The Value-Based Drug Formulary

Gilbert Benavidez is a Policy Analyst with Boston University’s School of Public Health. He tweets at  @GBinsolidarity

CVS, the second largest pharmacy benefit manager (PBM) in the US, takes drugs off its formulary if there’s a cheaper drug that’s just as clinically effective. This strategy is dubbed “value-based management.”

In July, 2017, Troy Brennan, Executive Vice President and Chief Medical Officer of CVS Health wrote, “A drug can be strategically removed from formulary for an indication where it doesn’t work as well and other lower-cost, similar or more effective drugs are available.” Decisions are externally validated by independent organizations to ensure appropriateness.

The goal? To guide patients toward “clinically effective, cost-appropriate treatments.”

About their value-based management strategy, Dr. Brennan wrote,

Specialty guideline management or prior authorization (PA) review helps capture information about what indication a drug is being used to treat, and takes into account key data such as the patient’s use of prior therapies and other clinical information. Once this information is obtained, utilizing tools such as formulary exclusion, PA, step therapy, and diagnosis review can help ensure that patients are being directed to clinically effective, cost-appropriate treatments.

A drug could be placed on a formulary for only the specific indication(s) for which it is more effective. Or, a drug could be included on a formulary for all approved indications, but the manufacturer would be required to pay a higher rebate when the drug is used for an indication for which it is proven to be less effective or beneficial. Alternatively, the manufacturer of a less effective drug could be required to offer lower pricing in order to have it included on the formulary. Manufacturers of more effective drugs for the same indications may also be required to provide more favorable pricing and rebates in return for preferred formulary placement. Promoting this kind of competition lessens the overall cost impact for payers, and enables more favorable formulary placement for the most effective treatment options.

This strategy is used, for example, in CVS’s autoimmune and Hepatitis C categories. Manufacturers are incentivized to lower prices of drugs during negotiation with CVS, lest they be left out of formulary in favor of more clinically effective and cost appropriate drugs.

CVS has been thinking along these value-based lines for a while now. A new development, acknowledged in a post earlier this week, is that it is working with the Institute for Economic and Clinical Review (ICER), as well as an independent advisory board of health economists, to develop new, innovative plan designs to continue attempting to align drug price and value and look for new opportunities to apply value-based management strategies.

This is consistent with a tweet by Harlan Krumholz that goes a bit further:

A formulary with an cost/QALY threshold would be value-based in a very strict sense. There’s a lot here unanswered though. Which employers? When will we see these formularies?

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