Formulating a formulary for drug plans

Conditional formulary results in cost savings without sacrificing patient care

Fewer, more expensive drugs entering the Canadian marketplace as treatments are now being developed for diseases that were once thought to be incurable. The rapid advancement of biopharmaceutical research, while a boon to the patient, has placed an enormous burden on employer drug plans and has forced many drug plan managers to develop more effective strategies for drug cost containment.

Along with this fast-paced technology, the advent of direct-to-consumer advertising in the United States has been significant.

Pharmaceutical manufacturers have recognized the value in advertising directly to the consumer. Patients can influence the prescribing habits of their physicians. Consequently, the patient who is knowledgeable will demand the newest and, in many cases, the most expensive products available.

Most employer drug utilization reviews indicate that Canadians want and use these newer, single-sourced medications more frequently than their older multi-sourced competitors. It is uncommon to find older generic drugs in “top drug” utilization lists. They have been replaced with these newer agents that are promoted heavily by the industry. However, are these products fundamentally better than their generic competitors or products in the same drug class? Are they more cost-effective? Are some just newer versions of existing products that cost more but do not offer any additional benefit?

Implementing a managed or conditional formulary is one way to ensure the most efficient use in a formulary. This may help control the influx of newer agents, and ensure only those products that are truly unique and cost-effective are available to subscribers.

A conditional managed drug formulary reviews and identifies only those drugs that offer a therapeutic advantage over existing products, and allows them to be available to subscribers as covered benefits. Therapeutic advantage is a function of the following four factors:
1) Need — Is there a need for the drug by the employee (or retiree) group? Is it a drug used in the community setting as opposed to an institutionalized setting, where coverage should be obtained from a governmental source? Are other covered drugs already meeting this need?
2) Efficacy — Is there independent confirmation that the drug is effective?
3) Safety — Does the drug have an acceptable safety (side-effect) profile?
4) Cost — Is the cost acceptable? This can be measured as a comparison to similar drugs in the same category already covered.

Each new drug is evaluated against these four factors. A variety of resources can be used for evaluation including: manufacturer’s data; independent medical journals; published independent authority data; evaluative reference texts; and online resources.

New drugs that are considered first-line therapies, and have a therapeutic advantage over existing products, are added unconditionally as full benefits to the formulary. These drugs offer a value to the formulary whether it is a cost benefit or a clinical value.

Drugs that are considered second-line agents, and used only after other therapies have been tried, would be listed as conditional drugs. These drugs will have specific medical criteria or treatment guidelines that must be met prior to approval for benefit coverage. Conditional drugs can also include products that may be used inappropriately by the patient or prescribed by physicians to treat unapproved conditions.

When patients meet the criteria for a conditional drug, the prescribing physician can complete a special authorization form indicating coverage reasons for an individual patient. By doing this, coverage can be limited to approved condition, dosage, and length of therapy.

A conditional formulary is a strong mechanism to control the potential misuse associated with certain drugs. Many times, a drug is approved for a specific condition. Budget impact data is based upon the condition for which it is approved. If prescriptions are generated for off-condition uses, the budget impact data may be no longer useful.

Drugs that do not offer any therapeutic advantage over existing formulary products are not added as benefits. These drugs tend to be new additions to a particular drug class that are more expensive and do not offer any clinical or cost-effective value.

A conditional formulary can help to assure optimal and consistent prescribing, and maintain (or even reduce) drug costs. Although there are additional administrative burdens for third-party carriers and providers (physicians and pharmacists), cost savings can be achieved without sacrificing patient care.

The continued high utilization rates with the aging population, and the advancements in research technology will compel drug plan managers to adopt cost containment features such as a conditional formulary.

David S. Malian is a pharmacy consultant with Toronto-based Green Shield Canada. He can be reached at dmalian@

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