How to Optimize a PBM Formulary that Contains Expensive Drugs

Top 3 Things You’ll Learn

  1. Selecting the best formulary for employer-sponsored benefit plans
  2. How to lower pharmacy benefits costs using formulary strategies
  3. Best practice approach to managing the drug formulary for lowest net cost

This is part three of a series on drug formularies. Check out part 1 and part 2.

Drug formularies are a complex part of the pharmacy benefits management equation. PBMs frequently update their formularies by adding newly approved drugs, adding/removing existing drugs based on PBM-manufacturer contracts, and evaluating tier placement for included medications. Selecting the most appropriate formulary for each of your self-funded employer clients is an important part of ensuring their prescription drug program is set up for optimal clinical and economic outcomes.

How to Select the Right Formulary

As we discussed in part 1 of this series on drug formulary management, it’s important to understand what a drug formulary is and how a drug formulary works. There are separate review and approval processes that govern how prescription drugs get approved and added to the PBM formulary. The U.S. Food and Drug Administration (FDA) review process historically considers the clinical effectiveness of the medication, while formulary placement, pricing, and manufacturer rebates decisions are handled by the PBM after a drug is approved by the FDA.

In part 2 of this series, we explained how PBMs build their drug formularies (see the video). To recap, formularies are a list of preferred drugs, designed to influence which drug products get prescribed and utilized by patients and their prescribers. Various methods are used to drive members to choose the preferred medications – ideally those that are the safest, medically appropriate, and most cost-effective medication choice. An effective formulary meets the goals and needs of both the members who need the medications and the employers who are paying the bulk of the pharmacy costs.

Most PBMs offer multiple formulary options, each with its own pros and cons depending on your clients’ goals for cost-savings and member disruption. The more restrictive the formulary, the more restrictive the member access, but the better contractual terms (e.g., rebate guarantees, savings/cost avoidance of drugs not on formulary) for your clients, and vice versa. Before any decision is made, it is important to consider the plan’s current drug utilization mix and how that utilization aligns with the covered and excluded drugs on the selected formulary.

For more on formulary selection, check out our helpful formulary comparison chart.

How to Optimize the Formulary

Once a drug formulary is chosen, a formulary management solution is necessary to ensure that drugs the employer and members are paying for have the highest clinical value for the lowest possible net cost. This involves first reviewing the drug list to ensure that it covers only the most clinically- and cost-effective drugs and reduces exposure to less clinically meaningful and cost-prohibitive medications. Optimizing the formulary means taking additional steps to maximize the formulary’s value for the plan.

The goal of formulary optimization is to remove formulary drugs that…

  • Have equally effective or superior alternative medications available at a lower cost
  • Are expensive fixed-dosage combinations of drugs that could be purchased as individual agents or over-the-counter (OTC) for much less money
  • Are consistently used off-label to provide treatment for which there is little evidence of effectiveness

…without negatively impacting the guarantee language around the discounts and rebates in your clients’ PBM contract.

Removing a small number of formulary drugs medications from coverage puts the employer in greater control of their drug spend without compromising member access to essential medications.

Removing even a small number of medications from the PBM formulary puts employers in greater control of drug spend without compromising member access to essential medications.

Value of an Optimized Formulary

Optimized PBM formularies counter the pharmaceutical manufacturers’ tactics – price inflation, direct-to-consumer advertising, drug coupons, direct provider education, etc. – that tend to increase pharmacy costs. Without a properly optimized drug formulary, employers can expect to pay considerably more for unnecessary medications. For many of the employers we work with, this could amount to about 3-4% of their pharmacy budgets. (What does 3-4% look like for your clients?) Not addressing this type of wasteful Rx spending drives employers to other, less preferred methods to manage their plan’s drug trend, such as higher cost‐sharing requirements, which often result in a reduced benefit for their employees.

The benefits of an optimized drug formulary for plan sponsors include:

  • Potential for plan sponsors to save or avoid paying out millions of dollars for unnecessary medications
  • Improve or maintain cost‐sharing for members as part of a competitive benefit
  • Deliver improved clinical options for members

The benefits of an optimized formulary for members include:

  • Ensuring the best clinical options are available
  • Guidance toward lower out-of-pocket cost medications
  • Clinically- and cost-effective choices lead to improved health outcomes

Bottom Line

When helping your clients choose a drug formulary and the optimal formulary management solutions, it’s important to consider medication access and cost for both the plan and its members, as well as how contractual terms related to drug rebates align with those decisions. Take the time and do the analysis to review your clients’ formulary and implement changes to ensure they have an optimal formulary strategy that maintains the highest clinical quality while effectively lowering their prescription drug costs.

Check out our Definitive Guide to Optimizing Pharmacy Benefits to learn additional best practices to help your clients lower their drug costs with minimal member disruption.

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