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Getting drug plan costs under control with a managed drug formulary

September 25, 2018

With expensive new drugs continually coming to market, all payors (as well as plan sponsors) are looking for ways to dial down the fiscal pressure on drug plans. While there are many means to contain drug costs, at GSC we’re firm believers in responsible management that ensures plan members get access to the most appropriate therapy for their condition. We do this through managed formularies, an approach that can help control your drug spend and ensure plan sustainability.

This isn’t a new concept – managed formularies have been around since the early 1990s when so-called “blockbuster” drugs arrived on the scene. Back then we quaintly thought a drug that cost a dollar a day would bankrupt a plan! Plan sponsors reacted by freezing their formularies, but that meant their plan members weren’t able to benefit from the new drugs, many of which offered advanced treatment options.

GSC has always operated with a philosophy of balancing value for plan sponsors with offering uninterrupted access to treatment to plan members. In that spirit we developed a managed drug formulary called the Green Shield Canada Conditional Drug Formulary®. Introduced in 1996, it was the first of its kind in Canada – designed to protect a drug plan from expensive drugs that were not proven to treat medical conditions more effectively than similar, less expensive drugs. Instead of a free-for-all environment or no access for anyone, we want to ensure the right drug, for the right person, at the right time.

The Conditional Drug Formulary: still a good idea in 2018

Now 22 years later, the Conditional Drug Formulary is more relevant than ever. As we all know, drug costs continue to go up and up, yet the vast majority of GSC plan sponsors have open drug plans – only slightly over 20 per cent have the Conditional Drug Formulary. Why is that? Often it’s because plan sponsors have misapprehensions about managed formularies such as:

  • Many drugs aren’t covered
  • There are delays and unnecessary restrictions in drug access
  • Plan members can’t easily determine what drugs are covered
  • Plan members will have a poor experience
  • A fear of the unknown

Open formulary versus the Conditional Drug Formulary

At GSC, all newly approved drugs on the market are first evaluated by a committee of pharmacy experts to determine whether the drug will be included on the formulary for reimbursement (subject to conditions or limitations) based on clinical effectiveness, safety, and value to plan sponsors and plan members.

Open formulary

Under an open formulary, all newly approved drugs are added and eligible for reimbursement, regardless of their cost or whether the drug provides any additional value over existing therapies or not. Most drugs are added as full benefits, but there are a limited number of conditional drugs (also called individual consideration drugs). These drugs are mainly specialty drugs and require prior authorization on both open and managed formularies.

Conditional Drug Formulary

Under the Conditional Drug Formulary, all approved drugs are assigned to one of three categories:

  • Full benefit/approved: The drug is eligible for reimbursement and no special process is required. As long as there’s a prescription, it will be filled at the pharmacy.
  • Individual consideration: Approval for the drug is granted if the plan member meets certain conditions. A physician must submit a special request form demonstrating the conditions are met. Each request is reviewed by an in-house consultant. The list of individual consideration drugs under the Conditional Drug Formulary is slightly more extensive (12 per cent of all drugs) compared to the open formulary (four per cent) as it goes beyond high-cost specialty drugs to also include chronic disease drugs.
  • Non-benefit/denied: The drug is not eligible for reimbursement. The plan member can try an alternative treatment option or pay for the denied drug out of pocket.

Things to keep in mind

  • Approved drugs are full benefits both on the open formulary and the Conditional Drug Formulary.
  • Many individual consideration drugs are the same under both formularies as well.
  • Drugs that are non-benefits on the Conditional Drug Formulary are approved as full benefits on the open formulary without any restrictions or limitations.
  • With both formularies there are opportunities for add-on cost management strategies such as mandatory
    generic substitution, maximum allowable cost pricing, etc.

Let’s take a closer look…

“Managed” doesn’t mean that a lot of drugs aren’t covered. In fact, the majority of drugs – 86 per cent – are still full benefits on the Conditional Drug Formulary. Only a small number (12 per cent versus four per cent in an open formulary) are considered conditional, and an even smaller number are considered non-benefits (two per cent).

We add criteria around specific drugs to ensure people who really need access to that drug will get it. For instance, when a drug is categorized conditional, it can be because we want patients to try a cost-effective drug before we’ll reimburse the more expensive product. As well, we don’t cover drugs that perhaps aren’t all that expensive but don’t offer an advantage to the plan member or can be used in ways that don’t align with the intent of the plan (e.g., Botox for wrinkles). These require prior authorization because we want to ensure patients are following the appropriate treatment pathway based on clinical guidelines and evidence. In many ways, the Conditional Drug Formulary simply ensures prescribing adheres to clinical treatment guidelines, which is equally important from a safety and a cost effectiveness perspective.

Categorizing a drug as a non-benefit isn’t intended to deny treatment for plan members. Many of the non-benefit drugs, for example, are “me-too drugs” that offer no advantages over existing options but often cost much more. They don’t typically offer better clinical treatment, but they’re marketed as providing an improvement in efficacy, a differing safety profile, or as effective in patients who are resistant to the original drug, etc. Be assured that plan members will always have options under the plan; they can consult their physician regarding alternatives or pay the full drug cost if they are inclined to use only the drug prescribed.

While it’s understandable to be cautious about implementing the Conditional Drug Formulary instead of an open formulary, it’s not really such an enormous change for plan members. Remember, for 86 per cent of drugs, there will be no change in coverage; only a small subset of costlier drugs will be impacted. As long as plan members are part of the conversation and receive comprehensive information about the change, they shouldn’t find it confusing or restrictive.

A changing environment…

Over the years, private drug plans have been accused of not managing costs properly and being overly generous by covering too many drugs. This criticism is currently the impetus for the discussion around national pharmacare.

At GSC, we like to be as transparent as possible about the state of our industry – we do feel that drug plan management in the private insurance industry is outdated and needs to evolve. We still hear about plan sponsors introducing a dollar cap on an open plan where, for long-term cost management, a managed formulary would be a more thoughtful and balanced choice. With the Conditional Drug Formulary, our goal is simply to offer value to plan sponsors. We are not trying to limit treatment options or deny access, but are trying to drive decisions toward more cost-effective products while still maintaining access to necessary treatment.

One thing is certain: high-cost therapies will continue to drive up future benefit costs. So, if you’re thinking about implementing a managed formulary, you’ll want to get on board as early as possible as savings are accrued over the long run… and there will definitely be savings.

The Conditional Drug Formulary = SMARTspend

If you’re going to offer a benefits plan, then be sure you’re getting value out of the money you spend so that you can continue to provide benefits for the long term. When GSC set out to assemble all our cost-management policies, strategies, and initiatives under the SMARTspend banner, the key motivating factor was to offer value. And since the overriding goal of the Conditional Drug Formulary is to provide value, we’ve included it in our new SMARTspend plan design.

You’ll be hearing a whole lot more about SMARTspend and the plan design in the coming weeks, stay tuned!