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Formulary managers take aim at big-ticket brands


With total healthcare costs in the United States approaching $3 trillion, and costs for a wide range of drugs approaching nearly 15% of healthcare costs overall, or $450 billion, the industry is shifting toward a new emphasis focused on drug formularies.


Dr FriendWith total healthcare costs in the United States approaching $3 trillion, and costs for a wide range of drugs approaching nearly 15% of healthcare costs overall, or $450 billion, the industry is shifting toward a new emphasis focused on drug formularies.

Through a combination of industry consolidations and medical advancements, senior level executives and hospital administrators are making more decisions about which drugs are included on the formulary. While synthetic biology, genomics, and advanced chemistry discoveries enable the development for a new class of drug therapies, the research is extremely expensive. Traditionally, these costs were passed along to the healthcare system in the form of continually higher prices for novel drug therapies.

While this generous reimbursement environment acted as a stimulant for continued scientific innovation, the redistribution of decision-making responsibility makes it increasingly difficult to determine whether these contemporary therapeutic modalities actually result in better health for patients and/or greater value for purchasers.

PilchAs a result, the pharmaceutical world is developing a new method of analysis to determine the true value drug therapies bring in the overall context of delivering clinical care. The foreseen consequence is that the management of drug formularies will become a much more complex and sophisticated endeavor.

A recent decision by Express Scripts, a drug benefits manager, to directly compare hepatitis C treatments from Gilead Sciences against AbbVie’s new drug, illustrates a public example of this trend. “We will identify which drugs can be paired against each other and make some really tough formulary decisions,” said an Express Scripts industry spokesman. In addition, the company excluded Glaxo's Advair and Breo lung drugs from its reimbursement list in favor of cheaper alternatives.

This trend will only continue to accelerate and gain increasing awareness. Products will be compared for convenience, clinical outcomes and price. Historically, a new product had the advantage of coming on the market and being viewed as 'the latest and greatest;' however, this will no longer be the case. This transformation represents a huge shift in research and development priorities and considerations. In fact, new medications may be shut out in favor of lower cost and more proven traditional medications. With an increase in post-market surveillance by FDA, which looks for undetected side effects in new medications in clinical trials with relatively small sample sizes, a bias toward older and or less expensive medications may develop.

The historically "taken for granted" wide-range formulary choice is about to become far narrower. The process by which drugs are either allowed or prevented from becoming on formulary is only in the beginning stages.  

The impact on physicians, patients and payers will be profound. Physicians may find their clinical options are limited, and their ability to prescribe medicines will be limited. Given that bioscience is on the verge of creating personalized medicines, the tension between the desire to provide the most advanced therapeutics against the cost will intensify. Learning how to manage these conflicts will become a core competency for physicians and formulary managers alike.


For patients, this new world promises to create additional complexity. Patients who are used to obtaining the most advanced or convenient medications, regardless of cost, may find that their prescriptions are unavailable or that they will have to pay an increasing amount out of their own pockets. In addition, it may be particularly difficult for patients who are used to a certain level of convenience or side effects of medications to adjust.

For the formulary managers and medication reimbursement entities, new protocols will need to be developed. It will be crucial to manage the tensions in the system on behalf of the physicians, patients and payers. Appeals processes that are seen as fair and equitable must be developed. New ideas regarding the layering of drug benefits, copayments and deductibles will need to be created. Consumers must see attractive health plans that ensure that patients will receive better health, improved healthcare, and more value from their drug therapies. With this new model, stakeholders must ask some questions.


Questions for formulary managers:

·  How will we develop the criteria to determine which medications are on formulary?

·  What is the process to handle appeals by either physicians or patients?

·  How will we redesign the drug benefit to provide for layering, copays and deductibles, which provide increased levels of choice in return for additional costs paid for by consumers?

·  While managing all the advances in bioscience, how do we stay competitive in the marketplace?


Questions for physicians:

· What drugs are available for me to prescribe for particular illness?

· How will my patient’s financial situation or insurance coverage impact my ability to prescribe medication?

· What is the appeal process?

· How are clinical outcomes and overall value determined?


Questions for patients:

·  How much freedom of choice in drug formulary does my new health plan offer me and my doctor?

·  What do I do if I feel I need a medication that the drug formulary does not offer?

·  What is the true cost of medications that I need if I have to pay out of pocket?

· How do I know I'm getting the most advanced and appropriate care available?

The impact on physicians, patients and payers will be profound. However, this transformation will force the formulary industry to address building concerns, which will hopefully result in better coordination of care and the realignment of communication along the supply chain to promote better partnering and lower costs.

David Friend, MD, MBA, and Patrick Pilch, MBA, CPA, are managing directors, BDO Consulting Healthcare Practice.

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