreds of thousands or even millions of dollars per patient. For a mid‑size self‑funded employer, one member starting a therapy priced in the seven‑figure range can consume a double‑digit percentage of the plan’s annual budget. 

One potential source of cost relief is biosimilars, – lower-cost equivalents to expensive specialty biologics. More than 100 specialty biologics are eligible for biosimilar or generic alternatives, which could meaningfully reduce net cost on some of the most expensive therapies in a plan. The catch: only a small fraction of those eligible drugs is currently in development.  

At the same time, consumer demand for brand-name drugs like GLP‑1s, used to treat diabetes and obesity, puts more pressure on pharmacy cost trend. While the medications are clinically useful in many cases, they represent an open-ended financial commitment in a rapidly developing area where long-term outcomes, utilization patterns, and the medications themselves are still evolving. 

 

3 Ways to Take Control of Pharmacy Spend 

The good news is that pharmacy spend isn’t an uncontrollable pass‑through expense. By treating it as a managed spend category, CFOs and HR leaders have levers they can pull to address costs.  

1. Review your contract.  

Most employers have pushed on pharmacy pricing, but there’s still room to improve how contracts are structured. That starts with making sure discounts, guarantees, and rebate terms are clearly defined and benchmarked. Pharmacy deserves the same rigor and the same questions you'd ask about any major vendor contract.  

Still, pricing efforts have a ceiling. At some point, unit‑price savings and rebates can’t outrun trend, especially when the drug mix is changing so quickly.  

2. Manage intake, not just access.  

The second lever is about managing intake – how medications are prescribed, approved, and dispensed, rather than assuming that more access always equals a better benefit.  

For example, build in stronger utilization management for expensive therapies or plan design steps that support lower-cost alternatives, chronic disease management programs, or lifestyle interventions first before escalating to higher-cost solutions.  

However, there’s a balance to strike. Switching members to different drugs purely to save money can create disruption, lower satisfaction, and in some cases, increase downstream medical costs.  

3. Diversify the model. 

In today’s environment, it’s important to reexamine if it still makes sense to rely on a single, traditional PBM. More nimble, transparent arrangements exist, including pass-through models, specialty drug carve-outs, and access to additional distribution channels such as international sourcing and manufacturer assistance programs.  

Think of it the way you think about investment strategy. Spreading your risk across multiple channels opens more avenues for savings while still delivering an integrated employee experience.  

 

Why Pharmacy Costs Can’t Wait for Renewal 

An annual look at the Rx report isn't enough anymore. Getting ahead of pharmacy trend requires treating it as a regular agenda item, digging into your reporting, and making adjustments as needed throughout the year.  

Look for reports that break out spend by category, highlight cost drivers, and provide a forward-looking view of risk. Make time for regular reviews of the reporting with your advisor to help you identify – and act on – contract opportunities, clinical programs, and sourcing changes that can improve in-year results.  

Managing pharmacy spend is complex, but it comes with flexibility. With the right contracts, clinical gates, and governance, CFOs and HR leaders can turn it from a runaway line item into a managed, strategic part of their overall health and financial strategy. 

This article includes input from Heath Holt, Principal - Senior Business Development Executive, and Richard Lo, Vice President of Clinical Services, who bring deep expertise in pharmacy strategy, cost management, and clinical program design.