Susan L. Lang outlines how pharma companies can navigate drug formulary exclusions, numbers of which have been rising in recent years, and ensure that newly FDA approved medicines can make it to consumers.
The pipeline for new therapies at the Food and Drug Administration mostly consists of novel brand or specialty drugs waiting for approval. But in the US, FDA approval does not necessarily equal drug access for consumers. As the large health insurers consolidate, CVS Health (with Caremark and Aetna), Cigna (combined with Express Scripts) and United Health (who owns OptumRx) are flexing their market power by excluding new therapies from their drug formularies, the lists of drugs that insured health consumers can access through their insurance benefit. This moves to reward some drug manufacturers over others and allows pharmacy benefit managers to extract formulary drug rebates.
One of the key pricing levers in the American healthcare system, drug formulary rebates are post purchase discounts awarded to payers who choose to direct their volume to a specific drug manufacturer. By limiting the number of expensive brand and specialty drugs on the formulary, the price of the remaining drugs is effectively reduced for both plan sponsors (groups that pay for health insurance, such as employers, local government entities, unions, etc.) and consumers who use their insurance in the form of lower co-payment amounts. Formulary restrictions by the top three pharmacy benefit managers are as follows: OptumRx (United Health Care) has the highest amount of drug exclusions for their national formulary at approximately 470 drugs, Express Scripts (Cigna) is second with 450 exclusions, while Caremark (CVS Health) stands at around 420 drugs (source: XIL Health Formulary Research, 2021).
From a practical perspective, how can a drug manufacturer ensure that their newly FDA approved medicine makes it to consumers? There are several strategies that manufacturers use to improve their chances of making the national drug formulary list. While each formulary is managed separately, a surprising number of drug exclusions overlap between pharmacy benefit managers. To address this issue, manufacturers focus on three strategies: 1. pricing the drug with a formulary assumption from the first day of market approval; 2. using consumer drug coupons to assist consumers with paying a higher co-payment for a non-preferred drug (still on the formulary but requires a higher out-of-pocket payment by the consumer to access it); and 3. pricing the drug competitively and going straight to the physician community to ensure early use, even if the drug is not on the formulary (which means the consumer is paying the full cost). On the third point, once the drug manufacturer has enough volume, they make their case to the pharmacy benefit manager to allow them on the formulary. This process typically takes six months to a year to implement.
While it is true that many formulary drug exclusions target expensive brand drugs where there is a generic that treats the same disease, albeit by a different mechanism, other brand and specialty drugs may be targeted simply because they refuse to reduce their price by allowing a drug rebate
The effect of drug formulary exclusions on consumers is that some novel therapies cannot be immediately accessed. While it is true that many formulary drug exclusions target expensive brand drugs where there is a generic that treats the same disease, albeit by a different mechanism, other brand and specialty drugs may be targeted simply because they refuse to reduce their price by allowing a drug rebate. In circumstances where the drug has no direct competitor as a therapeutic equivalent, the product may face step therapy. In step therapy, a consumer must use a preferred (drug rebates apply) drug that is less expensive prior to accessing the more expensive medication. For example, Express Scripts allows consumers to access Humira for autoimmune diseases before they can access Simponi or Xeljanz, essentially blocking direct access to the later two drugs for people with health insurance.
The number of drugs excluded from the top three pharmacy benefit managers has steadily increased over the past fifteen years. This raises concerns about consumer access and cost. While formulary drug rebates should lower the cost of drugs, it also creates more profit for PBMs. This conflict of interest between consumer access and pharmacy benefit manager profitability may have consequences to the health status of patients with chronic illnesses such as autoimmune disease, cancers, and multiple sclerosis. If a consumer changes jobs, which is more frequent now due to COVID-19, they could lose access to critical medications on which their condition was stable. Talking with many consumers and employers, this is a legitimate concern that can affect the workforce. But for now, it appears that drug formulary exclusions will continue to increase with very little oversight or research into the practice issues facing consumers as well as drug manufacturers trying to assist with new therapies.