Outcomes-based formularies use medication performance to determine rebates. Preferring products with the lowest net cost may seem like an obvious choice, but when the pharmacy benefit manager managing the formulary retains a portion of the rebates, there may be an incentive to prefer higher-rebate products.Ĥ. These formularies consider the cost of the drug minus rebates instead of preferring those with higher rebate yields and higher net cost. Lowest net cost formularies prefer treatments with the lowest net cost. For example, a product with a 50% market share in its market basket might earn higher rebates, than it would earn if it only had 25% of the market share - these thresholds are specified in the contract.ģ. Market share models determine the rebate amount from the market share achieved within the drug’s market basket.(A market basket is a group of drugs competing with one another within the formulary.) Variations on this theme include higher rebates if there are no utilization management restrictions, such as prior authorization or step therapy, or if a drug is assigned a preferred designation offering a lower member copay. The rebate rates improve when fewer products are allowed on the formulary within a given market basket. Access-based rebate models feature rebates based on a percentage of the drug cost, reimbursed to the payer for each claim processed.Most formularies currently in the marketplace are variations on this theme. The plan sponsor is then incentivized to promote the use of the products that offer the highest rebate. Some of the earliest types of managed pharmacy formularies feature relatively simple models where pharmaceutical manufacturers negotiate the position of their drugs on the formulary by offering rebates to plan sponsors. Rebates-based models influence a drug’s position on the formulary. However, they also have the lowest rebates and highest costs to the payer.Ģ. These formularies are more prescriber and member friendly as they allow for the greatest freedom of choice in therapy. Open formularies provide coverage for all prescription medications, with some potential exceptions for over-the-counter and cosmetic medications. Whether drug list decisions are focused on maximizing rebates, finding the lowest net cost, or member outcomes, the key is to find the right fit aligned with each client’s goals.ġ. There are several models for building a pharmacy formulary. What are the different types of formularies? In the second part of our formulary series, we’ll share the different types of formularies, how utilization management factors into formulary success, and tips for helping your client build the best formulary for their plan. Since copayment is linked to the formulary tier of a product, a plan sponsor can select formularies tiers and adjust the copayments to balance member satisfaction with cost savings. Utilization management tools, such as prior authorization, step therapy rules, and quantity limits, ensure members have access to the right medications at the best prices. An effective formulary meets the goals and needs of members and employers - who are paying the bulk of the pharmacy costs. As a benefit advisor, knowing the types of formularies and where they best fit will help you get the best clinical and economic outcomes for plan sponsors and members.Īs we shared in part 1, a formulary is a list of preferred drugs designed to influence which drug products get prescribed and used by members – ideally, those that are the safest, medically appropriate, and most cost-effective. How utilization management complements a well-selected formularyįormulary selection is an essential building block for self-funded employer clients creating a prescription drug program.
The differences between formulary types.
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