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Formulary Process

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Briana Santaniello

on 17 July 2015

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Transcript of Formulary Process

by Briana Santaniello, MBA
PharmD Candidate 2015
Western New England University

Let's look at an example...
What is a formulary?
What a formulary is not
Why is a formulary necessary?
Formulary Process
pharmaceutical company
drug wholesaler
retail, specialty, & mail order pharmacies
health plan
Identify the steps and key players involved in the prescription filling and billing processes
Define key managed care terms and review examples of how each term applies to our health plan
Identify prescription benefit management strategies and apply the concepts of these strategies to our health plan
Identify future areas requiring extensive management
Explore the answers to frequently asked questions (FAQs) from members, prescribers, etc.
How would this impact the pricing pathway?
Eli Lilly: EpiPen
patent expires in 2015
price has increased by 222% since 2007
Eli Lilly
drug wholesaler
retail pharmacy
health plan
: a

continually updated
list of medications and related products supported by
current evidence-based medicine, judgment of physicians, pharmacists, and other experts

in the diagnosis and treatment of disease and preservation of health
--Academy of Managed Care Pharmacy
Formulary management
Drug utilization management
Prior authorization
Step therapy
Quantity/dose limits
If we already manage the formulary, why are we here today?
What's on the horizon:
image credit: : http://lab.express-scripts.com/insights/specialty-medications/specialty-drug-spending-to-jump-67-percent-by-2015
How do we manage this?
How is a formulary developed?
Let's look at an example.
Type 2 Diabetes Mellitus
All available agents
Expert Guidelines
1st line agents + alternatives
2nd line agents + alternatives
3rd line agents + alternatives
Not covered / Plan exclusion
Brand not covered, generic product preferred
Not covered, use formulary alternatives
Not covered, use separate agents
Under clinical review period
Step Therapy
--> Brand/Non-formulary Tier 3 +/- Quantity Limit
Prior Authorization
--> Brand/Non-formulary Tier 3 +/- Quantity Limit
Not covered, use formulary alternatives
Not covered, use separate agents
Generic Tier 1 +/- Step therapy +/- Quantity Limit
Brand/Formulary Tier 2
Not all drugs are created equally
Comparative effectiveness research:

the comparison of different interventions and strategies to prevent, diagnose, treat, and monitor health conditions

--National Information Center on Health Services Research and Health Care Technology (NICHSR)
Cost-benefit analysis

a comparison of the costs and benefits, standardized in monetary terms, of an intervention

--Centers for Disease Control and Prevention
How the drug(s) are further stratified
Okay, you talked about formulary management. Now what about drug utilization management?
Copayment Tier:
Step therapy:
Prior authorization:
Quantity Limit:
a cost level assigned to a group of drugs by an insurance company.

Tier placement may be based on:
brand or generic status
cost-effectiveness research
cost-benefit analysis
Tier 1: quetiapine 100 mg ($0.95/tablet)
Tier 2: Seroquel XR 200 mg ($13.60/tablet)
Seroquel XR 300 mg ($19.68/tablet)
Tier 3: Latuda ($25.98/tablet)
"A process whereby prescriptions are filled with an effective, but more affordable medication (Step 1), and when appropriate, a more costly (Step 2) medication can be authorized if the Step 1 prescription is not effective in treating the condition."


Example, please!
Example, please!
"A tool that requires the prescriber to receive pre-approval for prescribing a particular drug in order for that medication to qualify for coverage under the terms of the pharmacy benefit plan."

--Academy of Managed Care Pharmacy
Nice try!
a limit on the number of units or drugs covered within a certain time period

Example, please!

1 tablet/activity
QL: 4 tablets/30 days
Used on an as needed basis
Define "as needed"
What if there wasn't a quantity limit?
Cost sharing
increase copays
increase premiums
Promoting cost-effective generics
increase the generic dispensing rate (GDR)
FAQ #1
Q: My child's Advair Diskus has a $50 copay. I can't afford this copay each month. Can't you just waive it?

A: No. The copay members are charged at the pharmacy isn't the true drug cost. Advair actually costs about $300. The pharmacy purchases the drug from a wholesaler for about $300. The health plan pays the pharmacy $250 + a small dispensing fee (i.e. $3). The member pays the remaining $50 (the copay). If our plan waives the copay, there would be no cost sharing and the entire drug cost would be paid by the health plan. If the plan did this each month, every month, it would decrease the amount available in the budget to cover other members' equally-important drugs (i.e. the $50 would no longer be there to pay for the health plan's contribution to 2 ProAir rescue inhaler claims).

Follow-up Q: Is there anything else we can do?
A: Yes!
Patient Assistance Programs
Drug Manufacturer Coupons
GlaxoSmithKline, the manufacturer of Advair, publishes 2 different coupons on its website.

Coupon 1: $0 copay for 1st fill, or
Coupon 2: $10 off copay for any fill
Copayment Assistance Programs

Patient Access Network (PAN) Foundation

Application form: income level, assets, etc.
Committee reviews application to evaluate if member qualifies for assistance
If approved, member can receive assistance with copays
Imagine, if you will, a world in which prescription drug coverage did not exist.
prescriber writes an order
patient brings the prescription to the pharmacy
pharmacist tells patient the price
patient pays out of pocket for drug
How would this have looked during the late 1990s?
prescriber writes order
patient brings prescription to pharmacy
pharmacist informs patient the cost is ~$15
patient pays $15 for prescription
How would this look today?
That will be $150, sir.
I thought you were a pharmacist--
not a comedian!
How do we fit into this picture?
plan's contribution
patient's copay
dispensing fee
total amount received by pharmacy
Payment Equation
Example, please!
pharmaceutical company charges $200/30 tablets
drug wholesaler buys 30 tablets for $200
retail pharmacy buys 30 tablets from wholesaler for $200
health plan pays pharmacy dispensing fee (i.e. $3) + portion of drug cost (i.e. $150/$200)
patient pays remaining drug cost, a.k.a. copay ($50/$200)
What happens when external factors come into play?
Remember...it's an equation!
This is a simplified example. It is certainly not this simple!
FAQ #2
Q: My doctor wrote a prescription for me, but when I tried to have it filled, the pharmacist told me it wasn't covered. If I have a prescription, shouldn't it be covered?
A: It depends on what was prescribed. Sometimes prescribers write orders for items available without a prescription (i.e. vitamins, supplements, humidifiers). Some insurance plans do cover these items, but not every plan does. In fact, many plans have already begun excluding these items from their formularies, and even more will be following suit beginning in 2015. There are also drugs that are available only with a prescription which also may not be covered. For instance, when new drugs receive FDA approval, they typically are not immediately covered by insurance plans. This is what "under clinical review" means. This occurs due to a number of reasons. One important reason is safety. Some drugs receive FDA approval and are then recalled because they were found to cause harm in users. Another reason is that decisions to add a drug to a plan's formulary aren't made in a vacuum. The members of the P&T committee must meet, discuss, and vote on whether to use the pharmacy budget to cover the medication. If this didn't take place, it would not be fair to stakeholders, especially members (whose premiums could be negatively impacted). In situations where members have no other treatment options, exceptions are made depending on the circumstances.
FAQ #3
Q: My doctor gave me a sample. When I finished the sample, I brought my prescription to the pharmacy and they told me it wasn't covered. If I already started it, shouldn't I be able to keep getting it?
A: Pharmaceutical manufacturers want prescribers to promote their products, so they send representatives with samples into offices. These offices might serve a wide variety of members with dozens of insurance plans. The representatives usually don't know if these plans will cover the medications for which they are providing samples. Furthermore, prescribers might give you these samples without first checking to see if your particular plan actually covers the medication. Even if the prescriber provided a sample and a member finishes the sample, the medication may still not be covered. It will depend on whether or not there are step therapy requirements, if a prior authorization is needed, etc. It then depends on whether or not the member has demonstrated trial and failure of these other agents, has contraindications to other therapies, etc.
There are exceptions to the rule, however.
Adderall XR = brand name ADHD medication

Typically generic agents are cheaper than their brand name counterparts, unless there is a rebate.

A rebate can make Adderall XR cheaper than its generic,
so a plan might require members to get the brand name medication to minimize the cost to plan and to members.
On average, plan pays $18/tablet after each member pays the copay
If quantity limit was 30 tablets/30 days, potential spend:
> $12,000,000/year for < 1800 commercial members

With the quantity limit in place, actual spend: < $500,000.
Another example
plan pays $705/30 tablets for Abilify 5 mg or 10 mg
if prescriber orders Abilify 5 mg BID:
plan pays $1410/60 tablets!

switch to 10 mg once daily
(drug is intended to be taken once daily anyway)
Despite our best efforts in managing our drug spend...
our cost per member per month has climbed since last quarter
our specialty spend has increased since last quarter and is higher than our benchmark
our generic drug dispensing rate has increased, but so have the prices of the generic drugs being dispensed
Our plan actually
does not
require a prior authorization for tretinoin, nor do we require a prior authorization for the other topical "acne" agents. We also
do not
have an age restriction in place for members requesting these agents.

Many plans
require a prior authorization for these agents
the member requesting the medication is over a certain age (i.e. 25-35 years old).

Between May 2013 and May 2014, our plan spent
> $41,000 on topical tretinoin,
almost $2,000 on Retin-A Micro,
approximately $14,500 on topical adapalene,
almost $4,000 on Differin,
$750 on Atralin,
and over $8,000 on Tazorac
for members over the age of 30.

If you're still thinking, "Maybe they're really using them for acne, though!"...
91% of the 872 claims were for women,
and some of the claims were for women in their 70s.
Currently, specialty medications make up 37.5% of our total drug spend.
Our recent GDR was 84.1% during the first quarter of 2014.

Every 2% increase in GDR = $1,000,000 saved.
Thank You!
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