Peeking Behind the Curtain: An Inside Look at Formulary Design

The prescription drug formulary is one of—if not the—most important factors in determining a plan sponsor’s total annual spend. The drugs that do or do not make it onto this list will shape the therapies patients receive, as well as the expense taken on by the health plan itself. This key lever, however, is usually controlled by pharmacy benefit managers, whose own financial incentives are often at odds with those of their clients.

Within the confines of the current prescription drug value chain, wherein drug manufacturers offer rebates in exchange for placement on drug formularies, PBMs can be incentivized to favor drugs that may not be the most affordable, or even the most effective. As a result, numerous problems and pitfalls present themselves. Unfortunately, it is the plan sponsors and patients who bear the brunt of the resulting negative impacts, usually in the form of higher costs, limited access to the most beneficial therapies, and, ultimately, poorer health outcomes.

It’s typically well understood that formulary design is heavily influenced by rebates offered by drug manufacturers. What’s not always as clear is the extent of the adverse impacts this has on both the plan sponsor and their members.

Lynn Nishida, WithMe’s VP of Clinical Product, hopes to shed some light on the shortcomings that exist within traditional formulary design, and also to amplify the improved solutions our organization is implementing in our own approach to this core PBM service.

How does traditional formulary design work?

All PBMs are required to employ an independent Pharmacy & Therapeutics Committee, composed of pharmacists, physicians, and other healthcare professionals. Technically, this group has the final say in decisions or changes made in regards to the formulary. However, it’s important for plan sponsors to understand that these committees are only required to meet once per quarter, usually just for a single day. In reality, the lion’s share of research and recommendations for what to include are still most heavily influenced by the PBM itself.

The fact that most PBMs are not obligated to divulge the details, considerations, or research that informs their recommendations often exacerbates concerns about their financial interests and independence in decision making.

Why should this approach to formulary design give plan sponsor’s pause?

Under the prevailing model, drug manufacturers and PBMs negotiate directly, with the former offering rebates in exchange for preferred placement on the plan formulary. While the P&T Committee does not take part in these negotiations, in cases where multiple clinically-equivalent therapies exist, the specific drug that ultimately earns this preferred placement can often be attributed to a particularly competitive rebate.

In this system, the financial incentives presented by rebates and spread pricing can impact the recommendations a PBM makes. For example, a more affordable drug may be passed over in favor of a more expensive drug with a higher rebate, or a brand name drug may be placed on the formulary when a lower-cost generic could be just as effective. The poster child cases are of course Duexis, Doxepin, Solydyn. And while these examples have been well documented, we continue to see these in employer’s claims data every day. This approach promotes millions of dollars in waste each year. And of course, it’s the employers and their members that pay the price.

This approach can also put patients in a precarious position. If the particular drug they require is not included in their plan’s formulary, obtaining it may require them to cover the entire cost of the drug out-of-pocket. For more expensive, brand name, or specialty drugs, a patient’s inability to afford these medications can have disastrous consequences.

What do you see as the most pressing issues with methods used in traditional formulary design?

From a high-level view, the biggest issue with the prevailing model is that it presents a one-size-fits-all solution to a complex problem that requires personalization on a member-by-member basis. Patients’ individual health concerns and prescription drug needs will never be aligned on a group level, yet the big box PBMs still approach formulary design from this perspective, allowing for little customization on the patient level. This approach squelches innovation, severely limits access, stifles patient outcomes, promotes waste, and ultimately drives higher costs for plan sponsors. While a customized approach could require greater investment up-front, there is little doubt that it would ultimately be more beneficial and cost effective.

How do these current procedures negatively impact payers and patients?

As mentioned above, the fact that a PBM’s own financial motivations can determine whether or not a particular drug makes it onto a plan’s formulary presents an obvious conflict of interest. As highlighted regularly in the past Patients who would benefit from taking a particular drug not included on the formulary will face significantly higher out-of-pocket costs, which, in some cases, can be prohibitively expensive.

Another issue with the traditional process is the timeliness of drug reviews. Currently, a PBM’s drug selection often relies most heavily on the FDA prescribing information, rather than on the most current available research. In fact, it can often take as long as 6-12 months for a new drug to make its way onto a plan’s formulary, regardless of how effective it has been proven to be. Again, this presents an unnecessary obstacle to access, which has the potential to negatively impact patient outcomes and drive up plan sponsors’ spend.

How is WithMe approaching formulary design differently?

In our approach to formulary design, WithMe is implementing multiple strategies that we believe will empower us to improve the patient experience while simultaneously lowering plan sponsor’s costs.

To begin, we have removed controversial practices, like rebates and spread pricing, that lead to the misalignment of incentives common among traditional PBMs. Instead, our business model is designed around a simple monthly PMPM admin fee, which is our single source of revenue. This ensures that our own motivations are always aligned with those of our clients and our clients’ patients, which, in turn, leads to better, patient-focused formulary decisions.

Another key difference in our strategy is our commitment to conducting timely and more comprehensive reviews of new medications. In creating new medication protocols within 30 days of their entrance into the market, we are able to take proactive steps to manage these medications early in their availability, at a pace that is much quicker than the industry standard. This removes artificial barriers of access for patients who could benefit from these innovative therapies.

Finally, we will employ a more sophisticated, ICER-like approach to research and analysis, looking at cost, efficacy, and quality of life to determine comparative effectiveness and establish which drugs we’d prioritize for specific members, based on their unique health profile and concerns.

Beginning from these initial improvements, our ultimate vision is to provide our plan sponsors with fully-personalized formularies, which will meaningfully improve their patients’ health and dramatically reduce their pharmaceutical spend. Stay tuned to this space; we’ll have more to share on that front in the coming months.