Understanding Carve-In and Carve-Out Pharmacy Benefits

When it comes to managing pharmacy benefits, organizations often face a choice between “carve-in” and “carve-out” arrangements. Understanding the differences between these two approaches can help you make informed decisions that best suit your needs.

What is Carve-In?

Carve-in refers to having your medical and pharmacy benefits tied together. This is often achieved by the medical carrier or third-party administrator (TPA) owning a partner pharmacy benefit manager (PBM).

What is Carve-Out?

In a carve-out arrangement, your TPA and pharmacy decisions are made independently because, often, the TPA doesn’t own a PBM. This allows for more flexibility and control over your pharmacy costs.

Considerations for Carve-Out

• Less Conflict of Interest: More transparency and accountability in pharmacy benefits.
• More Control: Greater control over pharmacy costs, as they aren’t combined with medical expenses.
• More Choice: Ability to choose from a variety of PBMs that customize to your individual needs.
• Future Flexibility: Easier to make changes to one vendor without having to make changes to both.

Considerations for Carve-In

Some factors to consider when looking at a carve-in approach include:

• Administration – Some believe having medical and pharmacy benefits carved-in simplifies administration, but medical carriers with carved-in PBMs often have separate teams that don’t always communicate.
• Data – The integration of medical and pharmacy data may offer opportunities for additional insight on plan spend. However, this insight is not a guarantee and the ability to make an impact may not always be there.
• Medical Credits – Medical credits may seem positive, but organizations lose transparency into the rebates. They may not know if a 100% passthrough would have more impact than an admin credit or if the admin fee is appropriate before the credit is applied.

While some organizations consider carve-in plans to be simpler and less time-consuming to run, they may be losing the cost management, flexibility and customization advantages of a carve-out structure. Offering more control over high-cost prescriptions, carve-out plans can improve overall benefits packages and help organizations better meet their fiduciary responsibility to their plan members.