Keeping Up with Medicine: Why Formulary Changes Are Standard in the PBM Industry

Pharmacy Benefit Managers (PBMs) are third-party administrators of prescription drug programs. They work with health insurance companies, employers, and government programs to manage prescription drug benefits for millions of Americans. PBMs are responsible for negotiating with drug manufacturers, developing formularies, and processing prescription drug claims.

Formulary changes are a common practice in the PBM industry. According to a 2020 report by the Pharmacy Benefit Management Institute (PBMI), approximately 77% of PBMs made changes to their formularies in the prior year. The report also found that PBMs update their formularies on an annual or quarterly basis, depending on the plan's requirements.

PBMs make formulary changes for a variety of reasons, including new drug approvals, clinical evidence and safety data, drug pricing, and market competition. These changes are necessary to ensure that health plans provide access to safe, effective, and affordable prescription drugs.

One of the main reasons for formulary changes is to manage drug costs. PBMs negotiate discounts with drug manufacturers to secure lower drug prices for patients. Formulary changes are made to encourage the use of lower-cost drugs while still providing access to high-quality care. These efforts result in significant cost savings for patients and employers.

According to a report by the National Bureau of Economic Research, PBMs reduce drug spending by an average of 28% through rebates, discounts, and formulary management. PBMs also encourage the use of generics and lower-cost drugs, which can result in even greater cost savings.

In addition to cost savings, formulary changes are also necessary to improve patient outcomes. The American Medical Association has stated that formulary management is essential to promote safe, effective, and affordable prescription drug use. By prioritizing evidence-based drug choices and encouraging the use of generics and lower-cost drugs, PBMs can help improve medication adherence and clinical outcomes.

Formulary Changes and Exclusions: Examples from the Top Three PBMs in the United States

1. Express Scripts/Cigna: Express Scripts/Cigna is the largest PBM in the United States, with a market share of approximately 25%. The company updates its formulary on a quarterly basis. In 2021, Express Scripts/Cigna made changes to its formulary to exclude several medications, including some commonly used insulin products, in favor of lower-cost options. The company also added new drugs to its formulary, including medications for migraine prevention and psoriasis.
2. CVS Caremark: CVS Caremark is the second-largest PBM in the country, with a market share of around 23%. The company updates its formulary on an annual basis. In 2021, CVS Caremark made changes to its formulary to exclude several medications, including some commonly used asthma and allergy medications, in favor of lower-cost options. The company also added new drugs to its formulary, including medications for spinal muscular atrophy and chronic lymphocytic leukemia.
3. OptumRx: OptumRx is the third-largest PBM in the United States, with a market share of approximately 16%. The company updates its formulary on a quarterly basis. In 2021, OptumRx made changes to its formulary to exclude several medications, including some commonly used cholesterol-lowering medications, in favor of lower-cost options. The company also added new drugs to its formulary, including medications for severe asthma and bipolar disorder.

These examples demonstrate that formulary changes and exclusions are common among PBMs, including the top three PBMs in the country. PBMs make these changes to promote safe, effective, and affordable prescription drug use, and to reduce healthcare costs. While formulary changes can be disruptive for patients and providers, PBMs are required to provide advance notice before making changes to the formulary, and to provide a process for members and their providers to appeal formulary decisions.

PBMs are required to provide advance notice to members and their providers before making changes to the formulary. This notice typically includes information about the specific drugs that are being added or removed from the formulary, as well as any changes in cost-sharing or coverage criteria. PBMs are also required to provide a process for members and their providers to appeal formulary decisions.

In conclusion, formulary changes are a standard practice in the PBM industry. These changes are necessary to ensure that health plans provide access to safe, effective, and affordable prescription drugs. PBMs update their formularies on an annual or quarterly basis to keep up with advances in medicine, new drug approvals, and changes in the healthcare landscape. PBMs are required to provide advance notice to members and their providers before making changes to the formulary, as well as a process for members to appeal formulary decisions. By prioritizing evidence-based drug choices and encouraging the use of generics and lower-cost drugs, PBMs can help improve medication adherence and clinical outcomes.