The Hidden Forces Behind Rising Pharmacy Costs

Five factors shaping pharmacy spend

Rising prescription drug costs remain one of the biggest challenges facing self-funded employers. Specialty medications often receive the most attention, but they are only part of the story.

Behind every pharmacy budget is a set of financial and operational forces that influence what employers ultimately pay for medications. Some are visible, while others operate behind the scenes and are harder to identify without a closer look.

For brokers and employers, understanding these drivers can lead to better pharmacy benefit decisions, more effective cost-management strategies, and greater visibility into where plan dollars are going.

Here are five factors shaping pharmacy spend today and where opportunities exist to address them.

Rebates can reward higher list prices

Rebates were originally introduced to lower net costs. Over time, they have become deeply embedded in the economics of the prescription drug market.

The challenge is that rebate dollars are typically tied to a drug's list price. As list prices increase, rebate values often increase as well. An employer may receive a significant rebate payment while still paying more overall for the medication.

Recent analysis from the Congressional Budget Office has highlighted how rebate arrangements can contribute to higher list prices over time. As manufacturers compete for formulary placement, larger rebates are often associated with drugs that carry higher list prices. This dynamic has prompted many plan sponsors to look beyond rebate guarantees and evaluate the actual cost of the prescription itself. For high-cost medications, the more important question is often straightforward: What is the final price paid for the drug?

When lower-cost sourcing options are available, savings can be realized at the point of sale rather than months later through rebate reconciliation.

Spread pricing creates distance between cost and value

Spread pricing occurs when the amount paid by the employer differs from the amount reimbursed to the pharmacy. In some arrangements, that difference becomes an additional revenue source within the supply chain. The issue is not necessarily whether a spread exists. The more important consideration is understanding where dollars are flowing and how those dollars affect total plan spend.

Employers have become increasingly focused on pricing models that make it easier to evaluate costs on a claim-by-claim basis. Greater visibility helps brokers and plan sponsors determine whether savings are being generated through stronger purchasing strategies or simply moving money between participants in the transaction.

Specialty growth continues to reshape pharmacy budgets

Specialty medications represent a relatively small share of prescriptions, yet they account for a disproportionate share of pharmacy spend. According to IQVIA's The Use of Medicines in the U.S. 2025 report, specialty medicines account for approximately 55% of total net spending on medicines in the United States.

Many employers find that a small number of medications have a greater impact on plan performance than thousands of traditional prescriptions combined. That concentration creates a strategic opportunity. Rather than approaching pharmacy management as a broad plan-wide challenge, employers can focus attention on the medications responsible for the greatest financial impact.

This is where targeted solutions have gained traction. Instead of disrupting an existing pharmacy strategy, employers can address select high-cost prescriptions through programs designed specifically for those categories.

Limited visibility makes proactive management difficult

Most employers receive pharmacy reporting after claims have been processed. By the time trends appear in a quarterly review, the spending has already occurred. The challenge becomes even more significant when high-cost medications are involved. According to AHIP, fewer than 2% of commercially insured members use specialty drugs, yet those medications account for nearly half of total pharmacy spending, as noted in the previous section.

Access to real-time pricing information creates a different planning environment. Employers and brokers can evaluate specific medications, compare sourcing options, and understand the financial implications before decisions are made. That visibility becomes especially valuable when dealing with specialty medications and high-cost brand drugs, where even a small number of claims can significantly affect annual spend.

Formulary decisions have long-term consequences

A formulary is more than a list of covered medications. It influences utilization patterns, prescribing behavior, member access, and overall pharmacy costs. Poor formulary design can steer plans toward higher-cost medications even when clinically appropriate alternatives exist. At the same time, formulary decisions should balance cost considerations with member needs and provider expectations.

The strongest strategies evaluate both. For employers, that often means reviewing how high-cost medications are being managed rather than assuming every drug category requires the same approach.

A more focused approach to the five factors shaping pharmacy spend

For years, pharmacy strategy conversations centered on broad plan changes. Today, many employers are taking a more targeted approach. They are identifying the medications responsible for the greatest financial impact and evaluating opportunities to reduce costs within those categories.

In some cases, that may involve working with a different PBM.

In others, it may involve adding a complementary solution alongside an existing PBM relationship.

The common thread is a greater emphasis on the actual cost of the prescription and less emphasis on the traditional structures surrounding it.

As pharmacy costs continue to evolve, employers and brokers who understand these underlying drivers will be better positioned to evaluate options, protect plan resources, and identify sustainable savings opportunities.

Frequently Asked Questions

Why are prescription drug costs increasing?

Prescription drug costs are influenced by several factors, including specialty medication growth, rebate structures, spread pricing, formulary decisions, and limited visibility into real-time drug costs. While utilization can play a role, many cost increases stem from how medications are priced, sourced, and managed within the pharmacy benefit.

What is spread pricing in pharmacy benefits?

Spread pricing occurs when a payer is charged one amount for a prescription while the pharmacy receives a lower reimbursement amount. The difference between those amounts is retained within the supply chain. Employers increasingly evaluate pharmacy pricing arrangements to better understand how spread pricing affects total plan costs.

How do rebates affect prescription drug pricing?

Rebates are typically negotiated between manufacturers and pharmacy benefit stakeholders. Because rebate amounts are often tied to a drug's list price, higher-priced medications can generate larger rebates. As a result, a plan may receive rebate dollars while still paying more overall for the medication.

Can employers reduce pharmacy costs without changing PBMs?

Yes. Many employers are exploring targeted solutions that work alongside their existing PBM relationships. These programs often focus on specialty medications and other high-cost prescriptions that have the greatest impact on pharmacy spend.

Which medications have the greatest impact on pharmacy spend?

Specialty medications and certain high-cost brand drugs typically represent the largest share of pharmacy spending. Although they account for a relatively small percentage of prescriptions, they often drive a disproportionate percentage of total plan costs.

Interested in exploring how these cost drivers may be affecting your pharmacy benefit strategy? Contact Rescription to learn how targeted solutions can help address high-cost prescriptions while working alongside your existing approach.

Sources

Congressional Budget Office (CBO). Prescription Drugs: Spending, Use, and Prices. https://www.cbo.gov/publication/59822

IQVIA Institute. The Use of Medicines in the U.S. 2025: Usage and Spending Trends and Outlook to 2029. https://www.iqvia.com/insights/the-iqvia-institute/reports-and-publications/reports/the-use-of-medicines-in-the-us

AHIP. Specialty Drugs and Their Impact on Healthcare Costs. https://www.ahip.org/resources/specialty-drugs-issues-and-challenges