How to achieve a drug formulary that reduces costs and maintains access to care

Since the start of the year and at the apex of the pandemic, nearly 600 drugs have seen price hikes, and more increases from major drug makers are expected soon. Given the continued cost increases, and with many employers looking to ensure affordable access to prescriptions for their members, it’s more important than ever for plan sponsors and benefits professionals to evaluate their formulary to ensure that it provides clinically sound, cost-effective alternatives that can reduce overall plan costs.

A formulary is a list of prescription drugs covered by plan sponsors. Formularies should provide the best value to plan sponsors and members, but they could include wasteful or low-value drugs, which drive up overall plan costs with prescriptions that have little to no clinical value. In fact, removing high-cost, low-value drugs from formularies could save plan sponsors between 3% and 24% on overall pharmacy spending.

Related: Vetting your contract: How to know what your PBM is really offering

For plan sponsors looking to make the most of their drug formulary, working with pharmacy benefit managers (PBMs) to identify the right drug mix that balances clinical effectiveness and costs will generate savings year after year, keeping drug usage and expenses low over time. Here are three steps that can help to evaluate, identify and establish a waste-free formulary plan design to reduce overall costs, while maintaining high-quality care for members:

Evaluate your current formulary and PBM contract

Formularies are continuously updated for a variety of reasons — such as when new products are approved and when a lower-cost alternative may become available — so understanding your current drug list and PBM contract are critical first steps to creating a waste-free formulary and ensuring your PBM contract meets the needs of your organization and its members.

There are two distinct types of formularies: rebate-focused and lowest-net-cost. While rebate-focused formularies attain higher rebates for plan sponsors, these types of formularies incentivize the PBMs to select higher-cost drugs that generate more revenue — causing wasteful drugs to be included on your formulary. As a result, this significantly drives up medication and plan costs. A lowest-net-cost formulary includes drugs that provide clinically sound, cost-effective alternatives using generics or less expensive brands, costing plan sponsors less overall. This type of formulary does not incentivize PBMs to promote high rebated, expensive drugs because the PBM isn’t keeping part of the rebate as revenue. The entire rebate is passed directly back to the plan sponsor.

When evaluating your current PBM contract, consider whether it establishes a transparent pass-through model and whether it allows the client to customize the formulary. A full pass-through PBM model eliminates incentives to include wasteful drugs on the formulary because its only source of revenue is an admin fee, creating an alignment of interest between the PBM and plan sponsor. Simplified contracts that offer both operational and financial transparency ensures the PBM will act in the plan sponsor’s best interest and a pass-through model grants full audit rights so plan sponsors can more effectively manage their pharmacy benefits.

Lastly, consider how much flexibility is needed to customize the formulary to ensure your member population receives clinically effective, yet affordable drug therapy solutions. While traditional PBMs may have a low admin fee, it may charge plan sponsors additional fees for additional services such as formulary customization, while pass-through PBMs will include formulary customization at no additional cost.

Identify wasteful drugs

Working with your PBM to identify drugs where less expensive alternatives are available is important to create a drug mix that balances clinical effectiveness and costs. After conducting a retrospective claims data analysis, your PBM can help you identify wasteful or low-value drugs that could be inflating your overall plan costs. For example, combination drugs, which combine two or more active ingredients into one, are often more expensive than what each of the ingredients would cost individually. Your PBM can help you review these drugs and provide a more cost-effective option for your formulary.

A pass-through PBMs’ pharmacy and therapeutics committee (P&T) will continuously review and revise the formulary, as needed, to replace higher-cost medications with lower-cost options that may have recently come to market. Plan sponsors looking to further maximize their formulary can work with their PBM to compare the cost difference against claims data to forecast future claims based on trends to project future all-in net costs on newly proposed drugs. In doing so, plan sponsors can proactively minimize overall costs, ensure affordable access to prescriptions and improve member health.

Establish a new formulary and plan design

After identifying wasteful or low-value drugs on your current formulary, work with your PBM partner to create a plan with a new lowest-net-cost formulary. Establishing a new formulary that eliminates unnecessary drug costs by providing evidence-based, cost-efficient alternatives will help plan sponsors achieve substantial rebates, without paying more, and reduce per member per month (PMPM) expenses.

Developing a pharmacy benefits plan design that moves formulary drugs into tiers that establish a cost-sharing structure can further maximize your prescription benefits plan by rewarding members for choosing lower-cost medications. For example, low-tier drugs, which typically include generics, are inexpensive. They have lower out-of-pocket costs for members, so generic drugs included in the formulary at a lower tier could have a lower copay or no copay to promote more generic drug utilization. Incorporating utilization management strategies—such as step therapy, where members try safe, less expensive medications before “stepping up” to another prescription that may be more expensive—into your plan design can also help limit expenses while improving care quality for members.

As plan sponsors navigate increasing drug prices and look for high-performance strategies to generate savings and maintain member satisfaction, one area that should not be overlooked is their drug formulary. Wasteful drugs may impose an avoidable financial burden on both plan sponsors and members. By working with PBMs to create a lowest-net-cost formulary, plan sponsors can prevent pharmacy benefit spending from being wasted on drugs that cost more but do not provide greater clinical value than less expensive brands or generics. As a result, plan sponsors benefit from significant long-term savings that help them achieve their goals

Brent Eberle is the senior vice president and chief pharmacy officer at Navitus Health Solutions. At Navitus, Brent oversees the Health Strategies Division, which is responsible for clinical and population health initiatives; drug utilization review programs, formulary and drug rebate management; and outcomes management initiatives. Brent is also General Manager of Lumicera Health Services, a wholly owned Navitus subsidiary and full-service national specialty pharmacy accredited by both URAC and ACHC.

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