We all know that drugs are the fastest growing category of health spending, largely driven by new specialty compounds, but also by increasing prices on brand drugs that often are simple reformulations. Payers and their pharmacy benefit manager agents are trying to figure out how to control this spending, particularly with a wave of additional specialty medications coming through the FDA pipeline. A report from the Tufts center on drug development reports on a new tactic to control drug spending. (Tufts Report) Traditional drug management techniques, like step edits and prior authorization and copay or coinsurance tiers are designed to encourage use of generics and lower-priced brand drugs. Those techniques aren’t working as well to constrain all spending, so now the PBMs and payers have a new and growing tactic, outright exclusion of coverage for some compounds. From 2014 to 2016 the two largest PBMs increased their exclusion list by 65%. But the PBM actions don’t appear to be as simple as covering the cheapest drug. For example, many of the drugs on the exclusion list don’t have comparative clinical or cost-effectiveness studies, making you wonder what evidence the PBMs are using to make their exclusion decisions. They aren’t always picking the least expensive drug, but do seem to swayed by higher rebates in keeping a drug covered. Those rebates may benefit the PBM more than the payer or patient. Excluded drugs often have copay coupon programs offered by manufacturers, which may benefit patients, but do tend to drive up spending. While many of these excluded drugs are simple improvements like extended release, dissolving oral tablets and new isomers of the original drug, which may now have generic status, those improvements may be beneficial to some patients. Be nice to see a little more transparency in the PBM exclusion decisions. In the meantime, this development will also factor into investment decisions by the pharmaceutical manufacturers.
Drug Coverage Exclusion Lists
By Kevin RocheMay 17, 2016Commentary
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The Healthy Skeptic is a website about the health care system, and is written by Kevin Roche, who has many years of experience working in the health industry. Mr. Roche is available to assist health care companies through consulting arrangements through Roche Consulting, LLC and may be reached at [email protected].
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To understand the payer’s ability, you have to look at the contract law pertinent to the prescription benefit. Basically, it says the payer can do anything they want, at their sole discretion and without evidence, to drugs in the Rx benefit. That is because the Rx benefit is a contract between the payer and the patient. Juxtapose that to the medical benefit in which the contract is between the payer and the provider. The payer can’t tell a provider how to practice medicine (unless the provider agrees to allow them to – for instance in a Kaiser style plan). Hence the recognized approach to move as many drugs as possible into the Rx benefit, especially specialty drugs. The broad definition used is any drug that is self administered.
In a prior role in managed care, I found my daughter using an acne medicine that generically was $33/month but was prescribed a “brand” version that was $450/month (yes, it was a Valeant drug). The next day we put an NDC block on the offending drug and no longer covered it. I called the dermatologist on behalf of my daughter and told him about the change and his reply was basically, “OK” I’ll switch to generic. Saving my employer over $5000 per year. I could create a rather large list of similar market absurdities (there is a 1% hydrocortisone cream in an “optimized base” on pharmacy shelves right now selling for $150/30gm tube when OTC this equivalent product is about $4).
There are of course examples of NDC blocks driven simply by rebate profiteering. But the vast majority of blocks are simply common sense cost saving opportunities necessary to regulate market absurdities. My only hope is that large self insured public service plans with “pay for anything” mentalities will adopt these tools. Because public service plans for local, state, and federal employees are paid by us tax payers.
Good post Kevin (as always)
A few perspectives on the Excluded Brand Approach.
1) There are very well documented uses for these products (extended release, orally dissolving tablets etc..)
2) But the nominal targeted patient populations don’t warrant typical comparative study costs on the part of manufacturers.
3) Payers know these niche applications, and could simply apply prior authorization criteria but they don’t, because;
4) The application of prescription prior authorization policies is expensive for payers (estimated at $40 minimum per call interaction). Especially important because a fair share of those PA appeals are approved…
5) And most important, PhRMA companies engage prior authorization (PA) navigation vendors to work with physician/ prescriber’s to navigate the associated payer associated PA criteria. And frankly, those vendors are more successful in doing so than the payers at applying those criteria.
6) As such, it’s easier and more profitable for payers to exclude coverage vs applying prior authorization criteria.
“Always follow the money”