Formulary Project Design

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Prescription drugs account for 20 percent of health spending by members of the Pacific Business Group on Health (PBGH), and growth in pharmacy spending is outpacing all other components of their employees' health care. Firms across the country face similar pressures. One cause of higher drug spending is the use of formularies, which pharmacy benefit managers (PBMs) have developed to maximize negotiated rebates from drug manufacturers-rebates that PBMs keep-in return for favorable placement of drugs on the formulary. Responding to this and other cost drivers, PBGH developed a set of solutions for lowering prices for employers and their workers. This proposal will support PBGH in advancing one of its solutions: development of a formulary based on clinical value and cost effectiveness for employers and workers rather than on rebates paid to PBMs. The PBGH-led team will examine the feasibility of implementing a single customized formulary designed to maximize value for California purchasers. Value is achieved when the most clinically efficacious, highest-value drugs are placed on the formulary's first tier. The team, which will include formulary and technical consultants, will explore three research questions: 1) How can a value-based formulary be designed to lower total net pharmacy spending for plan sponsors and patients, regardless of which major PBM(s) implements it? 2) How can employers, acting as health plan sponsors, require their PBMs to implement a common, value-based formulary? 3) How can a value-based formulary, implemented across multiple plan sponsors, attract prescriber engagement and formulary adherence? The technical consultant will examine pooled prescription claims data from at least two PBGH member-companies to examine formulary design issues. The project team will conduct focus groups with California physicians, medical groups, and other stakeholders for input on shared best practices in prescribing and pharmacy management. Focus groups will explore the practicality of employer and provider acceptance of, and compliance with, a value-driven formulary. The report will discuss obstacles to implementation and how they can be addressed. The project team also will develop a work plan to implement the formulary across payers and stakeholders. This project will lay the groundwork for a shift in pharmacy purchasing toward maximizing value for employers, their plan sponsors, and patients, rather than PBM rebates. Policymakers overseeing public programs that cover pharmacy benefits will also find this work useful.

Grant Details

Grantee Organization:
Pacific Business Group on Health
Principal Investigator:
Lauren Vela, M.B.A., and David Lansky, Ph.D.
Award Amount:
$155,000.00
Approval Date:
July 11, 2017

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