What it Means to Optimize the Drug Formulary

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

Formularies are designed to influence drug product selection by encouraging patients and their prescribers to choose safe, medically appropriate, and cost-effective medications. 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.

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

How to Optimize the Formulary

Once a formulary is chosen, a formulary management strategy is necessary to ensure that drugs the employer and members are paying for have the highest clinical value for the lowest possible net cost. Optimizing the formulary involves taking additional steps to maximize the formulary’s value for the plan. This is done by evaluating 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.

The goal of formulary optimization is to remove drugs that…

  • Have equally effective or superior alternatives 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 (discounts/rebates) in your clients’ PBM contract.

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

Value of an Optimized Formulary

Optimized formularies counter drug makers’ tactics – price inflation, direct-to-consumer advertising, drug coupons, direct provider education, etc. – that increase pharmacy costs. Without a properly optimized 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. This type of wasteful spending could lead employers to resort to higher cost‐sharing requirements, resulting in a reduced benefit for their employees.

The benefits of an optimized 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 (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 formulary and the optimal formulary management strategies, it’s important to consider access and cost for both the plan and members, as well as how contractual terms related to rebates will align with those decisions. Take the time and do the analysis to evaluate your clients’ formulary options so that you are sure 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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