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SCL Industry Insights

Restricted Formularies: Concerns vs. Reality

Dustin Brown, Senior Executive Vice President

Let’s be honest: restricted formularies don’t have the world’s greatest reputation.

That truth is reflected in a 2017 survey of professionals who oversee pharmacy benefits for their companies - specifically, Human Resource professionals and company executives. 86% agree1 that “less expensive generic drugs are just as effective at treating conditions as brand name drugs” - in other words, they generally understand that treatments can have viable alternatives. However, only 9%2 say they are currently using a restricted formulary design.

In addition, only 7%3 said restricted formularies were the best fit for their organization. The remaining respondents preferred an open formulary (45%) or a tiered formulary in which certain drugs require a higher member contribution (48%).

At first glance, these data points seem contradictory. While a restricted formulary does exclude certain drugs, it also covers equivalent therapeutic alternatives at a lower cost to the plan (hence the appeal to management). Since 86% of respondents clearly understand that less expensive treatments can be just as effective, why is there so much antipathy toward a formulary design that embodies this principle?

As the Senior Executive Vice President and co-owner at Script Care, an independent pharmacy benefits manager, I work every day to help our clients understand restricted formulary options. From my perspective, there are three related reasons why HR Directors and other decision makers are wary of an option called “restricted.” Members are concerned that they either won’t get the treatment they need or will be dramatically inconvenienced when changing medications. The HR team worries that they will bear the brunt of these employee anxieties.

Let me address all three concerns head-on - and then explain why the trade-offs involved in choosing a restricted formulary are, for many companies, still very much worth it.

Concern: Restricted formularies take away essential medical treatments.
Reality: Members can still get the treatment they need.

Many prescriptions have alternatives - either branded or generic - that are therapeutically as good or better than the medicine they replace. Even if a formulary stops covering one drug, there may be four other options that a member can move to. Removing a specific drug from coverage does not remove the member’s benefit of obtaining treatment.

For example, one of our client's plans recently removed coverage for brand albuterol inhaler solution, Proventil HFA 1, used for asthma. However, the plan still covers the brands Proair HFA, Proair Respiclick, or Ventolin HFA, which are just as good.

At Script Care, we always want to give members another option when we take something off the table. And we work hard to educate members when these changes occur, helping to ease the burden on HR teams. I’ll say more about that burden below.

Concern: Helping employees adapt to change will burden the HR team.
Reality: Change can be a challenge - but ultimately, the HR team will benefit.

Good HR teams always look out for employees’ best interests. Tell HR that a benefit is going to be restricted, and they’ll understandably be on guard.

Moving to restricted formularies will often impact only a small portion of lives on the plan, since only a few members and their families require the expensive treatments that are being restricted. Still, even though a move may impact only a small fraction of lives on a plan, that small group can mean significant work for HR, which has to assuage employee concerns and help them work through the change.

In the long run, however, the lower costs from restricted formularies will benefit everyone in the company. All companies must make choices when it comes to health care costs. When a plan moves to Script Care’s restricted formulary, we typically see the plan’s rebate dollars double, enabling the plan to hold down premiums.

Choosing not to move to a restricted formulary could necessitate higher premiums for all employees - an arguably more disruptive outcome that could harm HR’s ability to recruit and retain great talent.

Concern: Changing medications will significantly disrupt members’ lives.
Reality: Member inconvenience can be relatively minor.

I understand that moving from one drug to another can be disruptive and unpleasant. I’ve had to change medications myself due to a formulary restriction implemented for Script Care’s own health plan. Even though I understand restricted formulary benefits on a professional level, on a personal level I didn’t want to make the switch. No one ever does.

Fortunately, changing prescriptions for me was ultimately a minor inconvenience of making a few phone calls. I suspect many similarly affected members have an equivalent experience. It’s also likely that a member’s copay will decrease when they move from a non-preferred to a preferred drug (brand or generic). This can further mitigate the friction of making a change.

Worth The Trade-Off

In our experience preparing pharmacy plans for clients, the size of the potential savings makes the move to restricted formularies an obvious choice. By making that decision, a company makes a trade-off, accepting some immediate disruption for the long-term benefit of its employees and itself.

We recognize that making the best choice isn’t always pleasant. When we present clients with a restricted formulary option, we often hear that “we can’t cut coverage” and “we want to save money, but we don’t want to do anything different.”

If only that were possible. Realizing significant savings requires change. Moving to a formulary that shifts members to more cost-effective medications is a promising way to lower costs.

Given the very reasonable concerns that plan members and HR teams have about restricted formularies, the survey data isn’t as puzzling as it first appears. But the truth is that health care itself is a puzzle with no easy answers. Restricted formularies may not make everyone happy, especially in the short term. In today’s challenging healthcare landscape, however, restricted formularies help ensure the long-term success of a company’s health plan - and indeed, of the company itself.

Dustin Brown is a co-owner and Senior Executive Vice President at Script Care, a pharmacy benefits manager.

1 Source: TechValidate. TVID: D82-0BE-7A1
2 Source: TechValidate. TVID: 685-B2B-A04
3 Source: TechValidate. TVID: 432-2F4-135

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