Understanding formularies
The cost of prescription drugs continues to outpace inflation and represents the fastest-growing portion of national health expenditures. Under pressure from payers such as employers and the government, managed care organizations are trying to find more creative ways to control the drug budget. Formulary restrictions are evolving in response to this fiscal problem. Because of this, it has never been more important for the pharmaceutical sales representative to understand formularies and how they can either help or hinder reps in moving their products through the pipeline to reach the patient. The problem of rising costs continues unabated. In 1990, prescription drug expenditures were a mere 4.9% of total national health expenditures. Today, drugs account for roughly 10% of total national drug costs, and by 2012 – less than a decade from now – prescription drugs are expected to account for 14.5% of our total national healthcare budget. Further, the passage of the Medicare Prescription Drug Information and Modernization Act of 2003 will give all seniors access to drug plans, a move that will require further cost and utilization controls. Because seniors have the highest utilization of prescription drugs, you may expect the tools of drug benefit management to be sharpened even more to bring this group of patients under fiscal control. It is estimated that the Medicare drug benefit will bring another 10 million seniors who currently have no coverage into a prescription drug plan. Therefore, you can expect a growing percentage of your business to be covered by various types of formulary restrictions. Your job as a sales representative has never been more challenging. When you sell under health plan formularies, you sell beyond the science to the economics. The nuances of the clinical advantages of your product are even more important when selling the total value proposition of your therapy to the physician. Let’s see how that works. Tiered copay One of the most common methods of cost control is tiered copayment. Most likely, you are familiar with the concept that, based on the decision of a health plan’s pharmacy and therapeutics committee (or possibly the P&T committee of a large provider such as a hospital or physician group), your drug can reside on either the first, second or third tier, as determined by its efficacy, safety and cost effectiveness. Use of the three-tier drug benefit has grown substantially in just a few years; in 1999, only about 20% of covered lives had a three-tier benefit, whereas by 2002, almost 60% of covered lives were under a three-tier plan. The first tier usually includes generic drugs, and sometimes multisource branded products; the first tier copay ranges from no-pay to $15. The second tier is usually reserved for branded drugs given a preferred formulary status and can include single-source brands and some higher-priced generics. Second-tier copays usually cost the patient between $10 and $25. The third tier usually contains non-preferred multi-source branded agents; the copay typically ranges from $20 to $50 or more. When your drug is on the first or second tier, you can remind your physicians about its lower cost, higher efficacy and favorable side-effect profile based on the health plan’s preferred status for your product. When your product is disadvantaged, or on the third tier, you will want to emphasize its superior clinical profile and any reduced medical costs that may offset its higher copay, such as fewer office visits or a better side-effect profile. Most studies show that a $15 to $20 spread changes patient behavior. Tiered copayments have proven to be an effective hedge against overutilization and the use of costly alternatives, because patients feel the impact of their choices through the increasing copay. In a relatively new development, some health plans are experimenting with a fourth tier. The fourth-tier concept has been implemented in a variety of ways: It is being used as a category for injectables and other specialty pharmaceuticals, “lifestyle” drugs such as fertility and smoking cessation products, and new Food and Drug Administration approvals that haven’t met P&T criteria yet. Prior authorization Physician use of prior authorization requests to prescribe non-formulary medications has been an effective tool in helping patients access the most appropriate drug. Some studies have shown that health plan members don’t like prior authorization, and its use appears to be declining slightly. However, when doctors favor the use of your non-preferred or non-formulary drug, it is still helpful to suggest the use of a prior authorization request. When recommending prior authorization to the physician, be prepared to provide the office staff with the appropriate information so you can make the process easier for them and increase the chances for approval. Before suggesting prior authorization, be sure the physician is a strong advocate of your drug. Specialty pharmacy Specialty pharmacy – the high-tech, biotech and injectable part of the business – is the fastest-growing segment of pharmacy sales. The injectables and infusables market represented about 1% of pharmacy costs in 1998; today it is at 8% and is expected to expand to as much as 15% of total pharmacy costs as early as next year. Nationally, specialty pharmacy represents between 5% and 10% of a health plan’s overall drug spending, but its cost is rising at the significant rate of 25% to 40% a year. Because specialty pharmacy is rapidly becoming a major cost driver in the rise of drug spending, many payers are looking for ways to contain those costs today. Some notable changes: • Legislators built a reduced reimbursement rate for specialty pharmacy into the Medicare Prescription Drug Improvement and Modernization Act of 2003. By 2005, physician-administered drugs will be reimbursed based on a new calculation called the Average Sale Price plus 6% (ASP + 6%), which will replace the Average Wholesale Price minus 15% (AWSP – 15%). Injectables and infusables in the outpatient hospital setting have experienced a similar reimbursement reduction. • Payers have found they spend 20% to 30% more on specialty pharmacy claims paid through the major medical benefit than on those paid through the pharmacy benefit. Therefore, more specialty pharmacy is moving under the pharmacy benefit and traditional cost-control measures are being applied, such as bulk purchasing for best product price, copays, closer scrutiny of utilization and outcomes, and the use of National Drug Codes for specific formulations, rather than a general J-Code to identify all forms and dosages of the same product. These changes are expected to improve the efficiency and appropriateness of dispensing, reduce costs associated with inappropriate utilization and billing errors, and improve data capture and measurement of total health costs. • The specialty distribution system is changing from one where physicians maintain supply to one where specialty pharmaceuticals are being stored by retail pharmacies equipped to handle the products. In some health plans, physicians are no longer paid for products they dispense; rather, they submit a request to the health plan for “replacement product” and receive an administration fee for their medical services. Over the counter The prescription-to-OTC conversion market is growing, and has particularly affected the proton pump inhibitor and nonsedating antihistamine categories. Recent over-the-counter formulations of prescription drugs have moved them out of some health plans’ pharmacy budgets. When you are selling a prescription drug with an OTC alternative, remember a few tips: • The OTC drug may have different ingredients than the prescription product of the same name, and also may have different label indications. • In some cases, health plans are placing the OTC drug on the first tier with generics, so doctors must write a prescription for it and patients pay the first-tier copay. Usually this occurs because the OTC drug is less costly than the generic. • Some health plans recommend an OTC drug, such as a pain reliever, as the first- line drug in a step therapy approach, before prescribing a higher-priced prescription product. • Some lower doses of a prescription product also available over the counter may be stricken from the formulary, so only the higher doses of a prescription drug may be covered. Therefore, when selling a prescription product with an OTC alternative, know the price of the OTC drug compared with the prescription copay, find out if the OTC product has the same ingredients or indications as the prescription drug, and find out if the OTC drug is being recommended as the first-line treatment in a step therapy protocol. Then you will be able to talk to the physician about the efficacy and safety of the prescription versus the over-the-counter product, and you will be able to demonstrate how the prescription copay may be less expensive than repeated OTC purchases. The total value proposition Your knowledge of the science behind your products is essential to your credibility, and under managed care, so is your understanding of the economic impact of drug selection. Payers, health plans, physicians and patients all share the burden of increased costs through risk-sharing arrangements that include copays, deductibles, withholds, bonuses, rebates and coinsurance. Therefore, it is helpful to position your drug not only by selling its features and benefits. Demonstrate your product’s ability to achieve outcomes related to lower surgical costs, shorter hospital stays, better compliance for chronic disease patients, and even lower absenteeism and higher productivity, and you are demonstrating the value proposition that supports the use of your product. When using the total value approach, remember the following: • Link drug costs to clinical outcomes. A word about the future Even without a crystal ball, it is a safe bet that these trends will influence the future of pharmaceutical sales. The most obvious foreshadowing of great change is the passage of the Medicare Prescription Drug Information and Modernization Act of 2003. Some incremental changes are already being felt as a result of the new law, but a greater sea change is imminent as specific sections of the legislation are rolled out over the next few years. The senior drug benefit, which begins in 2006, represents the greatest change in Medicare since its inception in 1965. Largely, this is because drug spending has become one of the most rapidly growing portions of Medicare, and with the proliferation of biotech medicines, it will grow even more quickly in the next decade. The budget implications of this biotech boom, together with the higher costs of new generations of traditional drugs, will cause a major shift in the way pharmaceutical products are purchased, stored, transported, reimbursed and delivered to the patient. The government’s role as a major purchaser will be more dominant under this legislation. Increasing government involvement will affect your sales efforts because markets will be consolidated for purchasers to take advantage of bulk pricing. On a regular basis, you will come into situations in which you will either enjoy tremendous market share in a region or you will face serious obstacles. Understanding the impact of formulary restrictions now will help you be a better partner in care as these changes take place.
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