PBGH Drug Formulary Study
Pacific Business Group on Health (PBGH) is a San Francisco-based nonprofit working to transform the nation’s healthcare system. The group works with public and private healthcare purchaser members to redesign the way care is delivered, improve transparency and focus on high-value services. Vela discusses a recent study from PBGH, Integrity Pharmaceutical Advisors, and Commonwealth Fund, which identified “wasteful” medications in drug formularies, found opportunities for dramatic savings by reducing the use of those drugs, and identified the reasons they remain in the plans.
The whole point of our study was to look at data of 15 large self-insured employers and demonstrate that those core formularies of the top three PBMs [Express Scripts, CVS Caremark and OptumRx] were full of wasteful drugs. To varying degrees, we found savings for employers ranged from 4% to 25%. Saving 25% of a company’s total PBM spend by getting rid of wasteful drugs is huge. Among those 15 employers’ data, we identified there was opportunity for about $413 on average savings per prescription, or $63 million total in annual savings.
We only looked at drugs when there were proven therapeutic alternatives. There were only one or two specialty drugs that fit that criteria. Beyond that, specialty drugs become very clinically nuanced, and that wasn’t the purpose of the study. All the results we saw were an understatement because we were so conservative. Those are averages, and some of the savings potential is bigger.
We created a mechanism for employers to do it collaboratively so they don’t have to hire a consultant. In phase two of this work, we have partnered with Johns Hopkins to create a guidebook because we want employers to be empowered to make the changes.
The guidebook talks about the study and gives employers the tools they need to really look at their own data. There are 44 drugs with their codes and alternative drugs. By using this, they can see what their spend is and what they would be spending on alternatives. This can give them a little peek at the opportunity within their own environment. There are more than 800 wasteful drugs that have been identified, but we picked 44 of the usual suspects—the most opportunistic examples [including Metformin, commonly prescribed to treat diabetes]. With this, they can do it themselves or give it to a consultant or PBM, so there is no excuse to do nothing.
What has been happening with rebates is they are reducing costs, but some people are paying list price for their drugs. We have sick people subsidizing the cost for everyone. The problem with that is it’s not the way insurance is supposed to work. Healthy people should subsidize the cost for sick people, and in exchange, healthy people have insurance in case they get sick. It’s not the right way to finance an insurance-based program, and it can’t continue.
If we stop rebates, we will stop having misaligned incentives and start having lower-priced drugs; it would counterbalance. Rebates are not the only problem, but the way we have allowed intermediaries to abuse and take advantage of the system—that has become the problem.
With healthcare as a third-party system, there is not a market cap on what the consumer will pay, because they don’t pay full price. And when they do, it’s not forever [insurance may eventually kick in]. Healthcare is also different because these are treatments patients need to live. There needs to be full transparency so people can make a value judgement.
Employers can intervene and take control of this and not be so dependent upon intermediaries. They need to demand data and transparency. I had one member, an employer, say they asked their consultant about their formulary and the consultant said, “Don’t worry about it, we are handling that for you.” I said, “No, that isn’t an OK response. You need to see the information.” Transparency and informed contract terms are the best way to reduce costs so PBMs don’t make up the money elsewhere.
Remember that this is a business model that we have allowed to happen. We just need to step back and reevaluate. We have to say, “Charge us the right price for your service and don’t take money from the products you are working for.” If I were an employer, I would say that no money should come from anywhere but me. That’s the only way they can know a PBM is working on their behalf.
My concern is about employers choosing not to make any kind of change. It perpetuates a bad system. I think healthcare is in crisis and we are at risk of not being able to provide the best-value healthcare because people can’t afford it. We are continuing to allow that to happen in the workplace. In a way it isn’t just about them. It’s about the U.S. healthcare system, and employers are paying for more than half of it.
It is costing their employees more. But it’s also important for employers to think bigger than the benefits they are offering and think of the entire system. Poor quality in healthcare is expensive. And the business model we currently have isn’t serving us well in this country.