As a team of benefits strategists, we work hard every day to make sure we’re exceeding client expectations and providing the most innovative and value-generating plan designs and advisory services.
July 29, 2020
When shopping for pharmacy benefits, a “menu” of drugs covered is called a drug formulary. There are two basic drug formularies pharmacy benefit managers offer to self-funded employers:
- An open formulary – meaning that generally all FDA approved drugs are covered. There is no limit to access a medication by a physician or midlevel prescriber. An employer might still use financial incentives to tier copayments, but no drugs are excluded. If we use the menu analogy here, it’s like your doctor ordering anything for you off the menu a la carte.
- A closed formulary – meaning not all FDA approved drugs are covered. The employer will only cover drugs listed on the formulary. The physician does not have access to all medications to prescribe, and not all drugs are covered, or not all dosage forms of a drug are covered. If a patient needs an excluded drug, the patient must pay 100% of its cost. If we go back to the menu analogy here, it’s like a prix fixe menu – you don’t get as many choices. The chef (or in this case the pharmacy benefit manager along with the self-funded plan employer) have already made many of the choices for you. If you want to buy something a la carte, you must buy it separately on your own.
Often, employers want to get the very “best” benefits for their employees, which is a noble cause. That may at first blush equate providing “best benefits” with following an open formulary. Who wants to limit choices? No one!
However, open formularies aren’t always the best options for employees. They come at a cost both due to having limited/poor clinical outcomes and high budget – for both the employee and the employer.
Below are a couple of examples of why a closed formulary may be a better option for patients and employers:
Ex 1: New drug combinations – The drug industry will often patent a drug with two over-the-counter active ingredients, like ibuprofen, and an antacid or an over-the-counter and a generic prescription medication. Typically, when these ingredients are purchased separately they may cost pennies. But, when combined, the drug company can charge thousands of dollars a month as a prescription. This drug would not be offered on the closed formulary.
Ex 2: New dosage forms, films & sprays – This often happens when a prescription brand drug is coming off its patent. The generics will be coming out soon to erode its revenue, so the prescription brand drug’s manufacturer creates another dosage form, like a film tablet or a spray. The original tablet which is now a generic tablet again costs pennies, but the new dosage forms cost hundreds of dollars a month. The new dosage forms would not be offered on the closed formulary.
Ex 3: New dosage forms, IV – Intravenous acetaminophen is another example. Acetaminophen tablets are TylenolⓇ over the counter. There is also an acetaminophen suppository that is generic if you can’t swallow a tablet. Suppository and tablets cost pennies per dose, but the IV form is $40 per 1000 mg dose. The suppository and tablets would be offered on the closed formulary, but not the IV formulation.
Ex 4: Therapeutic substitution – Let’s say there are 3 different brands of short acting insulin on the market. They each work the same way and have the same clinical outcomes; they’re just sold under 3 different names or made by 3 different manufacturers. Often, the PBM will look at all three options, check the clinical parameters, and then select to cover the lowest cost option of the three on a closed formulary, all other issues being equal with insulin.
These four examples should be part of review of drugs for a closed drug formulary. Before any drugs are removed, they are reviewed by a Pharmacy & Therapeutics Committee – or P&T. The P&T reviews clinical data as well as cost and outcomes by clinicians (medical doctors and pharmacists) in order to understand the value of the therapy before making a recommendation on including it or not on the closed formulary.
In conclusion, open formularies may not be the best option—for the employer footing the bill, and for the employee who is being treated with sometimes more costly and/or unnecessary dosage forms. ‘Open’ doesn’t always meant ‘best’ for you or your employees.
Talk to us, we can help you find the best formulary—both clinically and economically—for your employees and your company.