What Is a Pharmacy Carve Out and How Does It Work?
Grasp the concept of pharmacy carve out: how prescription drug benefits are separately managed in healthcare.
A pharmacy carve-out represents a specific arrangement within healthcare benefit management where prescription drug benefits are administered separately from a health plan’s medical benefits. This approach allows for distinct management of pharmacy services, often by a specialized third party. It is a common strategy for organizations seeking tailored solutions for prescription drug coverage within the broader context of employee or member health plans.
Understanding Pharmacy Carve Out
A pharmacy carve-out occurs when a health plan or employer separates the management and delivery of prescription drug benefits from its medical benefits. Instead of having one entity oversee both medical and pharmacy coverage, the pharmacy portion is handled independently. This separation allows for a focused approach to prescription drug management.
In contrast, a “carve-in” model integrates both medical and pharmacy benefits under a single entity, typically the main health insurance carrier. With a carve-in, the health plan itself, or its affiliated Pharmacy Benefit Manager (PBM), manages all aspects of prescription drug coverage as part of the overall health package. Many employers, particularly those that are self-insured, opt for a carve-out arrangement to gain more control and transparency over their pharmacy expenditures.
The primary parties in a carve-out arrangement include the health plan or employer, who is the plan sponsor, and a Pharmacy Benefit Manager. These services typically include retail prescriptions, mail-order prescriptions, and often high-cost specialty drugs. The decision to carve out can be driven by a desire to customize benefit design and manage specific drug categories more effectively.
Operational Structure of Pharmacy Carve Out
The operational structure of a pharmacy carve-out involves a distinct contractual relationship between the health plan or employer and the PBM. This agreement outlines the scope of pharmacy services the PBM will manage, separate from the health plan’s medical coverage. The PBM acts as a third-party administrator specifically for prescription drug programs.
Members typically access their prescription drug benefits using a separate identification card or through a specific pharmacy network established by the PBM. When a prescription is filled, the pharmacy submits the claim directly to the PBM for processing. This claims submission and adjudication process verifies patient eligibility, drug coverage, and applicable cost-sharing in real-time.
The financial flow within this model involves the health plan or employer compensating the PBM for managing these benefits. The PBM then reimburses pharmacies for dispensed medications, often after applying negotiated rates and discounts. This arrangement means the PBM handles the financial transactions related to prescription drugs independently from the medical claims process. Despite the separation, there is still coordination between the health plan and the PBM, particularly concerning member eligibility data and overall benefit design parameters. This ensures that while pharmacy benefits are managed distinctly, they remain integrated into the member’s overall healthcare coverage.
Core Services of Pharmacy Benefit Managers
Pharmacy Benefit Managers (PBMs) are responsible for administering the prescription drug portion of a health plan’s benefits within a carve-out model. They offer a range of services designed to manage drug costs and improve patient access to medications.
One primary service is formulary management, where PBMs develop and maintain a list of covered drugs. This formulary categorizes medications into tiers, influencing patient cost-sharing and guiding drug selection based on effectiveness, safety, and cost. PBMs also handle claims processing and adjudication, which involves the real-time review and payment of prescription claims submitted by pharmacies. This process confirms coverage, applies patient co-payments, and facilitates reimbursement to the pharmacy.
PBMs also manage the network of pharmacies where members can fill their prescriptions. They contract with various pharmacies to ensure broad access and negotiate reimbursement rates for dispensed medications. Drug Utilization Review (DUR) is another service, involving the review of prescriptions for safety concerns, potential drug interactions, and appropriate use. Additionally, PBMs frequently manage specialized services such as mail-order pharmacies for convenience and specialty pharmacy services for high-cost, complex medications.