The average annual prescription spend per US individual was almost $1300 in 2023.
Below are sample US adult annual expenses captured by the Bureau of Labor and Statistics.
340 million-plus Americans and $435 billion of their dollars helped manage the growing catalog of chronic and rare diseases. About half as much as what we’re saving. This number is steadily creeping upwards. The decades long solution to managing spend has been formularies. Hospitals implemented them in the 1930s, and commercial pharmacy benefits used an iteration of them in the 1960s. My definition of a formulary is below:
Formulary: An evidence-based, cost-effective drug coverage matrix that promotes optimal patient outcomes
I’d like to provide details on the tension between dynamic, population-specific, and clinically targeted formularies versus standard formulary setups, market re-leveling and free trade. Upstream, how do PBMs and manufacturers predict when plans will divert from templates? Downstream, who is the ultimate beneficiary of transforming template formularies into optimized, custom formularies? Are all the benefits passed on to beneficiaries (short answer, no)? Prior authorizations are well-intentioned tools to generate reliable outcomes. Models are built on the assumptions that end users “must” oblige with a strategic initiative. Ultimately, an ever-changing formulary based on market conditions should offer the best clinical and business outcomes.
The Case for Dynamic Formularies
Dynamic formularies stay in motion. New product launches occur on a weekly basis. This could be a new drug formulation, such as a pen or syringe that was formerly available only as an auto-injector. A tablet that is immediate release may now be available in an extended-release form, which might reduce the number of required doses per day from 4 to just 1. Novo Nordisk is on their way to releasing a once-weekly basal insulin. This is an incredible option for individuals living with type-1 diabetes and may compete with insulin pumps or devices that serve as a makeshift pancreas. A coverage strategy is needed for all these new to market products based on the manufacturer’s set price and the clinical benefit that may be derived from existing market alternatives. This flexibility can significantly enhance patient outcomes and cost-efficiency. For instance, PDC Rx’s customizable hospice formulary has shown how dynamic formularies can cater to specific clinical needs, driving down costs while improving care quality (PDC Rx).
Adopting a free market model in pharmacy benefits can enhance competition and innovation. This can potentially lower drug prices and provide more personalized care. For example, RxBenefits’ dynamic formulary approach helps steer patients toward the most clinically and economically valuable medications, ensuring cost-effective and appropriate drug use RX Benefits. Similarly, Express Scripts Canada’s dynamic formulary improves patient outcomes by continuously evaluating and updating drug lists based on real-time data and clinical efficacy Express Scripts Canada.
By leveraging a dynamic formulary within a free-market framework, healthcare plans can reduce costs and enhance the effectiveness of care. Rebates and agreements enter the fray to drive net costs down even further. Continuous adaptation and the ability to include generics and new medications as they become available can lead to substantial savings and better health outcomes for patients. This approach ensures that formularies are not static but evolve with the market and clinical advancements, providing the most current and cost-effective treatment options.
Tailoring formularies to specific populations is crucial for optimizing therapeutic outcomes and ensuring equitable access to healthcare. Different populations have unique healthcare needs based on factors such as age, gender, genetic background, and socioeconomic status. For example, pediatric patients require dosages and formulations suitable for children, while geriatric populations may need medications that consider polypharmacy and age-related pharmacokinetic changes.
Furthermore, tailoring formularies to specific populations helps address health disparities and ensures that vulnerable groups receive adequate care. For instance, economically disadvantaged populations might benefit from formularies that prioritize cost-effective medications without compromising quality, thus improving medication adherence and health outcomes. Personalized formularies can also facilitate the inclusion of culturally appropriate treatments, which is particularly important in diverse societies. By considering the unique needs of different demographic groups, healthcare providers can create more inclusive and effective healthcare systems.
Children’s Hospital of Philadelphia (CHOP) implemented a pediatric-specific formulary designed to address the unique pharmacological needs of children. This formulary includes pediatric dosages, formulations, and medications specifically approved for pediatric use. As a result, CHOP reported improved therapeutic outcomes, including better management of chronic conditions like asthma and reduced medication errors due to inappropriate dosing (National Pharmaceutical Council) (Pharmacy Times).
Market re-leveling in the pharmacy benefits management (PBM) industry involves efforts to create a more balanced and transparent market, reducing the dominance of a few major players, (Express Scripts, Caremark and Optum Rx), and enhancing competition. One notable example is Navitus Health Solutions, a PBM that focuses on transparency by charging a flat administrative fee instead of benefiting from drug price markups. This model contrasts with traditional PBMs, which often profit from higher drug prices due to rebates and price spreads. By removing the financial incentive tied to drug pricing, Navitus promotes fairer pricing and cost savings for clients, effectively re-leveling the market and increasing transparency and trust in PBM practices.
A prime example of how free trade benefits consumers in the pharmacy benefits management industry is the role of PBMs in negotiating drug prices and facilitating access to medications. For instance, Capital Rx’s approach to PBM services emphasizes transparency and competition. By utilizing a real-time pricing platform, Capital Rx ensures that all participants in the drug supply chain can see the same prices, eliminating the opaque practices that typically benefit intermediaries. This transparency encourages competitive pricing and helps reduce overall drug costs for consumers. As a result, patients benefit from lower prices and better access to necessary medications, showcasing the advantages of a free-market approach in the healthcare sector
Benchmarks that work?
One of my own unique perspectives is dollar-based normalization of efficacy outcomes at the drug class level, or within a therapeutic class. I don’t believe it’s always appropriate to do these reviews at an indication level. Clinicians are focused on subjective and objective measures for well-being improvement in their patients. Yes, it’s important to choose the best “bang for your buck” option, but guidelines might recommend that a higher cost med leapfrog a low-cost med in specific patient populations. This concept is especially useful to help evaluate spend versus expected outcomes within guideline-supported drug tiers.
In the above example (sample pricing only!), I would treat Mounjaro as the class “peg”. It generates the most objective impact per dollar. The concept of dollar-normalizing efficacy outcomes for drug classes shares some conceptual similarities with economic currency pegging. Two of the primary points of conceptual crossover include standardization and stabilization.
- Standardization for Comparison: Both approaches aim to create a stable reference point for comparison. Dollar-normalizing efficacy outcomes standardizes drug costs relative to their effectiveness, like how pegging a currency to a more stable one aims to create predictable exchange rates.
- Stabilization Objective: The underlying goal is to stabilize a variable (efficacy or currency value) to enable more predictable decision-making. For drug efficacy, this could mean making it easier to compare the cost-effectiveness of treatments across different classes (within the guideline-recommended tiers!). For currency pegging, it stabilizes the currency’s value to reduce volatility in international trade.
These concepts carry value because employer groups want predictable or reliable costs, especially self-funded groups. Also, from the plan side, accurately modeling cost inputs can lead to more competitive pricing. Highly competitive classes will benefit most from this exercise. Ultimately, as a consumer, we would never want to pay more for the same outcome. Normalization could power up real-time, dynamic and value-based rates. This is the transition from static to dynamic that the industry needs. The challenge here is to reach consensus on the most meaningful objective or subjective measures that are tracked over time to evaluate clinical response. These could be developed with; ranked choice voting by expert panels, evidence tiers, composite scores or clear disclosures of the categorization tool.
In conclusion, dynamic formularies represent a pivotal shift towards more adaptable and effective drug coverage strategies, ensuring patients receive the best possible care at the most economical price. By embracing a free market model, we can drive down costs and foster innovation, benefiting both consumers and healthcare providers. Tailoring formularies to the specific needs of diverse populations further ensures equitable access to high-quality care. Additionally, implementing dollar-normalized efficacy outcomes can provide a standardized and stable framework for evaluating drug value, much like currency pegging stabilizes economic exchange. As stakeholders in the healthcare ecosystem, it’s time we advocate for these dynamic, patient-centric approaches to formulary management. Let’s push for a system that continually evolves with medical advancements, ultimately improving health outcomes and cost-efficiency for all.
