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Drug formulary tool casts doubts on rebates

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ORLANDO, Fla.—Employers may not be saving as much money as they think when they share rebates with their prescription benefit managers, a new formulary benchmarking tool created by Towers Perrin shows.

At least one employer familiar with the new tool expressed reservations about making radical changes to drug formularies based on the findings, however, because of the disruption it might cause for plan members.

Towers Perrin unveiled its new "Reference Formulary System"—an ideal list of drugs prescribed to treat common chronic conditions in the most cost-effective manner, independent of financial incentives such as rebates—at the annual meeting of its Rx Collaborative.

Towers Perrin launched the collaborative in 2004 to save its 75 employer members money on their pharmacy benefit costs by, among other things, providing full disclosure and quantification of all sources of PBM revenue, pass-through of rebates, discounts and dispensing fees and the ability to audit the PBM with which it has contracted: Franklin Lakes, N.J.-based Medco Health Solutions Inc.

"The objective is to change the PBM business model, the 'black box' nature of pricing, with more transparent pricing arrangements," said Paul Schott, Towers Perrin principal and Rx Collaborative team leader based in Stamford, Conn. Members of the Rx Collaborative also pay Towers Perrin a management fee to fund "strategic initiatives," such as the development of the new benchmarking tool, he added.

While the Towers Perrin Reference Formulary System is not intended to be used as a stand-alone formulary itself, it will enable employers to take a more active role in customizing their formularies to make them the most cost-effective for their employee populations, its creators say (see story, page 24).

Although the collaborative has contracted with a single PBM for all its members to use, the employers do not use the same formulary. Rather, they have the option of three "off-the-shelf" formularies and one customized formulary.

The tool, which so far has been tested on two members of the collaborative, "demonstrates that expensive drugs (with) the rebates are still more costly than affordable drugs without them," said Bridget Eber, national pharmacy benefit practice leader for Towers Perrin based in Chicago.

"Formularies are designed to list the brand drugs that get the biggest rebates. Typically, the PBM will say these are the drugs that will save money. As a result, the brand drugs listed may not be the best quality for the condition," Ms. Eber said.

The tool also has predictive modeling capabilities to help employers project their savings if a certain number of employees switched to lower-cost prescription drugs, according to Phil Belcher, manager of health and welfare plans at Eastman Chemical in Kingsport, Tenn., one of the two companies at which the system was tested.

"It's a good tool to use. It's an objective tool. It allows you to model different scenarios," he said.

Mr. Belcher declined to share what the benchmarking tool found in evaluating Eastman Chemical's existing formulary, saying he is still studying the results. He did say that, in some instances, however, Eastman Chemical might save money if some of the drugs with which rebates are associated were substituted with those that are not.

"Typically, you work with a PBM and they present their formularies," Mr. Belcher said. "A lot of times PBMs will weigh financial concerns fairly high in their decision to include certain drugs. This will be an excellent tool for Towers to help collaborative clients understand the value of more detailed formulary decisions."

But Mr. Belcher expressed some apprehension about instituting major changes in his company's current formulary in response to the findings of the benchmarking tool.

"You can't take this kind of analysis at face value and just rush right into it," Mr. Belcher said.

Treating depression

For example, in the case of drugs prescribed for the treatment of depression, "it may take a member three or four different trial drugs to figure out which one will medicate them appropriately. So I'm not going to implement this formulary and make all the members who are now properly medicated change drugs," Mr. Belcher said.

"But what it does do is tell you is that if you could start from ground zero, and this was your drug mix before, (this is what you might save if) your drug mix changes to match this reference formulary," he said.

While Towers Perrin declined to identify the second employer on which the tool was tested, it did share its findings with the other employers attending the Rx Collaborative meeting earlier this month in Orlando, Fla.

The test found that "Client XYZ" could save 13% to 24% if it made certain formulary modifications.

Other members of the Rx Collaborative declined to discuss the new benchmarking tool.

"This is a great experiment by Towers Perrin. But it seems that every other week there's a new idea on managing drug costs. Some may think a shared-rebate arrangement works for them, others may not. Our industry is constantly evolving and responding to marketplace preferences," said a spokesman for the Washington-based Pharmaceutical Care Management Assn., a PBM industry trade group.

In response to a request for comment from Medco, a spokeswoman sent the following statement by e-mail: "Medco will continue to work with Towers Perrin on behalf of our mutual Towers Perrin Collaborative clients to build effective drug trend management strategies that will reduce costs for both plan sponsors and members."