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How Physicians Can Help Reduce Wasteful Drug Spending

Doctor giving out drugs to patient
  • Lauren Vela
    Lauren Vela

    Senior Director, Pacific Business Group on Health

  • Lauren Vela
    Lauren Vela

    Senior Director, Pacific Business Group on Health

  • Physicians say the key to prescribing higher-value, lower-cost medications is to give them easy access to information, including the total cost of drugs and the cost to patients

  • Physicians support the idea of prescribing high-value drugs, but say compliance with drug formularies is time-consuming and frustrating for themselves, pharmacists, and patients

Could prescribing practices designed to maximize both efficacy and cost-effectiveness reduce wasteful prescribing and save money? Physicians we interviewed said yes, and that the key to altering their prescribing practices would be to give them easy access to information, including the cost to patients and total cost of drugs, at the point of care.

There is ample room to reduce drug spending. We analyzed prescription drug data from 15 large, self-insured employers (including 13 members of the Pacific Business Group on Health), to identify prescriptions that may be wasteful — that is, drugs with high prices that have no proven clinical value over similar drugs with lower prices. Based on the analysis, we estimated that the potential savings from reducing the use of these wasteful drugs is between 3 percent and 24 percent of what employers and their employees spend on prescription medications. Across these 15 plans, that is a potential savings of $63 million annually.

Not Just Generics: Categories of Wasteful Drugs

  • Me-too drugs” — Drugs with minor and inconsequential differences from the prototype drug, but that can extend patent protection
  • “Combination drugs” — Drugs that combine two active ingredients into one pill, resulting in costs that are substantially higher than the costs of the individual ingredients
  • Drugs for which over-the-counter alternatives are available
  • Brand-name drugs or higher-priced generic drugs for which less costly

Why Do Physicians Prescribe Wastefully?

There are three main reasons that wasteful medications are prescribed:

  1. The drugs are included in formularies designed by pharmacy benefit managers (PBMs) who may be incentivized to choose higher-rebate, higher-cost drugs instead of lower-cost drugs. PBMs negotiate with drug companies for price discounts for their clients. These discounts are often paid as rebates based on formulary placement and volume of sales. These rebates, when passed through, lower costs for plan sponsors and patients. But PBMs also keep a portion, creating incentives for them to drive prescribing of high-cost medications. PBMs also benefit from “spread,” that is, the difference between what they pay the pharmacy and what they collect from the self-insured employer. Spread is generally larger with higher-cost drugs.
  2. Employers may be reluctant to risk their employees’ ire by restricting choice; instead, they allow low-value drugs to remain on their formulary.
  3. Physicians often don’t know the cost of medications, or which ones might be considered wasteful, and continue to prescribe them out of habit.

As the gatekeepers to prescription drugs, physicians play a critical role in shaping the cost-benefit equation. Might they be willing to more intentionally drive patients to higher-value, lower-cost medications?

To find out, we interviewed a sample of physicians in California as part of a project to measure waste in pharmaceutical prescribing. We learned that physicians’ compliance with formularies varies depending on their patient mix and the availability of drug cost information at the point of care. Physicians also reported that compliance with drug formularies can be time-consuming and frustrating for themselves as well as for pharmacists and patients.

Formularies Can Help, But Aren’t the Answer

About half of the physicians we interviewed contract with multiple payers and therefore must comply with different drug formularies. The other half of physicians, typically serving patients enrolled in HMOs or Medicaid, are guided by a single formulary.

Formulary compliance is often burdensome for physicians. A majority of the physicians’ offices spend at least 24 minutes a day readjusting prescriptions to be in compliance with formularies. These readjustments typically involve pharmacists calling to suggest an on-formulary alternative. The readjustments place burdens on pharmacists and physicians and delay the dispensing process, which can be frustrating to patients. According to our interviews, physicians with a single formulary spent the least amount of time readjusting prescriptions.

Overall, physicians said they support the idea of prescribing high-value drugs, particularly if it would reduce costs for patients. They were also amenable to reducing costs for health plans and employers. And they are more likely to adhere to a formulary if it is accompanied by decision support software that integrates with their clinical workflow — a description that does not fit most current tools designed to guide prescribing.

Physicians Are Willing to Adapt, Given the Right Tools

While physicians may be willing to change their habits to reduce costs, other factors — physician workflow, PBMs’ hesitancy to share drug cost information at the point of care, PBMs’ built-in financial incentives, and perceived or existing patient and provider preferences — work against these goals.

More needs to be done to align incentives across the health care system — from health plans, employers, and PBMs to physicians and patients. The goal is to provide physicians with the information they need to prescribe medications that do the best job of making patients better at the lowest possible cost.

Publication Details



Lauren Vela, “How Physicians Can Help Reduce Wasteful Drug Spending,” To the Point (blog), Commonwealth Fund, Sept. 5, 2019.