Formularies, Formulary Strategies, and Vigilante Formulary Review

Formularies are rationing by bureaucrats. Sometimes they make decisions that look insane to people outside of their bubble, or nakedly profit-seeking.

Any entity that starts to pay for medications eventually starts to develop a formulary - a list of drug products that are acceptable to pay for. Hospitals and health systems maintain formularies of products that they will stock in the hospital pharmacy and administer to inpatients. Health insurance providers do the same, and usually outsource this function to Pharmacy Benefit Managers. In the business, a proposed change to the formulary is called a “Formulary Strategy.”

All Formulary Strategies are ultimately a tradeoff between harm to the people who currently take or will take the products that the formulary disfavors on the one hand, usually referred to with the very sanitized term “member disruption,” and cost on the other hand.

“Cost” can mean different things to different players and can make a difference to how different entities make formulary decisions. For a hospital, it’s a relatively simple question - does this strategy reduce how much money the hospital spends on drugs. For an outpatient health plan with an outsourced PBM, given the existence of rebates, “cost” to a plan may be in conflict with retained rebate revenue for their PBM. See, for example, the evidence in the opioid litigation against OptumRx, which contains this:

Two factions within OptumRx appear to be hashing out their conceptions of “cost” here - Public Relations cost and compliance cost from continuing to cover products that are tied to opioid addiction and overdose deaths vs. a cost of lost retained rebate revenue.

We can also see from this excerpt that at the scale of large PBMs, formulary strategies are also a piece of negotiating leverage to obtain rebates and fees from pharmaceutical manufacturers. However, once negotiations are completed and rebate contracted executed, rebates can be cut off punitively by pharmaceutical manufacturers. From the evidence in the opioid litigation, it appears that Purdue Pharma was willing to give substantial rebates for OxyContin and other related products in exchange for a guarantee that NO formulary restrictions would be placed on their products. Let’s examine the various restriction methods that Purdue was paying these rebates to avoid.

Formulary Strategies have several flavors, which generally include: covered or not covered, tiering, quantity limits, prior authorization requirements, step therapy requirements and pharmacy network restrictions (specialty pharmacy only/limited distribution).

The ultimate formulary strategy is the “formulary exclusion” - this means that the product in question is simply not covered by the plan by default. Unless a patient and their physician are willing to go through an extensive process of writing prior authorization requests, letters of medical necessity, and appealing multiple denials, the health plan simply will not pay for the prescribed therapy. The point here is to make the process of obtaining these products so difficult that the patient will a) give up and take nothing or b) discuss with their physician a switch to a covered alternative. Drug Channels has extensive coverage on the extent to which this particular strategy has grown over the past ~decade.

Formulary Tiers are a formulary strategy that is less about restricting access per se and more about shifting the cost of more expensive therapies to the plan member. Formularies have evolved over the last several decades from having 1 tier (covered, $10 copay) to having as many as 6 tiers. Medicare Part D Plans are a case in point - they today generally have 5 or 6 tiers: “preferred generic” with a $0-$5 copay, “generic” with a $0-20 copay, “preferred brand” with a ~$47 copay, “non-preferred brand” with a ~$100 copay or ~50% coinsurance, and “specialty” with ~25% coinsurance. The implicit idea of a formulary tier is that they are a way to signal to the plan member that they are taking an expensive medication, and they should think about talking to their doctor about switching to a less expensive medication.

Prior Authorization, in its most benign form, is a method by which a plan can ensure that they only pay for certain medications when their members “really need them.” The GLP-1 situation today is an excellent example - most plans now require either a) that a pharmacy submit a diagnosis of diabetes in the claim for GLP-1 products or b) that the physician submit prior authorization documentation showing that the member actually has diabetes. Many plans don’t cover these products for weight loss at all because “wanting to lose weight is cosmetic.” Other plans will cover GLP-1s for weight loss but only if the member “really needs it” - i.e. they aren’t just a little flabby, they have a BMI >30 AND another reason to suggest that their weight is a medical problem - they have high blood pressure or diabetes as well as being obese. It’s also just a way to annoy physicians into not prescribing these medications so that the plan doesn’t have to pay for them. Physicians HATE prior authorizations, so it works pretty well at annoying people. Anecdotally, I’ve spoken to offices who have gotten so annoyed at prior authorizations that they refuse to submit the paperwork for certain medications because they KNOW it will not be approved.

Step Therapy is the nice name for so called “fail first” requirements - this is again a way to make sure that plans only pay for drugs for people that “really need them” by stating that “yes, we cover that drug, but only if you try at least 3 of these other, cheaper drugs first.” The plan will require that there be documentation that the member has tried some other preferred alternative before they will pay for the originally prescribed therapy. Sometimes that means that they have to see prescription claims for the other therapies in their database, sometimes a letter from a physician with chart notes showing the history of having taken the other therapies. In some cases this makes a lot of sense - there are drugs that make no sense to pay for except in very limited circumstances - one of my favorites is Omeprazole/Sodium Bicarbonate - aka prilosec with some baking soda in it. When this product was first released as Zegerid, it cost ~$2000/month, and omeprazole was generically available for like $20/month. Paying $1980/month for 30,000 mg of baking soda is, frankly, insane.

In other circumstances, step therapy requirements can be slightly insane in themselves. Take, for example, Select Health’s step therapy requirement for coverage of Phexxi. They require documentation that an oral contraceptive has “failed” before they cover Phexxi. In the past, the steps also included condoms and OTC spermicides. This led my colleague to draw a picture of what “failing” OTC spermicides might look like.. something like this:

My OTC spermicide failed, can I have my prescription one now?

Joking aside, “formulary strategies” are a form of private rationing. Taken to their logical end, Pharmacy and Therapeutics Committees that design formularies in any capacity are a much-loathed “death panel” - they decide that dfkylkizumab is too expensive to pay for in any case, so it’s off formulary, and if you want to get it, you have to a) pay for it with your own money or b) go through all of the levels of appeals that you can handle to try to get it paid for. While Sarah Palin’s vision of a death panel that specifically decides that YOUR grandma or HIS down syndrome kid needs to die was perhaps slightly overblown, anyone with experience dealing with appeals on appeals on appeals trying to deal with formulary restrictions can say that she… wasn’t entirely wrong on the substance - a set of distant bureaucrats, working for private health insurers (not for the government directly) decides which drugs are appropriate and which drugs are not appropriate for you, based on criteria that are, often, very silly. We should all recognize these approaches AS rationing, and call them such.

A few years ago I thought up a silly concept - Vigilante Formulary Review - in which an interested party (like a pharmacist annoyed with a PA requirement on a $5 celecoxib) should detail why a particular formulary tiering decision or Formulary Strategy is insane and not in the best interests of the plan itself. While Prior Authorizations DO annoy people into not prescribing things, they are NOT costless to plans to process - someone has to review each case and say “yes approved” or “no denied” every time. When a drug is super cheap, unless there is an overriding compliance reason to do so (see opioids), placing formulary restrictions like PA on an item is a self-own. I pointed this out to a formulary director, and 6 months later, the PA requirement on celecoxib was removed from that plan’s formulary.

So now I’m going to embark on another bit of Vigilante Formulary Deconstruction (VFD): CarelonRx made an extremely weird formulary decision recently from my perspective - they decided to put a Limited Distribution restriction on Tacrolimus capsules and Mycophenolate. This is USUALLY done for extremely high cost drugs (so called specialty drugs, with a cost >$600/year). Tacrolimus and mycophenolate are extremely generic drugs, and have a NADAC of $0.17/capsule and $0.15/capsule, respectively. At at 20 caps/day of tacrolimus, that’s $1241/year. For the maximum dosing of Mycophenolate (8 caps), that’s a NADAC of $438/year. Obviously the pharmacies have to make some margin - NADAC is what drugs cost to PHARMACIES, you have to add in a fair dispense fee, but even adding a dispense fee of $20/month/rx to that, you come up with $480/year in dispense costs, for a total drug cost of $2159/year for this set of therapies. That is hardly a sound basis for placing a Limited Distribution requirement in place. Of course, all of the “high cost drugs have to go through a mail order specialty pharmacy” stuff is all just smoke and mirrors for “we want to fill all of the prescriptions in our own pharmacy that we own.” That seems like the more likely scenario here - to quote Dr. Glaucomflecken “[The PBM - CarelonRx] decides which medications are covered by health insurance [Anthem], and which pharmacy [CarelonRx] the patient uses to get those medications.” He goes on to say “surely there has to be some kind of oversight? right, somebody has to keep you accountable.” VFD is my attempt to keep PBM/Insurer/Pharmacy conglomerates accountable. CarelonRx/Anthem - end your LD edit on Tacrolimus and Mycophenolate (link is to the specific formulary in question), there’s no justification for it other than “because I can make more money” and there are plenty of arguments against it - temperature control not being least among those reasons.

Oh, and this is yet another reason why we need Congress to pass the Patients Before Monopolies Act. If we have to have formularies, I’d like the decisions about them be unsullied by “because my vertically integrated pharmacy can make more money” reasoning.