Formulary Flip: Making Your Drug List Work for You

When was the last time you evaluated your formulary? During your last annual review? If so, you might be in for a surprise. A lot can change in a year, and you might be facing sky high prescription costs you never signed up for. The reason? Your PBM.

If you've been following our blog, you know we often point a finger at PBMs (link to previous posts). Employers typically hire PBMs to put together  a list of prescriptions, otherwise known as a formulary, that provide the best value.

However, PBMs don't always have the employer's best intentions in mind. Instead, they sometimes use this opportunity to slip in high-cost drugs, reaping high rebates at the expense of the employer. If plan sponsors don’t frequently review their formulary, these sneaky moves can go unnoticed, leading to increased drug spending without anyone being the wiser.

In fact, a recent report from the Delaware state auditor highlighted this issue, revealing that Express Scripts overcharged the state employee prescription drug plan by $24.5 million. They did this by including more expensive drugs in the formulary without clearly informing the state about the implications.

The takeaway? Knowing and actively managing your formulary can save you thousands if not millions. That’s why in this post, we're diving deep into formulary and plan design as a cost-saving strategy. We'll explore cost-efficient plan design options and share best practices you can implement right away—even if you’re not ready to change up your formulary just yet. So, let’s get started!

Changing Things Up

When it comes to optimizing your formulary, few strategies are as effective as implementing a tiered pharmacy benefit plan. It's no wonder that, as of 2023, 92% of health plans incorporate some kind of tiered structure. But why are these plans so popular? Simply put, they offer a clever way to save money for both patients and the plan itself by incentivizing the use of less expensive generics. Here's how it works:

In a tiered plan, the drugs in the formulary are separated into different tiers based on their cost. The least expensive drugs, like generics, are placed in the lowest tier, while more expensive, brand-name drugs occupy the higher tiers. This setup isn't just for show—it's designed to make the economic value of each drug crystal clear to patients.

‍

‍

Let's break it down with a simple example. Imagine a three-tier system where the copayments are structured as follows: $5 for first-tier (cheapest) drugs, $15 for second-tier drugs, and $45 for third-tier (most expensive) drugs. If a patient is prescribed a drug in the third tier but finds a clinically similar option in the first tier, they can choose the cheaper one and save money. If they decide to stick with the more expensive option due to personal preference or other factors, they bear the additional cost themselves, rather than passing it on to the plan.

This tiered approach encourages patients to be more economically conscious about their healthcare spending. By making them more aware of the cost implications of their choices, the plan not only saves money but also becomes more economically efficient. It’s a win-win situation where everyone benefits—patients get the medication they need at a lower cost, and the plan avoids unnecessary expenses. So, next time you're considering how to optimize your formulary, think about giving tiered copayments a try. It's like giving your formulary a smart financial makeover!

This tiered approach nudges patients to be more mindful of their healthcare spending. It highlights the cost implications of their choices, helping everyone save money. In theory it’s a win-win: patients pay less for the meds they need, and the plan avoids extra costs!

‍

How Savings are Made

Now that you're familiar with how tiered healthcare plans operate, let's explore how they contribute to cost savings. These plans leverage two main strategies: guiding patients towards cost-effective drug choices and reducing overall prescription volume. Together, these strategies can significantly reduce healthcare expenses and make managing a plan's budget more manageable.

1. Encouraging Economically Savvy Choices
We've touched on this already: tiered plans guide patients toward more affordable drug options by offering lower copayments for cheaper medications. When patients opt for these less expensive alternatives, the plan's share of the costs decreases, leading to significant savings. For instance, a report by Express Scripts suggests that shifting to a three-tiered plan can cut overall drug costs by 7-8% simply due to changes in consumer purchasing behavior.

2. Reducing Prescription Volume
Tiered plans can also lower the total number of prescriptions filled, particularly for higher-cost drugs. The increased copayments for these medications might lead some patients to skip them altogether, saving the plan additional costs. A study found that switching from a non-tiered to a three-tiered plan resulted in a 14.6% drop in the total number of prescriptions filled. While this data comes from elderly plan members, it's likely that a similar trend would be seen in a working-age population.

However, there's a flip side. Critics argue that reduced prescription use isn't always a good thing, especially if it means patients skip necessary medications for chronic conditions. If a plan isn't monitoring adherence, savings from fewer prescriptions could be offset by increased ER visits and hospitalizations due to untreated conditions. That's why it's crucial to use effective analytics to monitor adherence so that less prescriptions are filled only for unnecessary drugs. If there are adherence issues for serious conditions you should take action, like offering patient education or enhanced support for those needing pricier meds.

By focusing on eliminating spending on unnecessary high-cost, low-value drugs, while still ensuring patients get their essential medications, savings could soar up to 24%!

And if you're wondering how to keep track of all this, good news! At TrueClaim, we offer an AI-powered hub to analyze your healthcare data, ensuring no discrepancies slip through the cracks. This way, you can fully harness the cost-saving potential of a tiered system.

Best Practices

Of course switching to a multi-tiered plan might not always be possible, but there are still effective strategies you can use to manage your formulary and reduce healthcare costs. Here are some practical steps you can take to optimize your current setup without making a complete overhaul.

1. Evaluate Your Current Formulary and PBM Contract
Start by thoroughly reviewing your current formulary and the terms of your PBM contract. As we mentioned earlier, PBMs often update formularies without always clearly communicating those changes. It's crucial to audit your drug list regularly to spot any high-cost, low-value medications that may have been slipped in.

2. Identify Potentially Wasteful Drugs
Keep an eye out for combination drugs, which often come with a hefty price tag compared to purchasing the active ingredients separately. These can be a sneaky way of inflating costs without providing additional value. If you find such drugs in your formulary, consult your PBM about generic alternatives. Generics typically offer the same efficacy as brand-name drugs but at a fraction of the cost.

3. Consult Your PBM for Cost Analysis
Ask your PBM to provide a cost analysis comparing your current formulary with a proposed list that includes more cost-effective alternatives. This comparison can help you visualize potential savings and ensure you're getting the best value.

4. Negotiate with Your PBM
If your PBM is hesitant to adjust the formulary, don't hesitate to negotiate. You can request a higher percentage of rebate dollars or offer to pay an additional fee for a customized plan. Often, the savings from an optimized formulary can outweigh these costs, making it a worthwhile investment.

The bottom line is: Don't be afraid to ask tough questions and demand better options. A simple "no" shouldn't be the end of the conversation. If you're not getting the answers or the savings you're looking for, it might be time to consider switching PBMs or even rethinking your plan entirely.

‍

Wrapping Things Up

So there you have it! Managing your formulary effectively can make a world of difference in controlling healthcare costs. Whether it's embracing a multi-tiered plan or simply staying vigilant with your current setup, the key is to be proactive. Regularly evaluate your formulary, keep an eye out for costly, low-value drugs, and don't be afraid to negotiate with your PBM. Remember, every decision you make can contribute to significant savings for your plan and your members.

At the end of the day, it's all about ensuring that your healthcare plan is as efficient and cost-effective as possible. And if you're feeling overwhelmed, tools like TrueClaim's AI-powered hub can help you stay on top of everything. So go ahead, take charge of your formulary, and watch those savings add up!

‍