Healthcare Cost Benchmarking: How Plan Sponsors Can Compare Performance
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A healthcare report can tell you how much your plan spent and how it compares with other plans. But if you can’t explain what’s driving those costs, how useful is the comparison? Understanding the factors behind spending helps plan sponsors identify where costs may be managed more effectively.
Employer-sponsored family coverage reached nearly $27,000 in 2025, with premiums rising 6% from the year before, according to KFF's Employer Health Benefits Survey. When costs keep moving in the wrong direction, knowing why is just as important as knowing where spending stands. Medical and pharmacy benefits are often reviewed separately, which can make those drivers even harder to see.
Healthcare cost benchmarking can give employers a better way to track performance by looking beyond individual categories and toward total cost of care.
What Are the Hidden Costs of Fragmented Health Benefits?
For many plan sponsors, getting a read on healthcare spending means pulling information from more than one place. Medical claims may live in one system while pharmacy data sits somewhere else, leaving sponsors to piece together what they need to measure performance. Medical and pharmacy benefits may be managed separately, but the costs they generate don’t always stay in their respective lanes.
Fragmentation can make it harder to evaluate:
- Where spending is moving: Separate reporting can obscure changes that become more apparent when medical and pharmacy claims are viewed together.
- What is driving the change: A higher spend figure doesn’t necessarily tell a sponsor whether utilization, drug costs, or another factor is responsible.
- What the plan is really paying: Spread pricing, rebate arrangements, and other pharmacy contract structures can make it difficult to compare prescription spending against a transparent benchmark.
- What information is missing: Contract provisions may limit sponsors’ ability to access or export claims information about their own populations.
By the time those pieces are reconciled, a sponsor may be looking backward instead of figuring out where to focus next.
Why Does Benefits Data Get Siloed?
Benefits data is often siloed because different vendors manage different parts of a health plan using systems with limited ability to exchange information. Contract terms can further restrict how sponsors access or export the information those systems contain.
For healthcare cost benchmarking, access to that information is critical. Sponsors need to be able to bring the relevant data together before they can make a sound comparison or investigate what’s driving a difference in spending.
Why Does Traditional Healthcare Cost Benchmarking Fall Short?
Traditional healthcare cost benchmarking often compares medical and pharmacy spending independently against broad industry benchmarks. The comparison can provide a useful reference point, but it doesn’t show how different parts of a benefits program influence one another.
As an example, consider a member with diabetes. A medical report may show the diagnosis and related medical utilization, while a pharmacy report shows prescription spending. Neither benchmark viewed alone explains how treatment decisions and medication use affect total cost.
The same issue can play out at the plan level. Rising pharmacy spending may appear to point to drug pricing as the primary driver, but claims-level analysis can reveal whether changes in prescribing patterns, utilization, refill patterns, or clinical decisions are contributing to the increase.
A rebate-focused approach can show plan sponsors how much money is coming back, but rebates alone don’t explain what’s driving pharmacy spend. Drug mix and clinical decisions also influence future costs, making them important factors to monitor alongside rebates.
Broad industry benchmarks have another limitation—they don’t account for the characteristics of the individual population. A useful comparison should account for factors such as:
- Demographics: Age and other population characteristics can influence expected healthcare utilization.
- Plan design: deductibles, copays, networks, and other design choices can affect how members use their benefits.
- Geography: Regional differences in provider availability and healthcare prices can affect spending.
- Workforce composition: The nature of a workforce can influence utilization and benefit needs.
- Clinical needs: A population with a higher prevalence of certain conditions may have very different expected costs from an industry average.
Comparing a plan with a generic industry average without accounting for those differences can make a significant variance look insignificant or make normal variation look like a problem.
Traditional Benchmarking vs. Integrated Benchmarking
Integrated healthcare cost benchmarking combines healthcare spending with the information needed to uncover what’s driving spending. Instead of treating each benefit category as its own benchmark, it gives plan sponsors a broader view of performance and a way to investigate changes at a more detailed level. The difference becomes clearer when you compare what each approach can tell you.
A benchmark still has an important role. It provides a reference point for determining whether spending is moving differently from comparable plans or from a plan’s own historical performance. Integrated healthcare cost benchmarking takes the next step by giving sponsors more information to investigate what’s behind the difference.
What Does It Take to Get to the True Cost of Care?
Total cost of care accounts for a health plan’s medical claims, pharmacy claims, administrative fees, rebates, and relevant point-solution costs, measured on a consistent per-member basis. Getting that number starts with defining which expenses belong in the calculation and applying the same approach each time performance is measured.
Without a reliable measure, a lower Per Member Per Month (PMPM) or PEPM may reflect differences in what was included rather than a real change in healthcare spending.
The calculation also needs to be transparent enough to show where the number came from, which gives benefits teams a stronger baseline for comparing performance and investigating changes in cost.
What Is Included in Total Cost of Care?
Total cost of care goes beyond the claims that are easiest to see in a standard healthcare spending report. The calculation should account for expenses that contribute to what the plan pays, along with reductions in spending that affect the net cost.
Total cost of care can include:
- Medical claims
- Pharmacy claims
- Administrative fees
- Rebates and discounts
- Point-solution costs
- Other fees that affect the plan’s net cost
A sponsor can’t get a solid measure of total spending by comparing one vendor’s medical PMPM with another vendor’s pharmacy numbers unless the calculations line up.
How Do You Calculate Total Cost of Care?
Calculating total cost of care starts with putting the relevant expenses into the same measure. PMPM or Per Employee Per Month (PEPM) gives the plan a standardized way to measure spending, but the numbers need to include the same types of cost each time.
A straightforward calculation is:
Medical claims + pharmacy claims + administrative fees + other relevant costs adjusted for rebates and discounts = total plan cost
Divide total spending by covered members or employees to calculate PMPM or PEPM. Using the same approach over time creates a cleaner basis for comparing performance against external benchmarks.
External pricing benchmarks can provide another point of reference, particularly when evaluating pharmacy costs. The National Average Drug Acquisition Cost, or NADAC, provides a published reference point for pharmacy acquisition costs. A verifiable benchmark can help plans compare pricing against an external standard rather than relying solely on a proprietary index.
Access to the information behind the calculation is just as important. Benefits teams should be able to access claims and other relevant information without unnecessary licensing restrictions or limits on exporting the data.
Which KPIs Should Plan Sponsors Track?
Cost is only one measure of plan performance. A stronger benchmarking approach looks at the measures that help explain why spending is changing. The most useful KPIs fall into five areas.
A rising pharmacy PMPM might indicate a pricing issue, but it could also reflect higher utilization, a shift toward specialty therapies, changes in drug mix, or a clinical strategy producing better outcomes. No single metric can explain every change in plan performance. Looking at these measures alongside cost helps benefits teams pinpoint which factors may be contributing to the increase.
How Does Connecting Medical and Pharmacy Data Change the Picture?
Connecting medical and pharmacy data gives teams more insight into what's moving healthcare spending. A change in prescription use can show up in medical costs later, while a treatment or site-of-care decision can shift spending between categories. Looking at each category separately can make those relationships easy to miss, but bringing the information together makes it easier to see where a change is happening and what else may be moving with it.
Unified Claims Processing can help plan sponsors evaluate medical and pharmacy spending together in the same view, making it easier to determine how spending across benefits contributes to overall plan performance.
What Can Real-World Scenarios Teach Sponsors About Benchmarking?
A sponsor evaluating its PBM largely on a rebate guarantee can look favorable up to the point of examining what’s happening at the claims level. If drug mix is shifting toward higher-cost therapies or members are filling prescriptions more frequently, the rebate figure alone may not tell benefits leaders if pharmacy spending is improving. Looking at utilization and claims-level spending alongside pricing can show what's contributing to the cost trend.
Rice University’s pharmacy benefit changes offer a useful example of how those decisions can affect overall drug spending. After changing their pharmacy benefit model and choosing to cover GLP-1 medications for weight loss, the university still reduced total drug costs by 5%.
Pharmacy performance can change even when a plan takes on additional drug costs, which makes formulary strategy and clinical protocols important measures alongside pricing.
The same principle applies beyond cost. Integrated platform case data shows a 98 Net Promoter Score (NPS) alongside 100% first-call resolution. Both measures can reveal improvements in the member experience that wouldn’t appear in a PMPM or PEPM benchmark.
What Are Best Practices for Benchmarking Benefits Performance?
Before comparing your plan with an outside benchmark, start with your own numbers. Establish your PMPM or PEPM trend over time, then look at whether you have the information needed to explain changes in spending. From there, a few practical steps can help identify where your current approach may be falling short.
- Assess your data access. Make sure you can access claims-level information, export it without additional licensing fees, and get the detail needed to analyze pharmacy costs.
- Ask better vendor questions. Ask about NDC-level rebate detail, claims exports, pricing benchmarks, and whether medical and pharmacy performance can be tracked together. Understand how vendor incentives may change as drug spending increases.
- Review performance throughout the year. Quarterly KPI reviews can surface changes before renewal. Compare performance with relevant peer organizations rather than relying on a generic industry average.
- Build better RFP criteria. Evaluate data rights, contract structure, clinical program quality, and overall cost alongside rebate size.
With the right benchmarks in place, benefits teams can track performance throughout the year, spot changes as they emerge, and dig into what may be driving them.
A Better Way to Benchmark Healthcare Costs
Better benchmarking starts with better visibility. With medical and pharmacy administration together on a single platform, benefits teams can see total cost of care in one place.
Frequently Asked Questions About Healthcare Cost Benchmarking
What Is PMPM?
PMPM, or per member per month, measures healthcare spending based on the number of covered members in a plan each month. It provides a standardized way to compare costs over time or against other plans.
What Is PEPM?
PEPM, or per employee per month, measures healthcare spending based on the number of covered employees each month. It can help plan teams validate changes in spending without being affected by changes in total membership.
How Is Total Cost of Care Calculated?
Total cost of care accounts for medical claims, pharmacy claims, administrative fees, rebates, and relevant point-solution costs. The total is measured on a standardized per-member or per-employee basis so performance can be compared over time.
What KPIs Matter Most for Healthcare Cost Benchmarking?
Cost is only one part of effective benchmarking. Benefits teams should also assess utilization, operational performance, member experience, and clinical or quality measures to identify what may be driving changes in spending.
Why Should Medical and Pharmacy Costs Be Benchmarked Together?
Medical and pharmacy spending can influence each other, so evaluating them separately can leave important cost drivers out of the analysis. Bringing the information together gives benefits teams a more complete view of total cost of care and makes it easier to investigate changes in performance.
What Is the Best Way to Benchmark Healthcare Costs?
The best way to benchmark healthcare costs is to establish an internal PMPM or PEPM baseline, compare performance against relevant peers, and evaluate cost alongside utilization and other performance measures using transparent benefits data.
Strong benchmarking also depends on having enough access to your own benefits information to explain why costs are moving. With that visibility, benefits teams can track performance throughout the year, spot changes as they emerge, and dig into what may be driving them.
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