Clip of Vincent Catalano and Joey Dizenhouse, CEO of SlateRx on Who Wins If You Spend More?
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Follow the Money: Inside the Pharmacy Supply Chain Nobody Explains to Employers
You’re paying for pharmacy benefits every month. You assume the system is working. And somewhere between the manufacturer, the PBM, the rebate aggregator, and your plan, a significant portion of that money is disappearing into fees, spread pricing, and revenue streams you’ve never seen a disclosure for. Not into drugs. Not into care. Into a supply chain that was designed to be opaque.
Joey Dizenhouse, CEO of SlateRx and a credentialed actuary with 25 years in employee benefits, joined host, Vincent Catalano, of the CLEARly Beneficial Podcast to explain how we got here, what’s coming next, and what plan sponsors can actually do about it.
Pharmacy Went From a Line Item to a Crisis
When Joey started his career as an actuary at Towers Perrin in the early 2000s, pharmacy represented about 12–15% of total healthcare spend. It was a high cost, but manageable.
Today, depending on how you count it, pharmacy can represent 30–50% of the healthcare dollar and that’s before accounting for specialty drugs, gene therapies, and the next wave of GLP-1 treatments.
“The portion of spend attributable to pharmacy went from what might have been 12–15% of the healthcare dollar…, and here we are today, it’s 30% for some plans, even more. Depending on where you draw the line, you can get to 40 or 50 percent of spend.”
Vincent knows this firsthand. As a former broker, he watched pharmacy costs climb from roughly 10% of premium to 35–40% over the course of his career. “That’s mind-blowing,” he noted during the conversation, “to think that 35% to 40% of the medical premium for a month for an employee was directed toward pharmacy.”
For plan sponsors managing mid-market employers with 250 to 10,000 employees, this shift has happened faster than most HR and benefits teams have been able to adapt. And the fundamental dynamics driving it haven’t changed. They’ve just gotten more expensive.
The Five Levers Every Plan Sponsor Needs to Understand
Joey’s framework for managing pharmacy spend comes down to five distinct levers:
- Unit cost — How much does the drug actually cost?
- Utilization — How many drugs are being used?
- Mix — Which drugs are being used? The expensive ones or the less expensive alternatives?
- Volatility — The increasingly unpredictable risk of catastrophic spend from a single claimant.
- Engagement — How well is the program perceived and utilized by patients, prescribers, and administrators?
Most pharmacy conversations focus only on the first two. The plans doing it right are thinking about all five simultaneously.
“Those who get this thinking right tend to do very well relative to average performance,” Joey explains. “You look at each dynamic within the pharmacy program individually and then collectively.”
The challenge for mid-market employers is that thinking through all five levers requires a level of pharmacy sophistication most organizations simply don’t have in-house. That’s where the right advisory partner becomes critical, but more on that later.
The Volatility Problem Is Getting Worse
Perhaps the most underappreciated risk in pharmacy today is volatility, the possibility that a single member’s claim blows up an entire plan’s budget.
Joey shared a case from his recent experience that illustrates the stakes:
“I can tell you about an individual case that I ran across in the last six months where a single person was going to accumulate something like $15 million of pharmacy expenses in a single year.”
A $15 million pharmacy claim. From one person. In twelve months.
That case is extreme, but Joey notes that two, three, and five million dollar individual cases are “becoming increasingly common.” Even for a plan covering 5,000 employees, a $5 million surprise pharmacy claim is more than just material. It can be catastrophic.
The answer isn’t simply buying stop-loss insurance, though that helps. It’s building a pharmacy strategy sophisticated enough to identify and manage these risks before they hit. And as Joey points out, 92% of prescriptions may be generic, but that 92% might only represent 15% of the dollars. The remaining 8% of prescriptions can account for the majority of spend, with just three or four high-cost claimants driving 10% of total plan cost.
The GLP-1 Wave Is Only Getting Started
If you’ve heard about Ozempic, Wegovy, and Zepbound, you know GLP-1 medications have become one of the most discussed topics in healthcare. But Joey’s read on the situation is more specific and more urgent than most.
We are currently in what he calls generation two of GLP-1 therapies. A generation three product, Reditrutide, is already in the pipeline. It hits three receptor sites instead of two, making it more effective, better tolerated, and far more likely to be used long-term.
That last part matters enormously.
“Part of the reason GLPs haven’t exploded as much so far is because such a large percentage of those that take them have such GI or other issues that they can’t keep taking them. If everybody took them and kept taking them, your expenses would go through the roof.”
And the list of FDA-approved indications for these drugs keeps growing: diabetes, weight loss, major adverse cardiovascular events, fatty liver disease, obstructive sleep apnea, and potentially addiction and Alzheimer’s disease management. The volume of utilization today, Joey says, is “only a tiny fraction of what it can become.”
Vincent pressed on the nuance here because simply refusing to cover GLP-1s isn’t a strategy. For diabetes, these drugs create well-documented clinical value. The smarter question is whether you cover them for obesity, and under what conditions. Joey’s recommendation: pair coverage with clinical criteria and lifestyle intervention requirements. Several well-being companies are already building programs that require patients to engage with nutrition coaching and behavioral support in order to stay on GLP-1 therapy. That’s the model worth watching.
The question for plan sponsors isn’t whether to cover GLP-1s. It’s whether you have a coverage strategy at all, before utilization forces the issue.
Rebates: The Word That Hides Twenty Problems
One of the most important concepts in pharmacy that most plan sponsors don’t fully understand is the rebate system and how much money moves through it without ever reaching the plan.
Money starts with an agreement between a drug manufacturer and a rebate aggregator. From there, it flows through multiple layers: PBMs, group purchasing organizations, specialty pharmacies, each taking a portion before the plan sees any of it. And each transaction can be labeled with a different name.
“People use the term rebate colloquially, like rebates are money that gets paid. Yes, that’s true. But rebates can be called 20 different things. They’re not just called rebates. So you may get all the rebate money, but there may be 19 other kinds of money you’re not getting. And how do you figure that out? You ask the questions.”
This is the part of the pharmacy supply chain that most employers never see. By the time money reaches your plan, it has passed through three, four, five, sometimes eight sets of hands, each taking a cut that may never appear on any disclosure you’ve received. The plan sponsor sitting at the end of that chain has no visibility into what was generated at the top, or how much was kept along the way.
Asking for full compensation disclosure, not just rebates but every form of revenue generated by your pharmacy program, is one of the most important things a plan sponsor can do. And yet most never ask.
The PBM Alignment Problem
At the core of Joey’s argument is a simple question that most employers never ask: does your Pharmacy Benefit Manager make more money when you spend more money?
In traditional PBM contracts, the answer is often yes. The PBM is negotiating against the plan sponsor’s interests, not for them. Their incentives are built around drug spend volume, not drug spend reduction.
“When you sign a contract with a PBM, normally that is a zero sum game where their loss is your win and vice versa. So you’re negotiating against them. Ask yourself if you can find a partner that will negotiate for you, not against you, because they’re not compensated on the basis of what drugs get used or when or how.”
The same logic applies to benefits advisors. Joey described a scenario he heard from a TPA: an advisor had embedded a dollar-per-script charge into the plan so that no matter what prescriptions were being written, the broker got paid. “I’m sure that goes on all the time, every day,” he said.
Vincent was direct about the implication for employers: if your advisor makes more money when you spend more money, how can you expect them to be looking out for your best interests? The answer is you can’t. And with fiduciary responsibility for pharmacy benefit management becoming an increasingly serious legal issue, Vincent cited an $800 million settlement involving Horizon Blue Cross Blue Shield of New Jersey as just one example of what’s coming, the cost of not asking these questions is growing fast.
Prescriber Education: The Overlooked Lever
Here’s a question worth sitting with: when your doctor writes a prescription, do they know what it costs your health plan?
Almost certainly not. Doctors aren’t trained to think about formulary placement, plan-specific pricing, or the downstream cost implications of choosing one drug over a therapeutically equivalent alternative. Joey identifies this as one of the top issues in the industry and one of the most solvable.
“Prescribers want to get their patients the least expensive product that is efficacious. But they don’t necessarily know how much each drug costs. It’s not fair to them to be able to know which drugs are on which formularies and what costs what, where, when, and how.”
Joey’s methodology uses the clinical review process as an opportunity to coach prescribers toward cost-effective, clinically appropriate alternatives. The goal isn’t punitive. It’s getting to the right drug the first time, without a denial, without a redirect, without a week of delay.
As Vincent pointed out, this matters beyond cost. Pharmacy is the most used benefit in the entire healthcare spectrum. More people fill a prescription than have a surgery or hospital stay. If members are getting denied at the pharmacy counter for drugs their doctor prescribed, or if they’re finding out they can pay cash and get something cheaper than their copay, that’s not just a cost problem. It’s an engagement problem that undermines the perceived value of the entire benefits program.
When prescriber education works, everyone wins: the patient gets their medication faster, the prescriber avoids administrative friction, and the plan saves money without restricting care.
The Mid-Market Gap
Joey is particularly focused on what he calls the mid-market gap: organizations with 250 to 10,000 employees who have real pharmacy spend but lack the internal sophistication to manage it well.
Enterprise employers at 10,000 and above often have dedicated pharmacy expertise in-house. Small employers are frequently fully insured and have less at stake. But mid-market employers sit in a danger zone: large enough for pharmacy to matter enormously, not large enough to have the expertise to manage it.
“The problem is that there’s a lot more of those 250 to 10,000 size companies in America than the enterprise level companies. And they don’t have the knowledge they need in-house.”
Vincent added another layer to this from his own experience as a California-based broker. In a state where fully insured plans are the norm, the advisor community often lacks the depth in self-funding and pharmacy that their counterparts in other parts of the country have developed. As the veteran consultants retire, the next generation isn’t being trained the same way. The knowledge gap is widening at exactly the moment it needs to be closing.
This is where the right advisory partner makes the difference. Joey argues that effective pharmacy advisory requires three distinct competencies on the team: clinical depth from a qualified pharmacist, financial expertise to navigate supply chain economics and contract terms, and design orientation to build a program members actually engage with. Those three roles don’t have to be three different people, but it’s probably not one person either.
If your current firm can’t demonstrate all three, Joey’s advice is straightforward: raise your hand and ask for pharmacy resources to be added to your account. The threat of losing your business is usually enough to get someone on the phone. And if the firm genuinely doesn’t have those resources, that tells you something important about whether they can serve your needs.
What Plan Sponsors Should Do Right Now
- Ask the alignment question. Does your PBM make more money when you spend more? Does your broker? If the answer is yes, or if you don’t know, that’s your starting point.
- Demand full compensation disclosure. Not just rebates. Every form of revenue generated by your pharmacy program, itemized.
- Evaluate your advisor’s pharmacy depth. Clinical, financial, and design competencies. If your current firm can’t demonstrate all three, ask for more resources or start asking harder questions.
- Build a GLP-1 strategy now. Before utilization increases and before generation three products launch. A policy with clinical criteria and lifestyle program requirements is far better than a reactive benefit exclusion.
- Understand your volatility exposure. Do you have appropriate stop-loss coverage? Do you have visibility into your highest-cost claimants before they become catastrophic?
- Ask whether your PBM will accept fiduciary responsibility. Some will. Some won’t. Either way, the answer tells you something important about how they see their relationship with your plan.
- Invest in prescriber education. Tools that help physicians understand cost implications at the point of prescribing reduce denials, improve member experience, and save money.
- Treat pharmacy as a strategic priority, not a line item. When pharmacy is 30–50% of your healthcare dollar, it deserves the same attention you’d give any major business expense.
The Bottom Line
The pharmacy cost crisis isn’t new. The dynamics driving it, PBM conflicts, opaque rebate flows, misaligned incentives, lack of prescriber education, have been building for decades.
What’s new is the scale. Gene therapies that cost millions per patient. GLP-1s with expanding indications and improving tolerability. A mid-market employer base that doesn’t have the internal sophistication to manage any of it. And a legal environment that is increasingly holding plan sponsors accountable for what they don’t know.
Joey’s message is not fatalistic. The employers and plans that get this right, that think through all five levers, demand aligned partners, and invest in prescriber education, consistently outperform those that don’t.
The question is whether you know enough to know what questions to ask.
Because right now, the system is counting on you not knowing.
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About Joey Dizenhouse
Joey Dizenhouse is CEO of SlateRx and a credentialed actuary with over 25 years of experience in employee benefits and pharmacy. Having built his career at Towers Perrin and Willis Towers Watson, Joey led pharmacy coalition programs serving large plan sponsors before founding SlateRx to help self-insured employers navigate the increasingly complex pharmacy supply chain. He currently resides in Nashville, Tennessee.
About Vincent Catalano & CLEAR Healthcare Solutions
Vincent Catalano is the CEO of CLEAR Healthcare Solutions and host of The CLEARly Beneficial Podcast. With over 23 years of experience in the employee benefits and insurance brokerage industry, including time at Arthur J. Gallagher, Catalano founded CLEAR Healthcare Solutions to provide independent, unbiased healthcare benefits consulting. The CLEARly Beneficial Podcast features solution-oriented conversations with healthcare innovators, industry leaders, and benefits professionals. His unique position as an independent consultant allows him to have frank conversations about healthcare issues that corporate-employed professionals cannot address. New episodes release weekly on Tuesdays at 8:00 AM across all major platforms. Learn more at www.clearhcs.com.
Disclaimer: The information provided in this podcast is for educational and informational purposes only and should not be construed as legal, financial, or professional advice. Listeners should consult with qualified professionals regarding their specific situations.
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