How Cost-Containment Programs Lower Pharmacy Spend

Having competitive, compelling benefits is top of mind for employers looking to retain and attract top talent, but it’s hard to deliver when pharmacy spend is soaring. In fact, it’s the fastest-growing component of health benefit costs today. One survey found that employer costs rose 7.7% in 2024—and that’s coming off the heels of an 8.4% in 2023. Another survey of health plan actuaries predicted group pharmacy costs trending 2.5 points higher than medical costs for 2026.

These increased costs put immense pressure on employer-sponsored health plans. As a result, both employers and members have to foot the bill for skyrocketing drug prices out of their own pockets. Cost-containment programs are a key solution to this challenge, but they’re only effective with a modern pharmacy benefit manager (PBM) as a partner.  

Let’s discover how modern cost-containment programs can make a measurable impact on your pharmacy spend—and what to look out for in these programs when evaluating your pharmacy benefit partnerships.

The Employer’s Challenge: Rising Pharmacy Costs

Pharmacy costs have been rising at a rate that’s been hard to go unnoticed by both employers and members alike. In 2024, pharmaceutical spending in the United States grew to a total of $805.9 billion—that’s an increase of 10.2% as compared to just a year prior. 

While increased costs can be attributed to macroeconomic factors and pharmacy inflation, there are other variables at play. One such driver of cost is specialty medications. These medications are used by relatively few patients, and yet, they account for nearly 51% of total pharmaceutical spending. These different factors culminate in a price tag for employers that has left them questioning if their pharmacy benefits partners have any real benefit to their bottom line.

This increasing fiscal burden, coupled with decreasing employee satisfaction with pharmacy benefits, has led many employers to question traditional, rebate-driven PBM models. Legacy PBM’s lack of transparency can no longer be ignored by employers who need a modern, patient-first solution to meet their businesses’ needs. 

So, what’s the alternative for employers who are fed up with the status quo? A more transparent, straight-forward approach that leverages a “pass-through” model is becoming more and more attractive. 

A radical change in pharmacy benefits requires reframing in how teams measure the pros and cons of a PBM partnership. It means de-prioritizing short-term “savings” and focusing on the holistic benefits and savings that can be realized by switching to a more modern, transparent PBM that leverages effective cost-containment strategies.

What Are Cost-Containment Programs?

Just like providers might recommend a number of different therapies or tactics to treat a condition, your PBM may use a set of strategies to manage and reduce costs associated with prescription medications. These strategies can’t be solely focused on savings—they need to also take into account the member experience, clinical considerations, and deliver savings without compromising care. 

A modern PBM will have a number of strategies in their toolkit to help employers and members see the most value possible. These include, but aren’t limited to: 

Using Negotiation Power to Secure Lower Net Drug Prices

PBMs can leverage their extensive client base to negotiate with pharmaceutical manufacturers for higher rebates, which modern PBMs then pass along directly to employer plans. This price negotiation also extends to pharmacies—and PBMs will build pharmacy networks that offer deeper discounts which can lower drug costs to employers and members. 

Modern PBMs will take a progressive approach to getting the lowest price to employers by leveraging a cost-plus model for pricing rather than relying on a discount-based structure that often falls short.

Covering Biosimilars and Generics

A modern PBM can significantly lower employer and member costs by not only promoting, but also actively ensuring utilization of generic and biosimilar medications. Generics are chemically identical, lower-cost versions of brand-name drugs that are allowed to be produced after a patent on a branded drug has expired. Biosimilars are medications that are highly similar to complex biologic drugs which have been FDA approved and provide similar safety and effectiveness as the branded product.

Both biosimilars and generic drugs provide significant savings without compromising quality or treatment outcomes. In fact, leveraging biosimilars for notoriously expensive medications can improve health outcomes for members as they may end up paying less out-of-pocket which can increase the likelihood to remain adherent when financial barriers are removed.

Formularies

The list of covered medications a PBM maintains is known as a formulary. A modern PBM will leverage their formulary to ultimately direct patients to fill the most clinically effective and affordable drug options—not just present them an option. Lower cost drugs on a formulary can provide the same great treatment, as there is no additional clinical benefit to more expensive options.

Within formularies, drugs are often tiered, with lower-cost generics and biosimilars placed in preferred, lower tiers. This structure reduces overall costs and lessens the financial burden on both employers and members while ensuring members receive medically necessary treatments. Modern PBMs won’t just build their formularies based solely on price—they’ll also ensure that they’re clinically informed and designed to steer utilization towards medically-sound options. At SmithRx, we take a progressive approach to formulary management that balances clinical advice with the best net cost.

Utilization Management

Utilization management refers to the set of techniques a PBM will employ to ensure appropriate medication use and manage drug costs. 

• Prior Authorization: Prior authorization often gets a bad rap. Physicians see the challenges of prior authorization, with 53% reporting it has impacted their patient's job performance in an American Medical Association (AMA) poll. When it’s leveraged thoughtfully, it can ensure positive health outcomes and plan savings. Modern PBMs have aligned with the AMA’s advice to occasionally use prior authorization to ensure proper use of high-cost therapies, since in some cases drug spend can be contained if requested therapies are not clinically appropriate or may be redirected to a lower cost product. At SmithRx, we’re extremely thoughtful with our prior authorization policy and we’ve built it to ensure continuity of care. We maintain an exceptional turnaround time for prior authorization requests and in some scenarios prior authorization has been removed for preferred products.

• Step Therapy: This strategy requires that patients try more affordable medications before moving to higher-cost options. At SmithRx, as an example we leverage biosimilars as a first step for treatment—with positive health outcomes. A great example of how we meet our members' needs while still ensuring clinically-sound, cost-effective utilization is step therapy for diabetes: a patient may be directed to try a low-cost oral medication for diabetes before approval of a GLP-1.

• Clinical Programs: A modern PBM will offer comprehensive programs to help patients manage chronic conditions more effectively, which can reduce the need for more expensive treatments later. For example, a program might help a patient with rheumatoid arthritis transition to a lower-cost biosimilar, which lowers overall costs without compromising care.

The SmithRx Approach to Cost Containment

Cost-containment doesn’t have to come at the price of member experience. SmithRx’s unique, modern approach to fiscal management prioritizes both savings and overall member satisfaction and health outcomes simultaneously. Through the integration of clinical oversight, transparent pricing, and innovative programs, we’re able to set ourselves apart from the outdated, harmful practices of legacy PBMs that have held employers and members back for so long. 

We believe that deeply evaluating your outdated, legacy PBM relationship is something that all businesses need to explore. You’re not forced to accept the status quo of opaque pricing, dissatisfied members, and rising costs. At SmithRx, we prioritize a true partnership with employers that delivers real ROI to businesses—not just short term savings and drastic “markdown” prices. We don’t just offer lower-priced drugs as an option, we focus on driving impactful volume to the lowest net-cost option across all of your member’s prescriptions. We leverage our unique Drug Pathways Engine (DPE) to achieve the best financial and health outcomes by getting the right medication in the hands of members from the right source and at the right prices.

What does our first-of-its-kind, novel approach to cost-containment through our DPE look like in practice? For high-cost autoimmune drugs, Humira and Stelara, we’ve connected members with biosimilars that provide clinically-sound treatment without breaking the bank. By switching members to Humira and Stelara’s biosimilars, Yusimry and Otulfi, they’ve seen upfront savings per fill of 90% and 96% respectively. That’s a meaningful cost difference for both members and employers that simply wouldn’t be achieved with a legacy PBM.

Behind the scenes of your members' simple low-cost experience are teams of dedicated SmithRx employees who drive the net cost of your medications down by ensuring execution of lowest-cost options, not just surfacing them. 

What does this look like in practice? For patients with chronic conditions that require high-cost treatments, like autoimmune disorders, we leverage our savings programs, in tandem with our DPE, to get patients the medications they need at a lower cost using innovative biosimilars.

Sounds like something you’d want for your pharmacy benefits program? Check out our suggestions for a few questions to ask your current (or potential) Pharmacy Benefit Managers to ensure you’re getting transparent pricing and that they’re doing everything they can to balance price with member experience.

Ready to Take Control of Your Pharmacy Spend?

Navigating the complexities of pharmacy benefits is a significant hurdle for employers, but it’s one that can be solved. By implementing holistic, people-first cost-containment programs, it is possible to both lower pharmacy spend and enhance member satisfaction. It’s crucial that the PBM you partner with builds their cost-containment programs on a foundation of transparency and clinical integrity—and that they move beyond simple cost-cutting to deliver true value.

The entire SmithRx team is committed to transforming pharmacy benefits with our radically transparent, pass-through model. Everything we do goes toward eliminating hidden fees, providing full data visibility, and focusing on holistic practices that benefit employers and members—always. It all comes down to what we believe on a fundamental level: that competitive, compelling benefits are essential for attracting and retaining exceptional people, and that shouldn’t be at odds with your business’ fiscal responsibility.

To learn more about how our future-proofed cost-containment strategies can work uniquely for your business, speak with our team of pharmacy benefit experts, today.