10 Proven Strategies to Lower Prescription Drug Costs for Self-Funded Employers



In the constantly evolving landscape of healthcare, self-funded employers are continually seeking effective strategies to manage and reduce prescription drug costs. This financial burden not only impacts the bottom line of businesses but also affects the overall well-being and productivity of their workforce. With a focus on sustainable healthcare management, this article delves into ten proven strategies that can help self-funded employers significantly lower their prescription drug costs. These strategies, rooted in thorough research and successful practices, offer a comprehensive approach to managing pharmaceutical expenses without compromising the quality of healthcare benefits provided to employees.

Strategy 1: Implement a Pharmacy Benefits Manager (PBM)

Understanding the Role of PBMs

Pharmacy Benefits Managers (PBMs) play a crucial role in the healthcare system by acting as intermediaries between employers, insurers, and drug manufacturers. They negotiate prices with pharmaceutical companies and pharmacies, manage drug formularies, and process prescription drug claims. For self-funded employers, partnering with a PBM can lead to substantial cost savings. A well-chosen PBM can leverage its negotiating power to secure lower drug prices, provide insights into drug utilization, and suggest cost-effective alternatives.

Choosing the Right PBM

Selecting the right PBM is vital. Employers should look for transparency in pricing models and contract terms. It's essential to understand the fee structure, rebates, and any potential conflicts of interest. Employers should also evaluate the PBM's formulary management strategies, ensuring they align with the company's healthcare objectives. A PBM that offers a mix of high-value, low-cost medications, and prioritizes generics where appropriate, can be particularly beneficial.

Monitoring PBM Performance

Regularly assessing the PBM's performance is crucial. Employers should establish key performance indicators (KPIs) such as drug spending trends, member satisfaction, and the level of utilization of generic drugs. Regular audits and reviews can ensure that the PBM continuously meets the company’s financial and healthcare goals. Effective collaboration and communication between the employer and the PBM also enhance the effectiveness of this strategy.

Strategy 2: Encourage the Use of Generic and Biosimilar Drugs

The Cost-Effectiveness of Generics and Biosimilars

Generic drugs, which are equivalent to brand-name drugs in dosage, safety, strength, quality, and performance, offer a significant opportunity for cost savings. They are typically much cheaper than their branded counterparts due to lower development and marketing costs. Similarly, biosimilars, which are nearly identical to original biologic drugs but are produced after the original product's patent expires, can also lead to substantial cost reductions. Encouraging the use of generics and biosimilars is a straightforward way for employers to reduce prescription drug costs.

Educating Employees on the Benefits

To maximize the benefits of generics and biosimilars, employers need to educate their employees about their efficacy and safety. Misconceptions about the quality of generic drugs can lead to underutilization. Information campaigns, wellness programs, and direct communication can help in dispelling myths and encouraging acceptance. Employers can also work with their PBMs to design formularies that prioritize generics and biosimilars without compromising healthcare quality.

Implementing Incentives for Generic Drug Use

Employers can also implement incentive programs to encourage the use of generics and biosimilars. For example, reducing or eliminating copays for generic drugs can be a strong motivator for employees to choose them over brand-name drugs. Incentive programs should be clearly communicated and easily accessible to ensure maximum participation and effectiveness.

Strategy 3: Adopt a Step Therapy Program

The Concept of Step Therapy

Step therapy is a cost-containment strategy that encourages the use of the most cost-effective and safest drugs as first-line treatment options. Under this approach, patients must first try a lower-cost alternative (often a generic drug) and demonstrate its ineffectiveness before a more expensive medication is approved. This strategy ensures that the most economical and appropriate medications are utilized before moving to higher-cost options.

Implementing Step Therapy

For effective implementation, step therapy programs should be designed in collaboration with healthcare professionals to ensure patient safety and care quality. It’s crucial to have a clear, transparent process for exceptions, especially for patients who may not respond to standard treatments. Communication with employees about the benefits and rationale of step therapy is also key to its acceptance and success.

Monitoring and Evaluating the Program

Regular monitoring and evaluation of the step therapy program are essential to ensure it meets its cost-saving objectives while maintaining high standards of patient care. Employers should track metrics such as medication adherence, patient outcomes, and overall program costs. Feedback from employees and healthcare providers should be used to fine-tune the program for better effectiveness and acceptability.

Strategy 4: Utilize a Specialty Pharmacy

Understanding Specialty Pharmacies

Specialty pharmacies focus on high-cost, high-complexity, and high-touch medications, often used to treat chronic, rare, or life-threatening conditions. These pharmacies provide specialized services such as patient education, medication management, and adherence support. For self-funded employers, utilizing a specialty pharmacy can lead to better management of high-cost drugs and improved patient outcomes.

Benefits of Partnering with a Specialty Pharmacy

Partnering with a specialty pharmacy can offer several advantages. These pharmacies often have more effective negotiation capabilities for high-cost drugs and can access manufacturer patient assistance programs. Their expertise in managing complex drug therapies ensures that medications are used correctly and effectively, leading to better health outcomes and, potentially, lower overall healthcare costs.

Integrating Specialty Pharmacy Services

To fully benefit from a specialty pharmacy, integration with the employer’s existing healthcare plan is crucial. This integration involves coordination with the PBM, healthcare providers, and the specialty pharmacy to ensure seamless patient care. Clear communication channels should be established to facilitate the sharing of patient information, allowing for a more personalized and efficient approach to medication management.

Strategy 5: Implement a Drug Formulary Management System

The Importance of a Drug Formulary

A drug formulary is a list of medications, both generic and brand name, that are preferred by a health plan for their cost-effectiveness and efficacy. Implementing a drug formulary system allows self-funded employers to control costs by guiding the prescription of cost-efficient drugs without compromising treatment quality.

Developing and Managing the Formulary

Creating an effective formulary requires collaboration with healthcare professionals and PBMs. The formulary should be regularly reviewed and updated based on the latest clinical evidence, drug market changes, and therapeutic advancements. It's important to have a balance between including effective medications and controlling costs. Employee education on formulary changes and their implications is also essential.

Monitoring Utilization and Compliance

Monitoring the utilization of the formulary and ensuring compliance is key to its success. Employers should regularly review prescription data to identify trends, potential savings opportunities, and areas for improvement. Engaging healthcare providers in the formulary process and ensuring they are aware of the preferred drugs can also enhance the effectiveness of this strategy.

Strategy 6: Implement Value-Based Pharmacy Benefits

Understanding Value-Based Pharmacy Benefits

Value-based pharmacy benefits align drug payments to the value provided rather than the volume of drugs dispensed. This approach incentivizes the use of drugs that are most effective in improving health outcomes. It involves setting up payment models that reward positive patient outcomes and can be a powerful tool in managing prescription drug costs.

Designing Value-Based Programs

Creating a value-based pharmacy benefits program requires detailed data analysis to identify the most cost-effective treatments. Employers should work with PBMs and healthcare providers to establish benchmarks for successful treatment outcomes and set up appropriate reward mechanisms. Tailoring these programs to the specific healthcare needs of the workforce is also crucial.

Evaluating and Adjusting the Program

Regular evaluation of the program's effectiveness in improving health outcomes and controlling costs is essential. Employers should track metrics such as medication adherence, disease progression, and overall healthcare costs. Feedback from employees and healthcare providers can help in continuously refining the program to better meet its objectives.

Strategy 7: Implement a Medication Therapy Management Program

The Role of Medication Therapy Management

Medication Therapy Management (MTM) is a collaborative approach to optimizing drug therapy and improving patient outcomes. MTM involves personalized medication reviews, pharmacotherapy consults, anticoagulation management, immunizations, and health and wellness programs. For self-funded employers, MTM can enhance medication adherence and reduce unnecessary healthcare spending.

Benefits of MTM Programs

MTM programs can lead to significant cost savings by preventing medication errors, reducing adverse drug events, and improving chronic disease management. These programs can also increase employee satisfaction and productivity by ensuring optimal medication use and improving health outcomes.

Implementing and Managing MTM Programs

Successful implementation of an MTM program requires partnership with pharmacists and healthcare providers. Employers should establish clear goals for the program, such as reducing hospital readmissions or improving management of chronic diseases. Regular communication with employees about the benefits and availability of MTM services is also crucial for maximizing participation and impact.

Strategy 8: Promote Wellness and Preventive Care

The Impact of Wellness Programs

Wellness and preventive care programs focus on maintaining health and preventing illness, which can lead to reduced reliance on prescription drugs. These programs can include health screenings, immunizations, lifestyle coaching, and chronic disease management. For self-funded employers, investing in employee wellness can have a significant impact on reducing healthcare costs, including prescription drug spending.

Designing Effective Wellness Programs

Effective wellness programs should be tailored to the specific needs and risks of the employee population. Employers should conduct health risk assessments to identify areas of focus and design programs that address these needs. Incentives such as reduced insurance premiums, rewards, or competitions can increase employee engagement in these programs.

Measuring the Impact of Wellness Initiatives

To evaluate the effectiveness of wellness programs, employers should track metrics such as employee participation rates, health outcomes, and changes in prescription drug usage. Gathering feedback from employees can also provide insights into the program's impact and areas for improvement. Over time, a successful wellness program should lead to healthier employees, which in turn can result in lower prescription drug costs due to reduced need for medications.

Strategy 9: Utilize Data Analytics for Informed Decision Making

Harnessing the Power of Data

In the realm of healthcare management, data analytics is a powerful tool. It enables employers to make informed decisions by analyzing trends in drug utilization, costs, and health outcomes. By leveraging data, self-funded employers can identify cost drivers, forecast future trends, and tailor their strategies to effectively manage prescription drug costs.

Implementing a Data-Driven Approach

To harness the power of data analytics, employers should invest in robust data systems that can collect, integrate, and analyze information from various sources, including PBMs, healthcare providers, and employee health programs. This data can then be used to identify patterns and areas where cost savings can be achieved without compromising on care quality.

Continuous Monitoring and Adjustment

Data analytics is not a one-time exercise but a continuous process. Employers should regularly review the data to monitor the effectiveness of their cost-containment strategies and make adjustments as necessary. This dynamic approach allows for the ongoing optimization of prescription drug spending and ensures that healthcare benefits remain sustainable and effective.

Strategy 10: Foster Employee Education and Engagement

The Importance of Employee Awareness

Employee education and engagement are critical components of managing prescription drug costs. By educating employees about the cost and value of their medications, employers can empower them to make informed healthcare decisions. This includes understanding the benefits of generics and biosimilars, the importance of adherence to prescribed therapies, and the availability of wellness and preventive care programs.

Implementing Effective Communication Strategies

Effective communication strategies are key to educating and engaging employees. This can include workshops, seminars, newsletters, and personalized communications. The goal is to provide clear, accessible information that helps employees understand their healthcare benefits and how their choices impact costs.

Encouraging Responsible Usage of Prescription Benefits

Encouraging responsible usage of prescription benefits involves promoting a culture of health and wellness within the organization. Employers can implement programs that reward healthy behaviors and prudent use of healthcare resources. By creating an environment where employees are knowledgeable and engaged in their health care, employers can foster responsible usage of prescription benefits and contribute to the overall reduction of drug costs.


For self-funded employers, managing prescription drug costs is a complex but vital task. By implementing these ten strategies, employers can take a proactive approach to controlling these costs. From leveraging PBMs and specialty pharmacies to fostering employee education and engagement, each strategy contributes to a comprehensive plan for sustainable healthcare management. The key to success lies in the thoughtful implementation, regular monitoring, and continuous adaptation of these strategies. By doing so, employers can not only achieve significant cost savings but also ensure the health and well-being of their workforce.

Employers today face intricate challenges when navigating the complexities of PBM contracts, discounts, rebates, pharmaceutical costs, and specialty drugs. Recognizing the need for expert guidance in these areas, Corporate Wellness Magazine recommends Matthew Williamson. Celebrated as one of Florida's eminent employee benefits consultants, Matthew has consistently demonstrated his prowess in assisting companies to decipher and optimize these multifaceted contracts and financial mechanisms. His in-depth knowledge and strategic approach have proven invaluable in securing tangible savings for self-funded employers. For businesses seeking strategic insight and transformative solutions in the pharmaceutical landscape, a direct consultation with Matthew Williamson is imperative. He can be reached at matthew.williamson@ioausa.com or 407.998.5585.

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