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Practical tips on how to approach formulary management.
Formulary management activities are an essential component for effectively managing medication utilization, according to experts.
A survey of hospital CEOs found that 57% are concerned about the high prices and insufficient reimbursement for medications. Separately, 51% of executives said innovative approaches to expense reduction was one of their top five priorities in 2019.
“As drug costs remain a fast-growing expense for hospitals, forward-thinking executives understand that effective formulary management has become table stakes in an effort to better manage drug expenses,” says Bonnie Lai, PhD, vice president, product management, Lumere, an organization comprised of clinicians, researchers, pharmacists, and strategic thought leaders focused on helping health systems eliminate unwarranted clinical variation and cut unnecessary costs. “The first step in advancing formulary management is to apply clinical evidence and analytics. This will ensure prescribers and pharmacists in charge of medication management are making decisions with both cost and outcomes in mind.”
Managed Healthcare Executive® (MHE®) talked to Lai; Onisis Stefas, PharmD, MBA, vice president and chief pharmacy officer, Northwell Health, New York State’s largest healthcare provider and private employer; and Russ Funk, PharmD, MHSA, chief executive officer, pharmacy services, Banner Health, one of the largest nonprofit healthcare systems in the country, headquartered in Phoenix, about approaches to formulary management, therapeutic areas to watch, key practical tactics that can be leveraged immediately to improve formulary management, and the role of data analytics in the formulary.
MHE®: How should healthcare executives be approaching formulary management?
Stefas: We approach formulary management by establishing a standardized system formulary that is adopted by all hospitals, ensuring high-value medications are on formulary, thus driving best practice and promoting better patient outcome. We have a centralized system P&T committee that ensures real-time review of newly marketed medications is performed, to determine the potential value the drug provides to the patient population we serve in our organization for formulary inclusion. We assess a medication’s value by evaluating upfront cost and comparing expected versus actual outcome. Furthermore, we examine potential for revenue generation and reduction in total cost of care. Lastly, we implement formulary restriction and guardrails to make certain that medications are utilized in the most appropriate site of care.
Funk: Organizations should strive to have a standardized formulary (including nonacute locations) within a health system. Formulary management is much more than what happens at a P&T committee meeting-it is both strategic and immensely granular at the same time. It is very resource intensive to do it well; organizations should ensure sufficient interdisciplinary resources are in place.
A strong physician leadership structure along with physician leadership support for formulary management activities is important for success. Formulary management activities should be highly integrated and well supported within the organization.
MHE®: What therapies should be on the radar of health executives?
Stefas: In the near future, we foresee innovative therapies including immunotherapies, biosimilars, and individualized medicine based on gene therapy becoming more prevalent in the marketplace. It is prudent that we ensure the right infrastructure is in place to support prescribing of these medications to patients that will truly benefit from these innovative therapies. In addition, it is essential that we have the appropriate process outlined to recoup the outlay of expense associated with these items.
Funk: The cost of medications will be an issue for the foreseeable future, especially in the outpatient setting. Safety, efficacy, and cost have traditionally been at the core of formulary decisions. While this remains true for high-cost outpatient medications, there are additional considerations, such as reimbursement, the optimal site of care, and the organizations level of risk for the patients served (e.g., shared risk). Close collaboration between P&T activities and business line leaders will serve organizations well.
There is a robust pipeline of biosimilars coming to market. While this provides optimism, the overall uptake for biosimilars has been relatively slow, and it remains to be seen how this will affect the rising costs of medications.
Drug shortages will continue to be a challenge across the nation. They are disruptive to patient care, lead to increased drug spend, and can distract from other formulary management activities.
Lai: As hospital revenue from outpatient services continues to increase, pharmacists are rapidly expanding their presence in this setting. Pharmacists are critical to affecting patients’ total cost of care, particularly under value-based payment models. Medications are an investment in patients’ care and well-being. It is of utmost importance that pharmacists and other clinicians have the information that they need to make the best decisions in a complex outpatient landscape: reimbursement and patient out-of-pocket cost, patient risk based on comorbidities, mitigating drug side effects, effectiveness of medication for that patient’s clinical outcomes, and medication adherence.
MHE®: What are some practical tactics organizations are doing to improve formulary management?
Stefas: First, we build a dedicated interdisciplinary team, which includes pharmacy, physicians, IT [information technology], quality, revenue cycle management, and nursing leadership to focus on formulary management with principles outlined above to make comprehensive and collaborative decisions associated with formulary selection. Secondly, we continually monitor adherence to formulary decisions and initiatives adopted on an organizational wide level. Lastly, we partner with IT to create clinical decision support processes to assist and drive prescribers to select appropriate therapy that is supported by evidence-based medicine.
Funk: Ensure formulary management activities are closely aligned with the EHR [electronic health record]. High-value formulary actions should be integrated into the EHR when possible.
Provide clear and actionable data to leaders responsible for implementing formulary actions (e.g., directors of pharmacy, front-line pharmacy managers).
Closely monitor newly approved drugs and dosage forms-be prepared to act quickly when there is an opportunity that aligns with your organizational goals (e.g., cost savings opportunity, new lower cost agent)
Follow a consistent evidence-based decision-making process-resist the temptation to bend for provider preference.
MHE®: What are the main challenges in formulary management and how can they be addressed? What are the biggest cost challenges?
Stefas: The main challenge in formulary management is achieving consensus across the health system to meet the needs of our diverse patient populations and settings. We address this by establishing a robust system-standard formulary but permitting individual sites the opportunity to be more restrictive at the local level as well as allowing the sites to request formulary additions at the system level. In addition, we identify a physician champion to build consensus amongst various subject matter experts in various settings to gain buy-in for formulary selection via evidence-based practices.
Another challenge is maintaining continuity of care as patients’ transition from the acute care setting to the community setting. As a result, a robust medication reconciliation process must be in place.
The biggest cost challenge is utilization of high-cost medications outside of the intended purposes and indications as set forth by organizational committees and leaders. This can be best addressed by building guardrails and infrastructure to ensure appropriate use, and leveraging pharmacy assets (i.e., advance practice clinical pharmacists) and analytics to monitor the use.
Funk: Many of the formulary decisions for high-cost medications are tied to assumptions about reimbursement, but line of sight into actual reimbursement is limited. Transparent reimbursement information, along with a feedback mechanism to the formulary review process, will add significant value to formulary management activities.
Many of the randomized controlled trials used to bring a medication to market don’t reflect real-world practice patterns or they study a nuanced patient population that doesn’t reflect where the medication will primarily be used. This complicates the formulary review process and can make the decision making ambiguous.
Lai: There are three main barriers to successful formulary management:
MHE®: What is the role of data analytics in formulary management?
Stefas: There is an opportunity for pharmacy to impact decisions through data and analytics, moving from anecdotal to a more data-driven approach to identify, prioritize, and realize cost-containment efforts. We utilize retrospective and real-time data to review previously approved medications, to compare perceived versus actual value, and hold system P&T accountable for decisions made based on clinical evidence. We also leverage analytics to build IT infrastructure, such as clinical decision support and order set development, ensuring compliance with system approved guidelines to meet expected outcomes. Finally, we can use analytics to assess the financial impact of formulary decision in the organization through procurement and reimbursement review.
Funk: There are many use cases for data analytics in formulary management-measuring the impact of formulary decisions, forecasting the impact of high-cost formulary additions, identifying and triaging cost savings opportunities, monitoring compliance with the formulary, and managing medication shortages. Analytics can and should be incorporated into almost every aspect of formulary management.
Lai: Organizations need to use analytics that combine spend and utilization data with an understanding of the clinical context to support data-driven, evidence-based formulary management. The most progressive organizations use analytics to dynamically understand “total cost of care”-drug costs are weighed against clinical (e.g., patient outcomes), operational (e.g., turnaround times), and financial outcomes (e.g., reimbursement) along clinical pathways and across the continuum of care. These analytics are critical for ensuring that the health system is realizing the intended value of a medication within their own patients. An additional benefit to this approach is it provides line of sight into supply shortages, enabling hospitals to make therapeutic interchanges faster and roll the decision out across an entire system before a shortage can be felt by providers and patients.
MHE®: How do you manage the formulary across multiple stakeholders?
Stefas: We address formulary decisions through a collaborative approach, engaging subject matter experts and service line leads. In addition, we identify a physician champion to help identify these stakeholders and foster consensus amongst the group. We also identify centers of excellence where innovative therapies can be safely and effectively administered to our patients.
Funk: We have a single system formulary that encompasses all hospitals, clinics, and urgent care locations. Formulary management activities are centrally coordinated and overseen by a single system P&T committee. Business leaders are largely responsible for implementing P&T actions, so close collaboration between P&T, business leaders, and subject matter experts is important to success.
MHE®: How do you go about ensuring that you consistently engage the relevant stakeholders representing different sites, service lines, and specialties?
Funk: There are multiple connections, both formal and informal, between formulary management activities and relevant stakeholders. All formulary monographs are reviewed by one or more of our clinical pharmacy workgroups prior to going to the system P&T committee . During this review, which includes pharmacy representation from all relevant facilities, pharmacists obtain informal feedback from their providers. We do rely heavily on facility clinical pharmacy engagement to reach out to providers for input. If we need further review before going to P&T, we will give the facilities additional time to seek feedback.
The system P&T has several physicians representing various specialties. If further specialty review/feedback is needed after initial presentation to the system P&Tcommittee, the formulary monograph will be presented at other System Clinical Committee meetings (e.g., infectious disease, cardiology, critical care).