Seeds of Innovation

The few. The effective. The cheapest. The waste-free formulary.

Develop a formulary that rules out wasteful medications.

Joseph Burns
Contributing Editor

Self-insured employers must say no to wasteful drug spending, says Lauren Vela of the Pacific Business Group on Health.

By some estimates, about 30% of all health care spending is wasteful. As the senior director of member value for the Pacific Business Group on Health, Lauren Vela knows this statistic well and is working to eliminate the waste built into formularies. To do so, she’s calling on self-insured employers and other payers to stop paying for drugs that add cost but don’t add appreciable clinical value.

When adding drugs to their formularies, PBMs negotiate rebates with pharmaceutical manufacturers. As a result, these lists of drugs are larded with waste, says Vela, because PBMs don’t typically pass all of the rebates back to employers and other payers. Transparency is generally rare in the drug distribution system, and few employers or plan sponsors know what share of those rebates and discounts the PBMs retain and how much they pass on to payers.

“It’s a racket,” Vela says. Self-insured employers, who are the ultimate payers of health care, must stand together and “say ‘no more’ to waste.”

So PBGH is developing a “waste-free formulary” that all purchasers could use, she says. Such a formulary would be limited to drugs with proven clinical utility and among those, the low-cost alternatives. PBGH is working with Integrity Pharmaceutical Advisors, a company based in North Charleston, S.C., to develop the formulary. It will also factor in recommendations from the Institute for Clinical and Economic Review in Boston.

In addition to these sources, PBGH is using a number of algorithms to evaluate medications. So far, PBGH has found that wasteful drugs fall into several categories. “For example, ‘me too’ drugs are those medications that have been tweaked to enable a manufacturer to claim that the new formulation needs patent protection even though a perfectly good and less expensive alternative exists,” says Vela.

Another category of waste is found in combination medications. When pharma companies combine two useful and inexpensive drugs into one pill, they often charge hundreds or thousands of dollars for the two together, Vela says. Most physicians prescribing these drugs have no idea how much they cost, she adds.

For these reasons, PBGH will target physicians for education about how to use the waste-free formulary. “We want doctors to have all the information they need at the time of prescribing to select the best and most high-value options for their patients,” Vela says.

Based on PBGH’s analysis so far, some of the medications that will not be on its waste-free formulary include Absorica, the vitamin A derivative used to treat acne; Dexilant, a proton-pump inhibitor, and Glumetza, an extended-release formulation of metformin.

When it releases its formulary later this year, PBGH will encourage employers to tweak it to meet their particular needs.

By focusing first on the easiest targets, PBGH is not addressing drugs for some diseases, such as cancer. “We have identified some of the low-hanging fruit, which, conservatively, could save 5% to 20% of what employers currently spend on drugs for outpatients,” she says. “We did not address any controversial drugs.

“This project,” says Vela, “is the tip of an iceberg.”