Formulary Exclusion Lists Create Challenges for Pharma and Payers Alike

The use of formulary exclusion lists is expanding—and such lists are beginning to shape the market by further limiting available drugs for narrow therapeutic areas while reducing redundancy of options in broader ones. This trend suggests a need for careful evaluation by pharma to demonstrate the value of their products for defined patient populations and for payers to balance short-term cost management pressures with broader population health needs.

Limiting the access of medications through formulary exclusions has been a tactic for managing pharmaceutical spending since formularies were established, primarily by health maintenance organizations (HMOs) and closed health systems. With the recent announcements from the pharmacy benefit managers (PBMs) CVS Caremark® and Express Scripts®, there is a growing trend of formulary exclusions not only in the number of products but also in new areas that will impact the treatment of many more patients. To illustrate this trend, when CVS first published its exclusion list in 2012, it contained 38 drugs across 18 therapeutic classes. The current CVS Caremark exclusion list has grown by 3.5 times and now includes 134 drugs across 51 classes (Figure 1).

Further expansion is coming. CVS Caremark and Express Scripts have announced updates to their exclusion drug lists for next year, and the products included provide insights into the future direction of formulary exclusions.

Specialty drugs, which, only a few years ago, were mainly covered for their indicated uses, are increasingly being added to the exclusion lists. A number of these drugs are available to treat a given condition, such as rheumatoid arthritis or psoriasis; however, this year’s list included a treatment for a disease for which there are limited options (prostate cancer). This move indicates that excluded drugs may come from narrow therapeutic classes with a small number of drugs and in historically highly sensitive treatment areas, such as oncology, where utilization management was not previously employed.

HOW WILL NEW BIOSIMILAR DRUGS FARE ON FORMULARIES

A review of the recently announced expansions to exclusion drug lists indicates the potential impact biosimilars may have on future formulary designs. The inclusion of a market-leading innovator brand on one PBM’s exclusion list for 2017 may signal that manufacturers of biosimilars and follow-on biologics are willing to negotiate significant discounts—on top of lower wholesale acquisition cost (WAC) prices—in order to remain off exclusion drug lists. This is even more noteworthy when considering the member disruption that could occur with highly utilized products for diseases where control is challenging, such as diabetes.

IMPLICATIONS FOR CLINICAL DECISIONS AND OUTCOMES

For those providers and health systems attempting to balance appropriate treatment and potential clinical pathways, the “not covered” status of an excluded drug can seem like a stronger deterrent to usage compared with having coverage at a high cost-share tier or implementing utilization management programs, such as step therapy. This certainly affects both individual clinical prescribing decisions and broader health system protocol development.

CVS Caremark and Express Scripts have both indicated that the composition of their exclusion lists is based upon clinical evidence that supports the most cost-effective drugs—and a quick glance at the exclusion lists reveals that a number of included drugs are those with generic alternatives or drugs with disproportionately high inflation. However, also included are a growing number of branded drugs from competitive therapeutic classes in which there are multiple drug options. After factoring the exclusions, the resulting covered products within a therapeutic class indicate a growing prevalence of payers selecting a single brand for coverage. This suggests that non-price value propositions (eg, medical cost offsets, patient quality of life, specific drug properties, etc) are mostly deemed equivalent or irrelevant by payers, resulting in exclusive formulary selection based upon discount-driven net product unit cost calculations.

It is important to recognize that exclusion lists are not without peril. There can be negative consequences of prohibiting access to large numbers of drugs, including impacts on drug adherence, health outcomes, and total medical costs. A recent study analyzed the impact of 27 exclusion policies applied to seven different therapeutic areas on clinical and economic outcomes. While forcing alternatives in most cases did reduce costs, it did have a significantly adverse economic impact on those patients whose diseases worsened when deprived of their usual medications.1

IMPLICATIONS FOR DRUG MANUFACTURERS

The expanded use of formulary exclusions suggests that payers do not perceive differences in the value of various products within a given therapeutic class. However, it appears that growing health care costs and the resulting demand on payers to maximize cost savings are the more significant drivers, and, therefore, the use of more aggressive utilization management tactics, including formulary exclusions, will continue to grow. Products that have been excluded may not demonstrate sufficient value to avoid this designation for reasons including lack of evidence, targeting too broad a patient population, or escalated rates of price increases (as specifically noted by CVS Caremark). Identifying and communicating where the highest value is incurred is critical to maximizing a product’s access for appropriate patients.

As long as pharmaceutical pricing remains a hotly debated topic, payers will continue to expand methods to manage associated costs. Assessing medication value through appropriate evidence will be critical to ensuring that the growth of cost management tools, such as formulary exclusions, is truly focused on meaningful product differentiation, thus decreasing the potential for negative consequences.

Several strategies have already been utilized by pharmaceutical manufacturers to avoid their drugs being targeted for exclusion. Some companies have enhanced communication efforts, while others have undertaken new studies (using subsets of the original patient populations) to illustrate comparative effectiveness and to demonstrate improved outcomes. For drugs that are targeted for exclusion, a renewed focus on communication with payers becomes a major tool to getting off the list. While each of these strategies may be effective, specific examination of the needs of the individual drug and the therapeutic areas it serves now has to be an early consideration in drug development strategies to maintain a position within formularies. 

References

1.    Chambers JD, Rane PB, Neumann PJ. The impact of formulary drug exclusion policies on patients and healthcare costs. Am J Manag Care. 2016;22(8):534-531.