Report explains the need for a waste-free formulary for pharmacy benefits


Photo: Marko Javorac via Flickr

A recent study from the Commonwealth Fund and the Pacific Business Group on Health (PBGH) shows that developing a waste-free formulary by cutting the number of high-cost, low-value drugs in employers’ health benefit plans could save employers as much as 24% in pharmacy spending.

Concern about rising prescription drug costs has caused large self-insured employers to develop innovative formularies for the pharmacy benefit plans they provide to employees, their family members and retirees. A formulary is a list of drugs that employers and health plans include in their benefit plans for employees and members.

Lauren Vela
Lauren Vela

The goal of developing a waste-free formulary is to identify drugs that are wasteful because they are high-cost medications that offer little clinical value when compared with therapeutic alternatives that cost less, says Lauren Vela, PBGH’s senior director of member value. Vela wrote the Commonwealth Fund’s report, “Reducing Wasteful Spending in Employers’ Pharmacy Benefit Plans.” Based in San Francisco, PBGH is a coalition of 40 private employers and public purchasers that together spend $100 billion annually on health insurance for 15 million Americans.

For the Commonwealth Fund report, Vela identified high-cost, low-value drugs that employers have on their formularies and showed the potential savings from removing these drugs. She also identified best practices for pharmacy benefit managers (PBMs).

Reducing the use of high-cost, low-value drugs could lead to $63 million in annual savings for 15 plan sponsors who were included in the study. This level of savings represented a reduction of 3 percent to 24 percent in spending on pharmacy benefits, Vela says.

Mariana Socal

During an AHCJ webcast on Nov. 14 at noon, Vela and Mariana P. Socal, M.D., Ph.D., will explain the need for a waste-free formulary and how employers and health plans could lower drug spending and out-of-pocket costs for workers and plan members by eliminating high-cost, low-value drugs on formularies. An assistant scientist at the Johns Hopkins Bloomberg School of Public Health, Socal is a researcher who has written about formularies for brand-name drugs in Medicare prescription drug plans and on using reference pricing in Medicare Part D.

One type of a wasteful or low-value medication is “me-too” drugs, which drug makers offer by tweaking a particular drug ingredient in an immaterial way to produce what it calls a new drug that adds no clinical value and often extends patent protection, the report showed.

Other types of wasteful or low-value medications identified in the report are these:

  • Combination drugs, in which a drug maker combines two active ingredients into one pill and charges much more than the costs of the individual ingredients,
  • Prescription drugs offered when over-the-counter alternatives are available, and
  • Brand-name or higher-priced generic drugs offered when lesser-cost generics are available.

For its research, PBGH analyzed drug spending in a large data set from self-insured employers and identified potential savings if the employers excluded wasteful drugs from their formularies. After analyzing claims for drugs, the researchers identified 868 drugs, or 6 percent of the claims analyzed, as wasteful, the report shows.

The difference in cost between the low-value drugs and drugs that were at least as effective and less expensive ranged from 25% to 99.9% per drug, the report said. The researchers estimated a total annual savings of $63.3 million for the employers involved in the study. This amount represented a potential savings of 3% to 24% of total pharmacy spending for drugs administered through a PBM, the report said.

In addition to showing such potential savings, the report is useful for journalists because it explains the pharmaceutical supply chain, including how pharmaceutical companies use rebates as an incentive for employers and health plans to keep high-cost, low-value drugs on formularies.

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Joseph Burns

Joseph Burns is AHCJ’s health beat leader for health policy. He’s an independent journalist based in Brewster, Mass., who has covered health care, health policy and the business of care since 1991.