Formulary performance – think differently to manage pharmacy costs

It is estimated that by 2020, drug costs (under pharmacy and medical benefits) will be the number one driver of overall health care spend for an employer.¹ Contributing to drug cost growth is the fact that today, more than one in two American adults live with at least one chronic condition (e.g., diabetes, heart disease, depression) and nearly one in three have with two or more.²

Traditionally, Pharmacy Benefit Managers (PBMs) contracted with drug companies to place drugs on their formularies using rebates to reduce costs and determine preferred placement. This method can lead to formularies containing heavily rebated drugs that have lower cost alternatives.  And once these drugs are accessible, drug companies deploy couponing and advertising strategies to build consumer brand loyalty.

Over the past several years, Cigna Pharmacy Management uses a low net drug cost formulary strategy to challenge drug makers to rethink their traditional pricing. This strategy removes high-priced, low-value drugs from the formulary – regardless of incentives – and instead promotes lower-cost, clinically appropriate alternatives. Encouraging the use of generics and preferred branded drugs that have the lowest net prices for similar health improvements is eliminating millions of dollars of unnecessary drug spending each year.³  And it helps our clients and customers achieve immediate and sustainable lower drug costs.

While less than two percent of our customers were impacted by the drug list changes effective this past January, we decreased pharmacy costs for clients by an average of 3%–4%.³

“We want to be sure our employees are getting the value they expect from their pharmacy benefit. Cigna partners with us by removing medications from our covered drug lists that are considered high cost, low value options – those with inflated prices compared to clinical alternatives,” said Jennifer Young, the Director, Employee Benefits, Waste Management. “This strategy has been effective in lowering our benefit plan’s overall pharmacy costs even accounting for increased rebates on the more expensive medications. Using a net cost drug strategy should send a strong message to drug manufacturers about their pricing practices and enables us to deliver the best overall value to our employees.”

To further illustrate these cost savings, the chart below highlights a price comparison of certain popular brand name drugs with their rate of inflation vs. their lower-cost alternatives.

As you can see while rebates may reduce drug cost they often don’t reduce them enough to compete with the savings of lower cost alternatives. 

The bottom line: Removing drugs from a formulary is a bold move. And so is foregoing rebates when appropriate since it can reduce competitiveness during client pricing exercises. But it’s a necessary move – and a proven strategy – to help our clients and customers lower pharmacy claims costs now and in the future.

1. Cigna book of business national study 2016. Projection compares the following health care spend for medical service categories: drugs and biologics, inpatient facility, outpatient facility, professional services, other medical services.
2. Partnership to Fight Chronic Disease, 2016 National White Paper, www.fightchronicdisease.org
3. Cigna's national book of business study of 1/1/17 formulary changes. Individual client results will vary.