Drug formularies are critical to combat the estimated $16 billion wasted each year on low value drugs that do not improve health outcomes.
The cost of prescription drugs is a challenge to plan sponsors and patients alike. Evernorth data shows that in 2021, the annual cost of covering a patient’s non-specialty drugs was $492, while plan sponsors saw an average annual cost of $38,000 to cover a specialty patient’s drugs.
And drug costs continue to climb. Researchers with the Office of Health Policy, part of the U.S. Department of Health and Human Services, tracked numerous increases that eclipsed the inflation rate. From July 2021 to July 2022, researchers recorded 1,216 products with price increases averaging 31.6% – nearly four times higher than the 8.5% overall inflation rate during those 12 months. Some drugs increased in price by more than $20,000, researchers found – a jump of more than 500%. An estimated $169 billion is spent each year on “medication pricing failures,” or medications that are priced higher than the value they deliver in terms of preventing death and illness.
In addition to price hikes of existing drugs, new products can carry high price tags. Some new drugs come to market with a flurry of publicity, while others are released more quietly. In 2022 alone, the Food and Drug Administration (FDA) approved nearly 40 new and innovative treatments for conditions ranging from multiple sclerosis to melanoma.
Formularies, also known as drug lists, include clinically sound and cost-effective medications that plan sponsors offer as part of their pharmacy benefits. Below we look at what a formulary is, the value they bring to plan sponsors and patients, as well as how to select a well-designed formulary that fit the needs of your workforce.
What Is a Formulary?
Based on their plan’s unique needs, plan sponsors can select a formulary that is most appropriate for their members or use existing formularies as the foundation for a custom formulary.
“A formulary is a list of covered medications,” said Andy Behm, PharmD, vice president, office of clinical evaluation and policy at Express Scripts, the pharmacy benefits management arm of Evernorth. “Formularies are a crucial strategy for keeping prescription drugs affordable, but only if they preserve access to the medications patients need to stay healthy.”
Without a well-managed formulary, plan sponsors will pay significantly more for medications, which can result in higher cost-sharing for patients.
Formularies are critical to combat the estimated $16 billion wasted each year on low value drugs that do not improve health outcomes. In 2014, Express Scripts began excluding higher-cost drugs with clinically effective alternatives from the National Preferred Formulary (NPF). These exclusions allowed Express Scripts to leverage competition between pharmaceutical manufacturers to drive lower costs, and as a result, the NPF has provided cumulative savings of approximately $29.4 billion to Express Scripts clients.
How We Build Well-Designed Drug Formularies
Express Scripts bases its formulary development process on three principles:
- Clinical appropriateness of the drug – not cost – is always the foremost consideration
- The prescribing physician always makes the final decision regarding a patient’s drug therapy
- Independent clinicians evaluate each medication’s safety and effectiveness
Express Scripts updates its formularies regularly to reflect new drugs that have come to market and other factors. Each change and addition follows a four-step process that involves the work of three committees, each with a unique membership:
STEP ONE: The Therapeutic Assessment Committee (TAC) is composed of Express Scripts clinical pharmacists and physicians. During the first step in the process, this committee reviews medications that are newly approved by the FDA and provides formulary recommendations based on the latest medical literature and published data from clinical trials.
STEP TWO: The National Pharmacy and Therapeutics (P&T) Committee reviews the TAC’s recommendations during the second step in the process. This committee is a group of 14 independent, actively practicing physicians representing a broad range of specialties and two pharmacists; none of the 16 are employed by Express Scripts. These experts review medications purely from a clinical perspective. The committee does not consider cost, and it doesn’t have access to financial information. In addition to drugs evaluated by the TAC, the P&T Committee also considers new FDA-approved indications for existing drugs, new clinical line extensions, and new trends that may impact previous formulary placement decisions. A summary of the committee’s most recent deliberations is available online.
The P&T Committee has the option of assigning a drug one of four designations:
- Include, for clinically-effective drugs that are expected to treat a relatively large number of patients. Drugs with this designation are recommended for inclusion on all formularies.
- Access, for clinically valuable drugs expected to treat a relatively small number of people. These drugs are analyzed further during the next step of the formulary development process.
- Optional, based on the conclusion that a significant proportion of the drug’s use is clinically similar to available alternatives. Optional medications are analyzed further during the next step of the formulary development process.
- Exclude, a designation used when drugs are less effective or safe than existing therapies or when the committee lacks sufficient data to evaluate the drug.
STEP THREE: For drugs identified as “access” or “optional,” the Value Assessment Committee (VAC) will consider the value of drugs by evaluating net cost, market share, and drug utilization trends of clinically similar medications. Express Scripts employees from formulary management, product management, finance, human resources, and clinical account management are members of this committee.
STEP FOUR: In the fourth step, the P&T Committee reviews the VAC’s recommendations for the upcoming plan year and for final approval. The committee ensures that each of Express Scripts’ national formularies cover a broad distribution of therapeutic classes and categories and that the formularies provide comprehensive, clinically sound options.
“More and more often, our formularies and coverage decisions must balance demand for newly approved treatments with the associated risks, ultra-high prices, and medical costs,” Behm said. “Our teams take this responsibility seriously, and for over three decades, we’ve led with our clinical expertise to help ensure that our members can access and afford the safest and most effective treatments available today.”
How To Choose the Formulary That’s Right for Your Workforce
Just as plans vary, so do formularies. Each plan determines which formulary, cost-sharing formula, and appeals processes is best utilized. While many types of formularies are available on the market, they usually fall into these three basic types:
Open formulary: The plan sponsor pays a portion of the cost for all drugs, regardless of formulary status, although a plan sponsor may choose to exclude certain products, such as “lifestyle” drugs that treat concerns such as baldness instead of medical conditions.
Closed formulary: The plan sponsor covers only drugs listed on the formulary. Non-formulary drugs are not covered unless approved through a formulary exceptions process.
Tiered formulary: Plan sponsors offer different copays or other financial incentives to encourage participants to use preferred formulary drugs, but sponsors pay a portion of the cost of non-preferred drugs.
When selected carefully and used in concert with other cost-mitigation programs, formularies can yield significant savings for plan sponsors and patients while helping achieve optimal clinical outcomes.