Pharmaceutical claims and prerebate spending per 30-day supply are averages presented separately for therapeutic areas targeted by the waste-free formularies and for therapeutic areas not targeted by the waste-free formularies. Overall postrebate per-member per-month (PMPM) spending reflects the pharmacy spending, net of all rebates and discounts, across all drugs and therapeutic classes covered in the employer’s formulary (targeted and nontargeted classes). “Before” and “after” periods were defined as 2 quarters before and 2 quarters after the implementation of the waste-free formularies, respectively.
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Socal MP, Bai G, Cordeiro T, Anderson GF. Association Between Waste-Free Formularies and Prescription Drug Spending Among Self-insured Employers. JAMA Netw Open. 2021;4(10):e2131486. doi:10.1001/jamanetworkopen.2021.31486
Wasteful prescription drug spending arises when drugs are therapeutically appropriate but cost substantially more for the same clinical benefit as their therapeutic alternatives.1 Because these drugs and their alternatives (eg, an expensive proprietary product and its less expensive generic equivalent) have the same clinical outcomes, wasteful drug spending differs categorically from unnecessary or inappropriate use.2,3 Recently, some self-insured employers have implemented waste-free formularies to contain drug spending, but the results have not yet been documented in the literature.4,5
This study examines the experience of 2 large self-insured employers that shared per-member per-month (PMPM) spending information, net of rebates and discounts, before and after the implementation of their waste-free formularies. Employer 1, a large public employer, spends approximately $200 million annually on prescription drugs for more than 300 000 beneficiaries. Employer 2, a publicly traded Fortune 500 company, spends approximately $100 million annually on prescription drugs for more than 60 000 beneficiaries.
Both employers hired external pharmacy consultants to perform a drug utilization review, identify wasteful drugs, and implement appropriate substitutions. Employer 1 gradually modified its formulary between January 2017 and December 2018, and employer 2 implemented its waste-free formulary in January 2019. This quality improvement study compared the following before and after waste-free formulary implementation: (1) average prerebate 30-day drug spending for the therapeutic classes targeted and not targeted by the waste-free formularies and (2) annual postrebate PMPM spending for all therapeutic classes.
This study was exempt from institutional review board approval because it did not meet criteria for human subjects research, in accordance with the Common Rule. The study followed the Standards for Quality Improvement Reporting Excellence (SQUIRE) reporting guideline.
The 2 employers identified approximately 300 drugs as potentially wasteful. For employer 1, these drugs represented 10% of all drugs covered in its formulary, 9% of the covered therapeutic classes, and 29% of all pharmacy claims. For employer 2, these drugs represented 14% of all drugs covered in its formulary, 3% of the covered therapeutic classes, and 17% of all pharmacy claims.
Most potentially wasteful drugs (279 of 293 [95%]) were excluded from the original formularies and replaced with less expensive therapeutic alternatives of the same clinical value. The 14 remaining drugs (5%) were placed under prior authorization or step-therapy requirements. Substituted drugs belonged to 3 categories: multisource products (76 [26%]), me-too products (118 [40%]), and same-class products (85 [29%]) (Table). All 14 drugs placed under prior authorization or step-therapy requirements were same-class products. As a result, the average prerebate 30-day spending across all drugs in the therapeutic classes targeted by the waste-free formularies declined by 53% for employer 1 (the utilization rate of these drugs increased by 6%) and 67% for employer 2 (the utilization rate of these drugs decreased by 19%) (Figure). Prerebate 30-day spending on nontargeted classes decreased by 0.5% and 6%, respectively, in this same period. The annual postrebate PMPM, across all drugs covered on the formulary (including specialty drugs) and net of all rebates and discounts, decreased by 9% and 15%, respectively.
Both employers notified beneficiaries who were affected by prescription drug coverage changes 90 days in advance. Employer 2 hired pharmacists to help beneficiaries navigate the transition. During the implementation phase, employer 1 received slightly higher-than-normal beneficiary complaints, whereas employer 2 did not.
For the 2 large employers in this study, potentially wasteful drugs constituted a small percentage of all covered drugs (10%-14%) and were concentrated in a few therapeutic classes (3%-9%), but they represented a significant proportion of pharmaceutical claims (17%-29%). Within the targeted therapeutic classes, the prerebate savings surpassed 50%. Overall postrebate PMPM savings were 9% to 15%. To our knowledge, these results provide the first systematic evidence on the cost-saving potential of implementing waste-free formularies. Although approximately 300 drugs were identified as potentially wasteful between the 2 employers in this study, many more such drugs exist. As drug prices fluctuate and new drugs enter the market, the wasteful spending potential of covered drugs should be reassessed periodically.
The finding that the most common substitution among potentially wasteful drugs in the waste-free formulary was me-too drugs (118 [40%]), followed by same-class drugs (85 [29%]), suggests that cost-saving opportunities go beyond generic substitutions of multisource drugs. With effective communication, implementing waste-free formularies may not generate beneficiary dissatisfaction.6 Public programs and private insurance plans interested in reducing wasteful prescription drug spending should consider implementing waste-free formularies, facilitated by effective communication and navigation efforts to ensure beneficiary satisfaction. The results of this study, limited by the experience of 2 large employers, may not be generalizable to small employers. Future studies examining clinical outcomes associated with the transition to waste-free formularies are warranted.
Accepted for Publication: August 25, 2021.
Published: October 28, 2021. doi:10.1001/jamanetworkopen.2021.31486
Open Access: This is an open access article distributed under the terms of the CC-BY License. © 2021 Socal MP et al. JAMA Network Open.
Corresponding Author: Mariana P. Socal, MD, PhD, Johns Hopkins Bloomberg School of Public Health, 624 N Broadway, Hampton House, Ste 301, Baltimore, MD 21205 (firstname.lastname@example.org).
Author Contributions: Mr Cordeiro had full access to all of the data in the study and takes responsibility for the integrity of the data and the accuracy of the data analysis.
Concept and design: All authors.
Acquisition, analysis, or interpretation of data: Socal, Cordeiro, Anderson.
Drafting of the manuscript: Socal, Bai, Anderson.
Critical revision of the manuscript for important intellectual content: All authors.
Statistical analysis: Cordeiro, Anderson.
Obtained funding: Anderson.
Administrative, technical, or material support: Bai, Cordeiro, Anderson.
Supervision: Bai, Anderson.
Conflict of Interest Disclosures: Drs Socal, Bai, and Anderson reported receiving grants from Arnold Ventures. Mr Cordeiro is the president of Integrity Pharmaceutical Advisors LLC, which has an application for “waste free formulary” as a trademark that is pending approval. No other disclosures were reported.
Funding/Support: This study was supported by research grants from Arnold Ventures (Drs Socal, Bai, and Anderson).
Role of the Funder/Sponsor: Arnold Ventures had no role in the design and conduct of the study; collection, management, analysis, and interpretation of the data; preparation, review, or approval of the manuscript; and decision to submit the manuscript for publication.