Drug Formulary Development & Management

1. Drug Formulary Development & Management Presentation Developed for theAcademy of Managed Care Pharmacy Updated: February 2015

2. Objectives Definition of Formulary Evolution of the Formulary System Formulary Designs Formulary Development and Maintenance Future Direction

3. Definition • A list of drugs approved for use in a given setting • Hospitals and Health Systems • Employer Groups • Managed Care Organizations (MCO) • Pharmacy Benefit Managers (PBM) • Government agencies (Medicaid, VA system) • Dictates prescription drug/class coverage and/or the level of coverage (i.e. patient copayment)

4. Evolution of the Formulary Originally used in the early 20th centuryasamethod to manage and control inventory Offer clinically sound treatment options by disease category Reduce duplication Manage cost Facilitate the purchasing process Evolved into a negotiating tool with drug manufacturers

5. Evolution of the Formulary Financial incentives from drug manufacturers Drug manufacturers offer discounts (i.e. rebates) for drugs that are placed on the formulary Products with favorable formulary positions gain market share driven by Different copay tiers Prescriber incentives Drug review and formulary placement decisions are based first on clinical safety and efficacy. All else equal, cost and rebates are considered

6. Evolution of the Formulary • A substantial number of patent expirations in recent years means generics available for a wide variety of conditions • Rebates are less important • Innovation now focuses primarily on high cost biopharmaceuticals and pharmacogenomics • Cost containment for these agents is difficult • Rebates may come into play • Formularies provide a tool to help manage these challenging agents

7. Evolution of the Formulary • Quality and value in pharmaceutical care • National Committee for Quality Assurance (NCQA) • Centers for Medicare & Medicaid Services (CMS) • Academy of Managed Care Pharmacy (AMCP) • Joint Commission on Accreditation of Healthcare Organizations (JCAHO) • Utilization management strategies • Prior authorization to assure appropriate use • Quantity limits to assure appropriate dosing • Duration of use limits • Channel management

8. Formulary Benefit Design Formularies are distinguished as open or closed Closed: limited drug selection, lower cost Open: broader drug selection, higher cost A continuum of formulary options between completely closed and completely open, gives plans the flexibility to achieve the right balance between cost and choice for their members.

9. Open Formulary and Benefit Design Two tier formularies Tier 1 = generics, Tier 2 = all brands Three tier formularies Tier 1 = generics, Tier 2 = non-preferred, Tier 3 = preferred brands Four tier formularies Tier 1 = generics, Tier 2 = non-preferred, Tier 3 = preferred brands Tier 4 – specialty or high cost tier

10. Formulary Benefit Design Formularies may include extra tiers to drive higher member contributions for targeted drug classes/categories Examples: Specialty Injectables Lifestyle Medications Value based copay structures High cost generic tiers Percentage copays

11. Pharmacy & Therapeutics (P&T) Committee Comprised of physicians, specialists, and pharmacists, and lay members Meets regularly to review newly available drug therapies/ treatment options Stays abreast of developments in the pharmacy market including new drugs, new warnings, recalls, etc. Develops, manages, updates, and administers the formulary May also be involved in quality/cost initiatives

12. Formulary Development and Maintenance Formulary - evaluated at a therapy class level, clinically complete and up-to-date Drug selection – Efficacy and safety first based on evidence and current standards of care All things equal, net cost is considered Pharmacoecomonic models often used

13. Future Designs Pharmacogenomics and biopharmaceuticals Biosimilars Outcomes Studies Lifestyle Drugs Higher Tiers/Multiple Tiers Co-Insurance Health Savings Accounts

14. Reference Navarro, R. 1999. Managed Care Pharmacy Practice. 2nd edition. Gaithersburg, MD: Aspen Publications. Kongstvedt, P. 2001. Essentials of Managed Health Care. 4th edition. Gaithersburg, MD: Aspen Publications. Foundation for Managed Care Pharmacy. The AMCP Format for Formulary Submissions. Version 2.1. A format for support of the formulary considation by health care systems in the United States. Alexandria, VA: Academy of Managed Care Pharmacy; April 2005. Available at http://www.fmcpnet.org/data/resource/Format~Version_2_1~Final_Final.pdf

15. Thank you to AMCP member Carly Rodriguez for updating this presentation for 2015.