Part 2: A waste-free formulary could cost you less

Posted by Navitus Health Solutions on Oct 15, 2020 5:45:00 AM

Formularies can often include drugs that have little to no clinical value and drive up costs. These are often referred to as wasteful or low-value drugs because they cost more when compared to other less expensive drugs that are used for the same condition.

So how do wasteful drugs impact your Rx plan costs? According to a recent report, “Wasteful drug claims represented 3-24% of companies’ total spend on drug benefits, depending on which drugs were included in the formulary and how often they were utilized. In this analysis, 8 drugs accounted for 21% of the savings. However, this is only the ‘tip of the iceberg,’ as there are more than 800 drugs on the market today that can be considered wasteful.”1

KEY CONSIDERATIONS FOR CREATING A WASTE-FREE FORMULARY

If you’re interested in ridding your formulary of wasteful medications and reaping the savings, then you may want to consider the following differences between PBM models and their impact on formulary drug choices.

Does your PBM offer a flexible formulary or a rigid one?

A traditional model PBM may be rigid and not want to remove drugs from the formulary because it likely may be earning a profit on that drug and it has baked that revenue into your contract cost structure. It’s all connected, if the PBM promised savings somewhere else, then it may be offsetting that with revenue earned on some drugs on your formulary.

A pass-through model PBM is more flexible, offering to help customize the formulary to eliminate “wasteful drugs.” It can do this because the PBM does not earn revenue from rebates or other pharma manufacturer incentives. Additionally, the PBM monitors and may make changes to the formulary on a quarterly basis to improve results. It can do this since it's not obligated to earn spread based revenue.

Does your PBM offer a set admin fee, or does it change when you want to make changes to your formulary?

A traditional model PBM may have low to no admin fee, however it may charge you additional fees for formulary customization.

A pass-through model PBM will include formulary customization at no additional cost. It can do this because the admin fee is its only source of revenue and formulary changes do not impact its contract cost structure.

What type of formulary does the PBM use? Is it rebate focused or lowest-net cost focused?
Here are some supporting myths versus facts.

Myth: Getting the most rebates possible will lower your total Rx plan costs.
Fact: Larger rebates look great on paper, but you may have to spend more to get them. And, in a traditional arrangement, the PBM may only return some of the rebates to you. Cost savings from removing wasteful drugs are better than chasing rebates.

Myth: Rebate amounts will be smaller with a low-net-cost formulary that focuses on removing wasteful drugs, and replacing them with clinically equivalent, lower-cost drugs.
Fact: Rebates are still significant, and when combined with a lowest-net cost strategy, will outperform any rebate- focused formulary with lower all-in total plan costs.

IN CLOSING

Now that we’ve defined and discussed why wasteful drugs are included on formularies, you can apply what you’ve learned to remove them and start lowering costs. Removing wasteful drugs goes beyond ‘first-year’ or a ‘one-time’ savings. When you switch to a waste-free formulary, you’ll benefit year after year from lower costs, helping you keep drug trend low over time.

Download our e-book to learn more about wasteful drugs and how you can start saving now.

e book 7 waste cover

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1. Vela L, Reducing Wasteful Spending in Employers’ Pharmacy Benefit Plans. The Commonwealth Fund.
www.commonwealthfund.org/publications/issue-briefs/2019/aug/reducing-wasteful-spending-employers-pharmacy-benefit-plans, Published August 30, 2019. Accessed January 2020.

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