United States Health Care

Nancy Jaser

Brief #3

Formulary Benefit Designs

3/21/2017

        According to IMS health, about 4 billion prescriptions are dispensed per year, which makes up 10% of the nation’s total health care costs. These percentages continue to rise and have influenced insurance companies to use stricter formulary benefit designs. It has been speculated that those who have insurance will use more services and fill more medications than uninsured patients because they have lower costs due to copayments. Companies have modified their formulary designs to include drug tiers, prior authorizations, DAW rules, deductibles, and mail delivery for prescriptions.

        Most formularies will classify drugs into different tiers based on a few factors such as effectiveness, cost, availability of alternatives, and safety. Typically, generic drugs that are therapeutically equivalent to the brand name are tier 1. Brand name medications that are patent protected are placed in higher tiers along with specialty medications and are associated with higher copays and specific steps patients must take to be approved for coverage. “Dispense as written” is another method used to prevent patients from choosing the brand name med. When this rule is implemented, coverage will only be granted when the prescriber specifically stamps “brand medically necessary” on the prescription. During my time at CVS, I wasn’t able to bill for many brand name medications because of this rule and it definitely had a major impact on what the patient ends up taking. Utilizing mail delivery for chronic conditions is another popular method that saves companies money by using their own PBM partners.

        These formulary designs have a significant impact on the pharmaceutical industry.  It makes it much harder for patients to gain access to the more expensive treatments and might impact a new drug’s initial sales. The designs can also influence how big pharma conducts its R&D and marketing, and the exclusion policies can hint at which drugs might be in trouble. For example, Novo Nordisk will lose a significant amount of insulin sales when the biologics are approved and the insurance companies start favoring the cheaper biologic options. In conclusion, pharma companies need to keep a close watch on the changing dynamics of pharmacy benefit designs as they can provide insights on how they should strategize their next moves.

Bibliography

1.  Roebuck, M. Christopher, and Joshua N. Liberman. "Impact of Pharmacy Benefit Design on Prescription Drug Utilization: A Fixed Effects Analysis of Plan Sponsor Data." Health Services Research. Blackwell Science Inc, June 2009. Web. 22 Mar. 2017. .