The future of formularies

By Mari Edlin

The concept of a drug formulary developed alongside the emergence of managed care in the 1970s as a means of describing which drugs are covered by health plans and their costs to members. But as specialty drugs consume more and more of total healthcare costs, today’s traditional three-tier formulary might become a thing of the past. 

Specialty drugs are expected to account for 50% of all drug costs by 2018, according to a study by Prime Therapeutics, a pharmacy benefits manager (PBM) based in St. Paul, Minnesota.

Bob Taketomo, president of Ventegra, a Pharmacy Care Management (“PCM, the next generation PBM”) firm in Glendale, California, says that formularies will hold more relevance and impact as the number of older adults and insured individuals through the Affordable Care Act increases. Federal and state governments will exert more influence due to the growth in numbers of Medicare and Medicaid members, and payers will continue to consolidate as margins are squeezed. 

Formularies will reflect the perspective and interests of each payer and their level of sophistication, from integrated health systems such as Kaiser Permanente, to commercial entities that might turn to a PBM for pharmacy services, Taketomo says. He is concerned, however, that the societal perspective is often missing in formulary planning and, instead, financial considerations are driving decisions more frequently.

“I think vertically integrated health systems have a different formulary focus than, for example, PBMs that are simply administering a pharmacy benefit for an at-risk entity,” he says.

Taketomo notes that large health plans will have a variety of formularies depending on the patient population-Medicare, Medicaid and commercial-and needs such as oncology or specialty formularies. He says the fragmentation is viable if it is consistent with a business model, but not advisable from a societal perspective because “continued fragmentation of the healthcare delivery system only drives more administrative inefficiency and costs.” On the other hand, it may also create new revenue streams, he says.

Clinical decision support

Ventegra uses a pharmacy care management approach that realigns incentives to ensure appropriate prescription drug use. 

“This realignment creates a more evidence-based, pharmacoeconomic formulary process in which clinicians make formulary decisions based on clinical and financial metrics,” Taketomo says.

Ventegra’s strategy relies on an integrated process when targeting specialty drugs, one that ensures appropriate use of these very expensive agents in the context of total care and treatments available for a patient. 

“This approach will provide the most effective means of managing these agents from a societal perspective,” he says.

John Mackowiak, vice president, pharmacy and education for the Academy of Managed Care Pharmacy, also anticipates a larger role for formularies, one adopting more clinical decision support. 

“Logarithms can be built into electronic health records [EHRs] so that when a doctor is making a diagnosis based on specific symptoms, the clinical support systems would recommend treatments that are most appropriate,” he says. 

“The EHR will drive use of certain drugs, something that prior authorization currently does.However, when prior authorization is used, physicians often have to jump through hoops to gain approval to use a specific drug for a patient,” Mackowiak says.

Increasing transparency for consumers is important so they will know which drugs are available, he says.

David Calabrese, RPh, MHP, vice president and chief pharmacy officer, Catamaran, a PBM headquartered in Schaumburg,
Illinois, and MHEeditorial advisor, foresees pharmacy benefits revolving around patient engagement with copayments driven by adherence to both drug and non-pharmacy treatments, such as foot and eye exams for those with diabetes; utilization; and compliance, not by whether a patient uses a generic or branded product. 

This incentive would be unlike the concept of value-based insurance design, in which patients make a smaller copayment for a drug based on having a particular chronic disease, he says. However, the concept of patient engagement might be more difficult in the specialty marketplace.

Balancing access and utilization

It’s important to balance access to drugs with appropriate utilization, Taketomo says. He believes that a five-tier formulary might address the problem and outlines the composition of that formulary: first tier, generics; second tier, preferred brands; third tier, non-preferred brands; fourth tier, preferred specialty drugs; and fifth tier, non-preferred specialty drugs. 

Mackowiak agrees that five tiers will become more readily accepted due to the increase in specialty drugs and their move from the medical to the pharmacy benefit. He states that a fourth tier will require patient sharing of 10% to 20% and 40% to 50% on the fifth tier if patients want to avoid high premiums. 

“Tier five is extremely costly but may save money in the long run,” Mackowiak says. “For example, the new hepatitis C drugs [sofosbuvir and simeprevir] may prevent a costly liver transplant; on the other hand, many will live with dormant hep C and never need the new medications. How do we find out who needs these drugs and provide them in the nick of time to offset other expenses?”

Calabrese says that even seven tiers might not be out of the question in the near future-especially as specialty drugs exert even more pressure on pharmacy costs. 

Calabrese notes that many of Catamaran’s clients are showing interest in more aggressive formulary design due to the increased impact of specialty drugs. Catamaran, he says, does not mandate a list of exclusions-specialty drugs are never excluded-but provides an option to study those drugs and analyze whether they might be appropriate for a specific person.

Along with increased adoption of five-tiered formularies, Taketomo recommends adopting strategies to keep drugs affordable, while ensuring that patients can access what they need-a move toward more deductibles, out-of-pocket maximums and flat copayments, encouraging some “skin in the game” by consumers, and away from coinsurance, except for non-preferred specialty drugs.

Like Taketomo, Calabrese expects there will be additional emphasis on copayments, along with stronger management of deductibles and coinsurance.  

“Formulary is part of a multidisciplinary strategy for controlling drug costs, while making them accessible,” Calabrese says. “We manage drugs from an overall care management perspective and if consumers receive what they need, take them correctly and receive appropriate follow-up, medications can deliver value,” Calabrese says. 

“Carve outs”

When health plans strategized about carving out a pharmacy benefit, it usually meant farming out services to a third party, such as a PBM. Today, with the cost of specialty drugs on everyone’s mind, managed care organizations are defining a carve-out somewhat differently. 

Taketomo says payers may elect to “carve out” specialty drugs from coverage and access-basically using a rider-but notes that this design would not be in the best interest of patients, and would create another benefit alongside the pharmacy and medical benefits, adding even more confusion. 

Calabrese expects that an employer who contracts with a PBM might develop a separate rider for specialty drugs, but says it has not yet taken hold.

As for closed versus open formularies, both Taketomo and Calabrese say the trend is more toward closed. Taketomo sees that change as an outcome of narrow networks, while Calabrese anticipates that a closed formulary will have a significant impact on specialty drugs and help maintain a “value” formulary.  

Mari Edlin is a freelance writer based in Sonoma, Calif.