Formulary Management Best Practices

Formulary Management Best Practices

Introduction The drug formulary has served as the cornerstone for the administration of prescription drug benefits provided by managed care plans for more than thirty years. In today s environment of rapid-fire changes to the drug universe, constantly evolving regulations and increasing demand for lower costs from consumers, pharmacy benefit administrators face new challenges in creating, maintaining and communicating pharmacy benefits to their many stakeholders. A BRIEF HISTORY OF FORMULARY DEVELOPMENT Let s step back and review why drug formularies exist. Beginning in the 1950s, an explosion of pharmaceutical research resulted in a dramatic proliferation of approved drug products made available in the United States. In conjunction with the growth of new products, the pharmaceutical industry expanded its specialized drug sales forces to represent these new products to physicians. Hospital pharmacies found themselves wrestling with the diversity and quantity of different drug products needed to fulfill physician prescribing requests. The cost to inventory the drugs and to effectively manage that inventory soon grew out of control. The efficacy and overlap of approved indications for use between competing products frequently resulted in clinical duplication. Questioning the need to have multiple manufacturers of clinically similar products and the need to get hospital pharmacy costs under control led to the formation of what would become today s Pharmacy and Therapeutics (P&T) committees. Using the published results of clinical trials conducted by independent researchers, fledgling hospital P&T committees began making recommendations to their physicians to limit prescribing to those drugs that provided the safest and most cost-effective treatment outcomes, the original preferred drug list or formulary. Hospital pharmacies realized an immediate inventory savings and an overall reduction in the cost of pharmaceutical care. With the emergence of managed healthcare in the 1970s, the drug formulary was readily adopted by health plans. The formulary proved a powerful lever to drive volume purchasing discounts with pharmaceutical manufacturers. Formularies promoting preferred products gave rise to the practice of manufacturer rebates to health plans and the network model of healthcare delivery that evolved in the 1990 s. By the 1990s the formulary was the foundation of pharmacy benefit programs with individual benefit plans being derived from master formularies and then tailored to the individual, employer or agency purchasing the coverage. As the number of plans and lives covered grew, the formulary and formulary management practices needed to evolve to preserve the original cost benefits and expand to address growing regulatory and market demands and volume of drugs available. 2

THE EVOLUTION OF FORMULARY DOCUMENTS Over the last twenty-five years, the formulary has evolved from a static, hard-copy document to multiple electronic spreadsheets and databases residing on corporate servers and now as a collaborative web service with a centralized, version-controlled repository accessed through the Internet. At the start, one list ruled them all. It was updated annually and distribution numbers were low. Ensuring compliance and therefore realizing savings was relatively easy. Typewriters and copiers limited the ways that the information could be used and disseminated. With the advent of client-server technology, formularies were moved to spreadsheets and databases for creation and management. This allowed for the formulary to be reproduced and repurposed many different ways to multiple, geographically dispersed audiences. The constantly changing and growing universe of available drugs, increasing regulation and the emergence of electronic prescribing and outsourced claims processing have exposed the limitations and increasing costs of proprietary, homegrown management systems based upon spreadsheets and databases. Purpose-built web services (Software-as-a-Service SaaS) provide an open and flexible platform from which organizations can now create formularies, with a significant amount of regular maintenance having been automated as part of the system, from within a web browser. The formulary is now a living, online document that can be updated multiple times per day by authorized users with complete versioning and audit trails. The online publishing metaphor allows for custom review workflow processes to ensure that all changes are reviewed prior to a work-in-progress file becoming the published formulary for distribution. Translation via XML and other standards-based protocols allows for distribution of published formularies to multiple parties in multiple formats that are defined and validated for accuracy. All of this utility is provided at a zero-it footprint to the healthcare organization. Total cost of ownership is significantly lower, allowing for the recapture of the cost savings that formularies were designed to provide and the realization of the even greater benefits provided by electronic prescribing and electronic medical records, just to name two of the many systems dependent upon accurate formulary data. THE DRUG UNIVERSE AND EFFICIENCY Pharmacy benefit administrators face a number of challenges that are forcing a change in formulary management practices. Foremost among these is the sheer number of drug products available in the United States. There are thousands of prescription drug products available to prescribing physicians from more than 40 major pharmaceutical and biotechnology manufacturers and an even larger number of generic pharmaceutical manufacturers. Any change to the manufacturer, dosage or packaging must be reflected in the formulary to ensure medical intent, pharmacoeconomic strategy and accuracy. There were close to 100,000 changes to available drugs in 2007 alone. An example of one of these changes would be the shift of brand name drugs to generic status. 3

In addition to the constantly changing drug universe, pharmacists and administrators face constant pressure to reduce costs and improve outcomes. Automation can assist in increasing productivity and needs to be specifically engineered to: Save time in the design and delivery of new drug benefits Easily meet the diverse requirements for formulary publishing Positively impact medical intent and pharmacoeconomic strategy Pharmacists are expensive resources, and time saved in formulary management can be applied to other cost and clinical management objectives including drug use evaluations (DUE), drug utilization review (DUR) and the emerging need for formal Medication Therapy Management (MTM) programs required for health plans to participate in the Medicare Part D Prescription Drug program. BEST PRACTICES FOR SYNCHRONIZED FORMULARY MANAGEMENT Formulary Creation To build a formulary from a large and changing drug database, English-language rules that will include or exclude drugs, classify benefit information and apply utilization management edits based upon a comprehensive and customizable set of fields provides the fastest and most reliable way to ensure accuracy. The use of rules creates a machine-based logic that can parse a database faster with absolute compliance to the rules than a human can by any other means. The minimum number of fields for the creation of rules should include: Brand Name Code Class (AHFS Therapeutic Class) Dosage Form Generic GPI Ingredient Manufacturer Multi-Source Code NDC OTC Status Package Size Route of Administration Strength Trade name User-defined Fields Once a basic set of rules is established, it can be copied for the quick creation of multiple formularies without the risk of error. Once defined, the new formulary should then be electronically circulated to a predetermined group of reviewers in order to ensure that the formulary meets the P&T committee s medical intent and the benefit administrators pharmacoeconomic objectives. The system should allow creation and maintenance of different user profiles to ensure that changes are only made by authorized contributors. Only after a formulary has been approved should it then be published as an active formulary for export to all constituents. 4

Formulary Maintenance As updates to the drug database are made (by either the publisher of a commercial database or internal resources) the rules sets should immediately apply the new drug information, automating the single largest burden in maintenance. However, these updates should not be applied to the published formulary but rather to a work-inprogress file to allow for review to ensure the rules are still maintaining both medical and financial intent. If rules need to be adjusted or individual exceptions made, they should be applied across the entire formulary and then copied to other formularies as necessary. All steps in the maintenance of a formulary should be supported with full versioning and audit trails. Every change should be tracked so pharmacists and program administrators can see and understand how, why and by whom changes are made and their impact. Updates, review cycles and new publishing events should be scheduled on a regular basis in order to ensure regulatory compliance and meet communication goals for both internal and external audiences. Formulary Publishing Once a formulary is published a series of translations and transmissions should be triggered to automatically deliver the new formulary to every audience in the format best for that group s consumption, synchronizing delivery of information across all of the pharmacy benefit program s constituents: Electronic Prescribing/EMR networks and software providers Government Agencies PBMs/Claims Processors Financial/Actuarial Systems Members/Providers/Help Desk Portals Automated communication of approved formulary data is one of the most onerous and costly requirements of modern formulary management. Translation and transmission of formulary data must be tested and validated with each recipient to ensure accuracy. System Architecture Formulary management system architecture, in order to meet the demands of the requirements outlined above, is best afforded as a web-based service. The highly dynamic nature of drug data, evolving regulatory requirements and the large number of vendors requiring formulary data make this system incredibly expensive to build and maintain in-house by any single health plan. By subscribing to a web-based formulary management service, payers can reap the benefits of modern formulary management with zero capital investment and minimal impact to their internal resources. 5

THE BENEFITS OF FORMULARY MANAGEMENT There are three strategic areas where a health plan can apply the benefits of employing formulary management best practices: Tame the growing costs of: Specialty pharmacy Regulatory Compliance Realize greater return on investments in: e-prescribing and other digital healthcare initiatives Improved communication with: Providers Members PBM/claims processors Employers/Plan sponsors Technology Vendors Cost Containment If a payer offers a specialty pharmacy benefit, it can use rules to mandate the dispensing of the drug type to selected specialty pharmacies through the use of rules. By leveraging the buying power of specialty pharmacies, the health plan lowers its costs while providing comprehensive coverage to its members while building loyalty and improving retention. Through the application of rules, especially those that apply and update utilization management edits, health plans and PBMs can build programs that automatically communicate drug therapy alternatives, step therapies and other utilization management rules to providers, pharmacies and members. The most obvious of these is a generic in place of a brand name or the substitute of a brand name drug where the health plan has a contracted rebate in place with the manufacturer. By offering cost effective alternatives to its providers and members, payers again exercise cost containment while delivering breadth of coverage, improving outcomes and increasing customer satisfaction. Greater ROI on Technology Investments The emergence of prescription drug networks and the infrastructure to support e-prescribing and EMRs position health plans to finally realize the benefits of a digital healthcare metaphor: improved safety, formulary compliance, reduced costs, better outcomes and improved member satisfaction. The integration and delivery of accurate and timely formulary data is the first and most costly roadblock to the development and deployment of these types of systems. By leveraging XML and standards-based protocols available for use in a web-based service, the service provider can develop and validate translation and transmission protocols, at a fraction of the cost, for exporting formulary data to e-prescribing and other healthcare information technology (HIT) vendors according to each vendor s specifications. Payers can move digital healthcare initiatives forward faster while minimizing the impact upon their internal IT and pharmacy resources, saving money and realizing benefits faster. 6

Improved Communication The ability to provide accurate and timely information on pharmacy benefits assists in regulatory compliance, prescribing compliance to the formulary and empowering providers and patients to make informed decisions about their prescription drug therapy choices. Translating and delivering an embedded web service into the member and provider websites allows for 24/7 access and the ability to enhance information display to include detailed information around prior authorization and other cost-savings programs, such as home delivery. Regular transmission of formulary data to PBMs or claims processing vendors in formats allowing for easy import and use will help to ensure that changes to coverage are quickly implemented and claims are adjudicated correctly. Saving time in upload can save money through the reduction of labor needed to get information live and the ability to more quickly take advantage of special pricing discounts and rebates. In conclusion The evolution of the modern formulary was shaped by both pharmacological and technological advances as well as the constant business imperative to create greater efficiencies and drive down cost. As technology has allowed the formulary to be shared among large and diverse audiences the demand for formulary data continues to grow. Government regulations, electronic prescribing and electronic health records are just a few of the digital healthcare initiatives expanding the need for access to formulary data. Proprietary systems built around spreadsheets and databases can not accurately and reliably deliver formulary data without driving up the cost of systems maintenance and operation and placing a large burden upon IT and pharmacy services resources. Today s best practices in formulary design and development allow for the cost effective creation, management and distribution of formulary data. The use of English language rules speeds creation and ensures greater accuracy while also automating maintenance in the application of changes in the comprehensive drug database. The use of a collaborative web service that allows for multiple roles, audit trails and versioning as well as approval workflows ensures that formularies are only changed by those authorized to do so and that every published formulary has been screened for accuracy and compliance with medical intent and pharmacoeconomic strategy. Building the formulary in an open and flexible architecture utilizing XML and standards-based protocols allows for the economic creation, validation and maintenance of exports to health plan partners in need of accurate and timely formulary data. By employing these best practices health plans will be able to effectively use their formulary as the foundation for containing the costs of their pharmacy benefits programs. A digital formulary that is easily translated and shared with PBMs and healthcare IT vendors can speed the deployment of digital healthcare initiatives, allowing health plans to realize the benefits of outsourced processing, electronic prescribing and/or electronic health records sooner and at a lesser cost to their resources. Finally the modern, digital formulary assists in promoting greater communication of benefits to members and providers, meeting regulatory requirements and increasing customer satisfaction and retention rates. 7

About CATAMARAN Catamaran, the industry s fastest-growing pharmacy benefit manager, helps organizations and the communities they serve take control of prescription drug costs. Managing more than 250 million prescriptions each year on behalf of 25 million members, our flexible, holistic solutions improve patient care and empower individuals to take charge of their health. Used by many leading healthcare payers to control pharmacy costs, Zynchros products simplify Medicare Part D regulatory reporting, effectively manage formulary data and streamline the flow of pharmacy information among healthcare constituents. Catamaran is headquartered in Lisle, Ill. with multiple locations in the U.S. and Canada. 8 For more information, call or click today. 800.282.3232 www.catamaranrx.com 2013 Catamaran Inc. All rights reserved. Zynchros and Catamaran are registered trademarks of Catamaran Inc. 0217-02-04-050713