What to Do About Prescription Drug Costs: The Fastest-Growing Employer Benefit Expense

Pharmacy is now the fastest-growing line item in employer healthcare spend, rising well ahead of hospital and physician costs.
Nearly every prescription drug cost lever on the market manages the drug after it is prescribed, while the prescribing decision itself goes unexamined.
Self-funded employers watching specialty drug trend climb have the most to gain from adding provider quality to their pharmacy strategy.

Most employer prescription drug cost management strategies share a blind spot. Formularies, biosimilar substitution, prior authorization, and pharmacy benefit manager (PBM) carve-outs all manage the drug itself. They negotiate what it costs and control when the plan pays for it, but none of them ask whether the doctor who wrote the prescription made the right call in the first place.

That question matters more every year, because pharmacy has become the fastest-growing line item in employer healthcare spend while most cost conversations still treat it as a side issue to medical trend. The doctor who prescribes a medication has as much bearing on cost and appropriateness as the medication itself. Yet when employers sit down to cut pharmacy spend, that doctor never comes up.

The cost levers employers already know about, and where they fall short

There is a reason every benefits meeting now has a pharmacy slide. The Business Group on Health's 2026 Employer Health Care Strategy Survey projects overall healthcare cost trend at a median of 9% for 2026, with pharmacy costs forecast to rise 11–12%, and pharmacy already consumed 24% of employer healthcare spend in 2024. Segal's 2026 Health Plan Cost Trend Survey tells the same story, with prescription drugs as the only major category projected to grow at double digits. Those increases land on top of the broader healthcare cost crisis employers have been absorbing for years.

The standard PBM toolkit: formulary tiering, biosimilars, and prior authorization

Employers have responded with a familiar set of levers. Formulary tiering steers employees toward generics and preferred brands through copay design, while step therapy and prior authorization require patients to try lower-cost options before the plan covers a more expensive one. Biosimilar substitution replaces brand biologics with lower-cost equivalents, specialty carve-outs move high-cost drugs to vendors that manage them more aggressively, and site-of-care programs shift infused specialty drugs out of hospital settings, where markups run highest.

These tools work, and employers should use them as part of a comprehensive prescription drug cost management strategy. But most pharmacy spend now sits where these tools have the least leverage. Specialty drugs accounted for less than 2% of prescriptions but 52% of total net drug spend in 2024, per the Navitus Drug Trend Report. Decisions about GLP-1 access and costs have only added to the pressure. A copay tier can move an employee from a $60 brand to a $10 generic, but it does very little once a patient is on a specialty therapy that costs the plan six figures a year.

Why these levers don't affect prescribing behavior

Every one of these levers starts working after the prescription has already been written. Formulary tiering decides which version of a drug the plan prefers, prior authorization decides whether the plan will pay for it, and site-of-care management decides where an infusion happens. None of them ask whether the prescription was the right decision for that patient, whether a lower-cost therapy was skipped, or whether the condition could have been managed without escalating to drug treatment at all. That is a provider quality question rather than a pharmacy benefit design question, and no PBM contract is built to answer it.

The missing variable: who is doing the prescribing

Doctors treating similar patients make very different prescribing decisions, and those decisions show up directly in what a plan spends. A 2026 study in the RAND Journal of Economics tracked physicians who moved between regions and found that physician-specific factors explain about 58% of the variation in prescription drug spending in Medicare Part D. Which drug a patient ends up on depends on which doctor they see as much as on what condition they have.

The same pattern drives cost differences everywhere else in healthcare. Research in JAMA Internal Medicine found that primary care physicians at the 90th percentile of their own organization delivered 60% more low-value services than colleagues at the 10th percentile, and measurable physician characteristics explained almost none of the gap.

How provider variation shows up in prescribing patterns

For a benefits team, the differences are easiest to see in chronic and complex conditions. One rheumatologist exhausts methotrexate and other conventional options before starting a biologic, while another initiates the biologic in the first month. One primary care doctor manages early type 2 diabetes with metformin and lifestyle support, while another reaches quickly for the newest branded therapy. Multiply those decisions across a covered population and two plans with identical formularies can end up with very different specialty drug costs, because the doctors writing the prescriptions practice differently.

None of this means employers should second-guess individual clinical decisions. It simply means the pharmacy conversation is missing a piece. An employer can hold the strongest PBM contract in the market and still watch specialty spend climb if the doctors their employees see escalate to high-cost therapy faster than the evidence supports.

Building a pharmacy strategy that accounts for provider quality

Accounting for the prescriber does not require replacing anything. PBM-side management keeps handling the drug side of the equation, and a provider-side layer addresses the prescribing side by helping employees find the doctors with better-documented management of chronic and complex conditions. Employers looking to take back control of rising drug prices do not need to renegotiate their PBM relationship, change their formulary, or change the pharmacy benefit at all to add it.

A two-sided framework: PBM management plus provider selection

On one side, the PBM manages the drug. Formulary strategy, utilization management, biosimilar adoption, and site-of-care programs continue to do what they do today. On the other side, the employer manages provider selection by steering employees toward the doctors whose prescribing and treatment patterns hold up against clinical evidence. Unlike PBM alternatives that swap one drug-side manager for another, this layer adds something no PBM offers.

This is where Garner fits into the conversation. Garner's provider quality data identifies which doctors manage chronic conditions more effectively, and its incentive model helps cover employees' out-of-pocket costs when they see one of those best-performing doctors. Nothing about the pharmacy benefit changes. Employees simply end up in front of doctors who prescribe appropriately more often, and the pharmacy savings follow from better clinical decisions rather than from tighter drug-level controls.

Making prescription drug costs part of the provider quality conversation

Prescription drug costs are not purely a pharmacy problem. They are downstream of provider decisions, and an employer prescription drug cost management strategy that never looks at who is doing the prescribing is only solving half the equation. The PBM toolkit remains necessary, but pairing it with provider quality gives employers a lever no formulary change can offer. Curious what provider quality data would show about prescribing patterns in your plan?

Book a demo with a member of Garner’s team to learn what a customized analysis of your population would surface.

FAQs

Why are prescription drug costs rising faster than other healthcare costs?

Prescription drug costs are rising faster because specialty drugs and GLP-1 medications carry high prices and are being prescribed to more people each year. The Business Group on Health forecasts pharmacy costs to rise 11–12% heading into 2026, above the 9% median trend for healthcare overall. Specialty drugs are the biggest single factor. They accounted for less than 2% of prescriptions but 52% of total net drug spend in 2024, so even modest growth in specialty utilization moves the entire pharmacy budget.

What can employers do to reduce prescription drug spend without cutting coverage?

Employers can reduce prescription drug spend by pairing PBM-side tools with provider-side steering rather than cutting benefits. Formulary tiering, biosimilar substitution, prior authorization, and site-of-care management lower the cost of the drugs employees already take. Adding a provider quality layer addresses the other half by helping employees find doctors who manage conditions appropriately before escalating to high-cost therapy. Neither approach removes coverage. Both change which drugs get prescribed and what the plan pays for them.

Does the prescribing doctor affect how much a company spends on specialty drugs?

Yes, the prescribing doctor is one of the largest specialty drug cost variables an employer never sees. Doctors vary widely in how quickly they escalate patients to specialty therapy, and research finds physician-specific factors explain about 58% of the variation in prescription drug spending. Two doctors in the same specialty can put similar patients on very different treatment paths, one exhausting conventional options first and the other starting a biologic right away, and a single specialty therapy can cost the plan six figures a year.

What's the difference between PBM management and provider quality management for pharmacy costs?

Pharmacy benefit manager (PBM) management controls the drug after it is prescribed, using formularies, rebates, prior authorization, and utilization management to lower the cost of each prescription. Provider quality management works earlier in the sequence by steering employees toward doctors whose prescribing patterns hold up against clinical evidence, which changes which prescriptions get written in the first place. The two are complementary. PBM tools manage price and utilization, while provider quality management addresses appropriateness, and a complete pharmacy strategy needs both.

How do self-funded employers manage rising specialty drug costs?

Self-funded employers manage specialty drug costs through specialty carve-outs, site-of-care programs that move infusions out of hospital settings, biosimilar adoption, and case-by-case utilization review. Because they bear the full cost of claims, they also have the most to gain from adding provider quality to that mix. Steering employees toward best-performing doctors reduces unnecessary specialty referrals and premature escalation to high-cost therapy, which lowers specialty spend without restricting what the plan covers.