Cost Efficiency

Making Pharmacoeconomics In Formulary Development a Reality

T. Jeffrey White, Pharm.D., M.S.
Manager, Pharmacoeconomics/Clinical Outcomes, Prescription Solutions

Today's pharmacy benefits management process often poses extraordinary moral, ethical, and financial dilemmas. Chief among them:

  • How are finite resources fairly and appropriately used to cover infinite needs?
  • Do costly life-saving prescription therapies offered to one patient population come at the expense of another?
  • Which patients can best benefit from specific interventions?
  • Is there a solution that employs logic and data, as well as humanity and a desire to help improve lives?

One often overlooked approach is use of pharmacoeconomics for formulary development. Trouble is, the concept — widely touted by clinicians and academicians alike — hasn't been used as a daily core strategy on a mass scale. But this may soon change.

Today a few PBMs are applying this concept globally to their formulary development processes. The result is a formulary with lower cost trends that recognizes the need to improve clinical, economic, and humanistic outcomes for members.

Pharmacoeconomics as strategy

Pharmacoeconomics identifies, measures, and compares the costs (i.e., resources consumed) and consequences (outcomes) of pharmaceutical products and services. The objectives of pharmacoeconomic analysis are to improve public health through better decision making and to determine relative values of alternative therapies.

As noted, most formularies are not developed using the principles of pharmacoeconomics. Typically, health plans and PBMs create formularies by examining: a) safety; b) clinical efficacy; and c) cost.

An effective pharmacoeconomic approach to formulary development emphasizes high-cost (cardiovascular and gastrointestinal disorders, depression, diabetes), high-utilization (migraine, asthma, allergy, and metabolic disorders), and high-impact (AIDS, cancer, organ transplant) medications. A plan may also want to consider pharmacoeconomics where there are significant variations in use patterns. For example, if pharmacy use patterns differ for two people with an identical clinical condition — and there is a significant variation in outcomes — it is an indication that pharmacoeconomics could help develop universally beneficial guidelines.

To be truly effective, a pharmacoeconomic approach to formulary development must include data analysis from various relevant sources. Randomized controlled clinical trials (RCTs) provide valuable information about the clinical efficacy of a drug. It also is important to determine how pharmaceutical products perform in a "naturalistic setting." This requires getting data from the patient population to be served; these data can be gathered retrospectively from claims analysis. The health plan's medical data also should be examined. For example, a PBM or health plan that wants to develop effective formulary guidelines for hypertension should examine claims data for:

  • Compliance (adherence/persistence) by drug
  • Therapy-completion rates
  • Levels of drug switching
  • Amount of dosage titration required to achieve desired clinical outcomes
  • Cardiovascular events (stroke, myocardial infarction, CHF exacerbation) avoided

The need for augmentive therapy also is an important area to examine. For example, if a drug produces stimulation of the central nervous system, is a sedative hypnotic needed to help a person sleep at night? If so, what effect does that have on the cost of treating that person's specific disease?

At its core, use of pharmacoeconomic principles to develop formulary medications is an attempt to quantify cost per outcome of different therapies. The basic criteria should be economic, clinical, and humanistic (quality of life, patient functioning, and satisfaction with care) outcomes. The goal is to secure the lowest cost for the desired outcome.

Another consideration is efficiency versus equity. Does the health plan want to distribute resources evenly among all members, or does it want a few highly targeted programs that focus on select diseases? It is difficult to have both. A careful analysis can help the plan determine which approach is appropriate. For example, say the cost per life year gained for treatment A is $10,000. Although this may seem to be a valuable intervention, treatment A may be used to treat a very rare condition and only a few patients will benefit. Treatment B may be more expensive, but a much broader population can benefit from it (e.g., a vaccination program).

The formula

In a pharmacoeconomic formula, the numerator is always cost, and the denominator is always the clinical, economic, or humanistic outcome. A clinical outcome could be lower blood pressure or a reduction in strokes and heart attacks. Economic outcomes would quantify any cost (pharmacy or medical) avoided or reduced by an intervention. Humanistic outcomes would encompass quality of life, greater life expectancy, or patient satisfaction. After a careful analysis of data, the next step is to calculate the cost per clinical outcome achieved (e.g. secondary heart attack prevented per year), and then compare that with various treatment alternatives to determine the value for the cost paid.

A careful analysis can determine:

  • The cost per treated patient
  • Cost per clinical outcome achieved
  • Cost per life year gained (or cost per quality adjusted life year gained)
  • The cost per event avoided

This allows for objective cost-per-outcome comparisons. Another benefit to this approach is that cost and outcomes can be integrated into one figure, as opposed to looking at these issues separately. This is a strong selling point for employers and other payers who demand quantifiable data for the programs and services they purchase.

To develop a pharmacoeconomic approach to formulary development, health plans and PBMs should consider these critical steps:

  • Use the health plan's population and existing data whenever possible. A strong data warehouse is definitely a plus.
  • Analyze claims and other data to determine which diseases, patients and/or physicians could benefit most from a formulary intervention.
  • Hire experienced professionals who understand pharmacoeconomics and who can analyze and convert data into useful information for decision making. These include pharmacists, biostatisticians, health data analysts, epidemiologists, research managers, and project managers.
  • Invest in appropriate hardware and software. Pharmacoeconomic software programs are available. They can be tailored to meet the needs of a specific health plan.
  • Develop a staff or department that believes in pharmacoeconomics. The approach can be complicated, and to explain its value internally and to customers, the organization needs people who understand pharmacoeconomics.
  • Integrate pharmacy and medical data. The reality is that, often, a plan may need to recommend a high-cost therapy or program that may increase pharmacy costs but, ultimately, can reduce overall medical expenses.

Real-world scenario

The value of a pharmacoeconomic approach to formulary development is seen in the results one PBM achieved after developing formulary guidelines for depression. To quantify the clinical and economic benefits of antidepressant therapies, the company began a large-scale program to identify medications that produced optimal results; to provide physicians with the information necessary to make appropriate prescribing decisions based on those findings; and to increase patient compliance.

The initiative targeted 3,700 physicians with information on 6,200 patients who were diagnosed with depression but had not completed a full course of antidepressant therapy, as is recommended by Agency for Healthcare Research and Quality guidelines. The antidepressants examined were Paxil, Celexa, Prozac, Zoloft, Remeron, Wellbutrin, Serzone, and Effexor. Pharmacy records were reviewed to identify appropriate patients. The effort focused on patients who had been diagnosed within 60 days of receiving their first antidepressant.

As the goal of this initiative was to increase compliance, the PBM analyzed the cost per prescription and compared it to compliance levels for each medication. With that information, it was able to identify those depression therapies most likely to improve compliance, and added those medications to the list of recommended formulary products.

Physicians were informed about the recommended antidepressant therapy and those patients who would most benefit from it. Physicians were mailed guidelines for diagnosis and prescribing, along with pharmacy utilization reports. Patients received educational information about depression symptoms and medication compliance.

By analyzing the data for each medication, the PBM was able to identify which medications produced the best results and which were more likely to have higher compliance rates. After the program began, there was a 25-percent increase full compliance with therapy. While pharmacy costs went up, overall medical expenses were reduced by 10 percent (see chart).

One PBM found that the overall cost of care was 10 percent less for patients who were compliant with antidepressant therapy

Human approach

The value of a formulary developed through pharmacoeconomics is limited only by the decisions made using the information it provides. While it can help PBMs and health plans make difficult decisions, it should not be viewed as the final arbiter. For example, while the PBM that used pharmacoeconomics to develop depression guidelines believes in the approach, it also has an open process for requesting nonformulary medications. In fact, most of the time, it approves nonformulary medications when requested. The key is, that because the formulary is so carefully researched, and because efforts are made to help physicians and patients understand the rationale for selecting formulary medications, there are few nonformulary requests. In addition, unless there is another medication in the therapeutic category, the PBM typically adds all new FDA-approved AIDS and cancer medications. The belief is that there are no other medications within the therapeutic class and that the benefits, in terms of enhanced quality of life and greater life expectancy, clearly supports their value.

Does a pharmacoeconomic approach save money? Yes. In fact the few PBMs that use this approach have among the lowest rates of increase in pharmaceutical costs in the nation. Does the approach improve outcomes? Again, the answer is yes.

Clearly, the use of pharmacoeconomics, when combined with sensitivity to the unique needs of individuals, can help plans and PBMs create the most cost-effective, outcome-focused, and humane prescription benefit for all constituents — payers, physicians, and most importantly, patients.

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