Pharmacy Spend: An Honest Scorecard

Drug spend is the fastest-growing line in most total cost of care arrangements and the one over which accountable organizations have the least direct control. This closing lesson states what is actually true about it.

The scorecard

Question	Answer
Is drug spend growing faster than most categories?	Yes, Part D projected to nearly double from 2025 to 2035
Can a provider organization influence drug prices?	No
Can it influence therapeutic choice, site, substitution, and adherence?	Yes, meaningfully
Is drug spend inside its benchmark?	Often not, and it must be checked term by term
Is the supply chain competitive?	Six PBMs manage nearly 95 percent of prescriptions, vertically integrated with insurers and pharmacies
Should the organization want less pharmacy spending?	Not uniformly; adherence spending should often rise

The three questions that organize any drug strategy

What is in the benchmark? MSSP counts Parts A and B, so Part B administered drugs are in and Part D is out. Commercial arrangements vary. Whether the measure is gross or net of rebates can reverse which formulary decision looks like savings. None of this is discoverable from a model’s name; it lives in the contract.

What can this organization actually influence? Therapeutic choice among alternatives, site of administration, biosimilar and generic substitution, appropriate initiation and discontinuation, and adherence. Not list prices, not market entry, not rebate arrangements. Effort spent on the second list is wasted.

Which direction should spending move? Down for therapeutically equivalent alternatives, inappropriate prescribing, and unnecessarily expensive sites. Up for adherence to medications that prevent expensive events. An organization managing pharmacy to a pharmacy budget will get the second half backwards.

What this course adds to the curriculum

The structural patterns here are ones the earlier courses established, appearing in their sharpest form:

• A boundary determines behavior. Whether pharmacy is carved in decides whether anyone benefits from managing it, exactly as with behavioral health.
• Risk you cannot absorb should be transferred, not managed clinically. Specialty drug variance is a financing question first.
• You cannot manage what you cannot see. Prescriptions never filled are invisible without pharmacy data.
• Capping one party’s cost decides who else absorbs it. The Part D redesign moved catastrophic risk onto plans, and plans responded.

Worth remembering: the most common error in this area is an organization concluding that because drug spending is growing and large, it must be reducible through effort. Much of it is not, and treating an uncontrollable cost as a performance failure produces exactly the wrong responses: restricting access to indicated therapy, blaming clinicians for prescribing what guidelines recommend, and burning credibility on a target that was never achievable. The organizations that handle drug spend well are precise about the boundary between what they influence and what they absorb, they finance the second category rather than fighting it, and they spend their management attention entirely on the first.

Key takeaways

• Drug spend grows faster than most categories and is largely priced outside any provider organization’s control.
• Always establish what drug spending is inside the benchmark, and whether it is measured gross or net of rebates.
• Influence is real over therapeutic choice, site, substitution, and adherence.
• Spending should fall for equivalent alternatives and rise for adherence, which requires managing against total cost rather than a pharmacy budget.
• Uncontrollable cost should be financed through stop-loss and contract terms, not treated as a management failure.

Sources

• KFF, A Current Snapshot of the Medicare Part D Prescription Drug Benefit (opens in a new tab)
• FTC, Interim Staff Report on Prescription Drug Middlemen (July 2024) (opens in a new tab)
• 42 CFR 425.20, Medicare Shared Savings Program definitions (opens in a new tab)