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  • Sarah Devine

How to save on your prescription spend

Updated: May 17, 2023

Companies spend about 20% of their overall healthcare budget on prescription drugs. With employers looking to save money, managing Rx spend is a great place to start. There are two main strategies to consider when looking to cut prescription costs:

1.) Rebate focused.

2.) Lowest net cost focused.

Before we dive into the pros and cons of each strategy, there are a few terms to understand:

PBM: Prescription Benefit Manager. These companies manage drug benefit programs on behalf of health insurers.

Rebate: Returns a portion of an insurance premium to the policy holder and PBM. Drug companies use rebates as an incentive to push name brand drugs to consumers.

Formulary: A pre-approved list of drugs that are covered by a health plan.

Formulary Tiers: A system used to categorize drugs based on dosage and price (separated into generic brands or specialty brands).

Lowest net-cost formulary: Looks at average wholesale and rebate prices for drugs and considers generic options, cash price options, and options that have the best clinical outcomes for the patient.


The most common strategy to cut prescription costs is to chase rebates. In this strategy, the company's formulary is constructed with the goal of getting higher rebates from drug manufacturers. However, while large rebates can disguise themselves as savings, they do not account for lower cost alternatives.

Rebates can also lead to negative incentives. In this model, PBM’s are rewarded to promote higher costing drugs, leading to greater rebates for the PBM’s (with a small fraction going to health plan owners). Companies miss the potential to save six to seven figures on their annual healthcare spending with a rebate focused model.


The second strategy is a lowest net-cost approach. It effectively drives down prescription spend by holistically looking at all the alternatives in the marketplace. By avoiding the current rebate model, companies can choose lower-cost alternatives, generic drugs, cash pay options, and more.

This approach begins with an independent third-party that reviews your formulary, assesses medical suitability, and ensures optimal clinical outcomes. Additionally, because rebates are not involved, it allows the company to have a larger formulary, more options, and ultimately, better pricing. Having an independent medical review allows patients to receive the best treatment for their conditions and puts patients at the forefront of decision making.


Formularies are a huge driving factor in companies' overall benefit plan costs. Ensuring your company's financial goals align with your formulary decisions is imperative to drive down costs. Above all, each formulary should be clinically-sound. Novo Connection Analytics’ approach is rooted in this.

Novo Connection has always offered transparent pricing and champions high-performance benefit plans for our clients. Interested in your next steps to start saving on your prescription spend? Contact one of our team members today.

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