Excluding or Carving-Out Specialty Drugs: What Employers Need to Know

Top Three Things You’ll Learn:

  1. Key differences between excluding and carving-out specialty medications
  2. The role of drug coverage and needs-based funding in a specialty carve-out
  3. Why it’s important to do the math before deciding to carve-out specialty


There continues to be a push to find ways to address the growing impact of specialty medications on employer healthcare costs. Despite proven successes with utilizing an independent prior authorization program and a variable copay program, two additional strategies are being increasingly explored in the market: carving-out specialty medications or excluding specialty drugs from the pharmacy benefit. If your clients are exploring these options, it’s important that you fully analyze the value, including the member impact, before the client makes their final decision.

Understanding the Difference

Excluding specialty: When specialty medication is excluded from the covered benefit, the member is completely on their own to cover the expenses for their specialty medications.

  • The PBM system is coded to reject claims as not covered.
  • Drug discounts are not applied.
  • No payment solution exists for any of the products not covered.
  • No ability to request an exception or medical necessity, or override the PBM system, even if the employer approves and asks for it to be covered for this member.
  • If employers choose to exclude some drugs, a custom exclusion list is needed and requires custom coding, drug list maintenance, reports, and support for overrides.
  • Impacts member access to needed medications and potential legal concerns about excluding drugs based on cost or specific disease state.

Carving-out specialty: When specialty drugs are carved-out from the traditional pharmacy benefit, there is a covered benefit administered by a third-party vendor. Processes relative to specialty drug prior authorization and coverage rules are run separately from the primary PBM’s systems and processes.

  • Considered an excluded benefit from the PBM perspective.
  • The primary PBM formulary, or list of covered specialty drugs, does not apply.
  • Affects network rates, rebates, and other cost-savings programs in place with the PBM.
  • Coverage is not guaranteed for all products, requiring employers to maintain a specialty benefit for out-of-scope products and members that do not qualify.
  • Conversion rates can vary dramatically, depending on the employer’s member demographics and population taking the covered specialty drugs.
  • Participation is subject to the utilizing member’s income and the availability of needs-based funding.
  • Program administration requires participation from the employer’s HR team.

Download our specialty carve-out checklist of key considerations for carving-out specialty drugs from the pharmacy benefit.

A specialty carve-out may appear to be a good option for employers, but the decision carries significant weight and deserves careful consideration. It can negatively impact employees and decrease the overall pharmacy benefit value. Factoring in fees and loss of contract value, as well as member cost implications, is essential to understand its true value.

Examining the Details

Specialty carve-out programs often speak to how simple it is to exclude specialty drugs from the pharmacy benefits coverage and may give the impression that they cover all specialty medications. However, the reality can be vastly different depending on the employer’s existing pharmacy benefits contract, specialty drug mix and utilization, and member demographic composition. Consider these factors as you guide your clients through the discussion:

  • Drug coverage limitations: Many of the specialty carve-out programs on the market have a limited formulary that addresses 300 or fewer medications, compared to as many as 1,300 specialty medications covered by PBMs.
  • Access to needs-based funding: Needs-based funds come from financial assistance provided by a drug manufacturer, a disease-specific foundation, and other sources to help uninsured/underinsured consumers pay for specialty medications. These programs vary in eligibility requirements and amounts. Access can be limited for highly compensated employees, individuals with access to an employer sponsored benefit, or those who have previously received funding. As more employers pursue needs-based funding for their members, competition for these dollars will increase.
  • Custom benefit administration: Members who cannot obtain funding (in part or in total) will need the employer to grant exceptions to allow for coverage through the traditional prescription benefit anytime the member changes medications or dosage. These overrides require manual coordination between the carve-out vendor, the employer, and PBM to administer. Lists for exclusion also will need to be maintained throughout the year as new specialty drugs enter the market. Typical PBM benefit change requests can take up to 60 days, leaving a drug potentially eligible for dispensing during that time. Additionally, a custom benefit administration challenges the concept of a consistent application of benefits and should be evaluated by the employer’s legal team.
  • Impact on rates, rebates, and savings: Any promise of cost-savings must be tempered against all fees and loss of contract value. Changes to the pharmacy benefit arrangement with the PBM will the impact the plan’s pharmacy network rates and drug rebates, prior authorization approval rates and savings, costs associated with non-targeted medications, and short-term versus maintenance therapies.

When considering the value of excluding specialty and/or specialty carve-out for your clients, make sure you understand the details of the true problem they wish to solve. Why are they considering either of these options? What results are they trying to achieve? The details matter, so it’s important to do the math and analyze the impact of a specialty carve-out on both the employer and members. A trusted, independent pharmacy benefits partner can help evaluate these options for your clients, if needed.

Watch our on-demand webinar to learn how a tailored clinical strategy can help self-funded employers manage their specialty drug costs.




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