As more high-cost specialty drugs enter the market, and non-specialty drugs become in higher demand, many benefit providers looking to manage costs and protect their drug plan sustainability are increasingly looking to managed formularies as an option.
A managed drug formulary, or preferred drug list, is a continually updated list of medications supported by current evidence-based medicine, judgment of physicians, pharmacists and other medical experts. Unlike an open formulary, which automatically covers all drugs requiring a prescription, a managed formulary covers drugs based a specific set of criteria.
How does this help manage cost?
A well-designed managed formulary always makes sure plan members have at least one covered option to treat the most common conditions, and that the covered option has been deemed effective by evidence-based analysis and judgment. Some managed formularies may provide zero reimbursements for a given drug, while others always provide at least some reimbursement; if a drug is excluded from coverage, it generally means that other drugs are available that provide better value.
Drugs that are listed on the managed formulary list have been judged on clinical efficiency, safety, and cost, meaning that if the drug is on the list, it is also a more cost-effective option while still maintaining the necessary medicinal value.
Considerations for Employers
The number one concern many plan sponsors have is the impact for plan members and their experience. While a managed formulary drug plan allows for a plan sponsor to continue to offer an inclusive extended benefits plan, there is the concern people could lose coverage for some drugs. Because of this, a valid concern plan sponsors have, is the need to assess the potential savings and benefits to their employees before making the switch.
As managed formularies are less common in Canada, some carriers are working with companies to run simulations to quantify these savings, and to communicate effectively with employees who will be on the receiving end of this change.
Types of Formularies
Open formularies: Cover virtually all prescription drugs automatically upon market launch
Single-tier managed: All drugs reviewed to determine whether or not they will be covered; excluded drugs receive no coverage
Multiple-tier managed: All drugs reviewed to determine the level of coverage; typically there are two tiers where tier-one or “preferred” drugs receive the highest level of coverage (could be as high as 100%,), and lowest tier provides some coverage rather than none (such as 50%).
Ultimately, the decision to incorporate a managed formulary as part of cost management efforts will come down to the plan sponsor ’s main objectives for their health benefits plan. Please feel welcome to contact us with any questions on this option.
