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Navigating Payer Formularies and Meeting Payer Needs — and Why It Matters

In a market where all healthcare stakeholders expect more from manufacturers, payers are no exception. As payers work to support patients and meet their own industry needs, manufacturers need to understand payer processes to improve patient treatment access.

To start, payers have lists of covered drug products called “formularies.” These lists are organized by products preferred by payers or products discouraged by payers. Payers will go a step further by dividing outpatient therapies on formularies into three to five “tiers,” each with a different level of patient cost-sharing.

Formulary selection involves an assessment of a product’s clinical performance and relative cost. With formularies, payers have substantial leverage to provide purchasers in negotiations with manufacturers. This leverage is the primary cost-control mechanism for Medicare Part D (the drug benefit portion of Medicare) and in most private insurance plans. As a result, formularies limit coverage for drugs that the payer has determined do not show adequate clinical differentiation, benefit or value to justify the cost.

Payers have very specific goals when it comes to including a drug on a formulary. For a formulary to go into effect and a drug to be considered for coverage, the formulary must meet the requirements of any regulatory agencies, such as the Center for Medicare and Medicaid Services (CMS), which reviews each Medicare Part D formulary. These requirements include non-discrimination, such as excluding medications needed by high-cost patients. Additionally, Medicare Part D-approved formularies are required to provide access to at least one drug per class within the six protected drug classes. Part D requires plans to cover all drugs classified as antidepressants, immunosuppressants, antipsychotics, anticonvulsants and antiretrovirals.







Challenges to Meeting Payer Needs

Beyond regulatory requirements, payers focus on maximizing their revenue by increasing their membership costs. To do this, payers develop a formulary that encourages enrollment of especially positive-margin members while avoiding adverse enrollment. This results in challenges for treatments that are used by high utilizers.

Payers are also keenly interested in lowering their expenses through minimizing administrative expenses. For instance, the provider medication appeal process requires payers to invest in more resources. When prescribers submit appeals for patient access to medications, it pushes payers to provide access. Administrative expenses can also come from coding issues that cause issues for payers and providers, especially for “Buy and Bill” medications. Lowering these administrative expenses is a contributing factor to whether or not a patient is prescribed a treatment, so it benefits pharmaceutical manufacturers to reduce these burdens and eliminate obstacles to patient access.

Budget Impact Effects

For payers, it is critical to avoid unexpected expenses in the planned annual spending budget, which outlines estimates for each product’s utilization and price.

Treatment pricing can be affected by competitor pricing or similar formulation, economic savings, profits based on investment expenses against expected revenue, or market pricing maximums. Each pricing factor must be explained or justified to payers and, for that matter, government officials to prevent negative backlash from everything as simple as a bully pulpit assault to government price fixing.

Annual pricing budgets are especially problematic for brands trying to launch therapies mid-year after payer budgets are already set. By preparing payers in advance for your drug launch, you can directly assist in assuring patient access.

Insuring the ‘Right’ Patient

On the utilization side, payers focus on insuring the “right” patient based on information from a product’s label, clinical study design and real-world evidence. This information is needed to determine when a patient should start therapy, restart, continue and discontinue. While the initiation of therapy is a major part of the FDA label, information regarding when the therapy should be restarted if discontinued as well as discontinuation is typically not included or available from peer-reviewed literature. Without this information, payers often go to the clinical study design, in which they prevent authorization for continuation of therapy beyond when study participants would be permitted to start therapy. The problem with this is that clinical study designs are not always based on clinical needs but rather study needs, which means that pharmaceutical manufacturers need to provide payers evidence to support continued authorization of therapy for patients.

With complex payer processes and regulations, manufacturers must be sure to explain how a product satisfies regulations, patients and prescribers while also describing the budget impact and providing data to support identification of the “right” patient. This information, especially presented in the form of budget impact and authorization models, can best support payers in assuring appropriate formulary access and meeting patient treatment needs.

Chief Medical Director

Richard has focused his career on improving health outcomes, especially for some of the most vulnerable populations. This has been achieved through several avenues, beginning with his continued active role as a treating internist/geriatrician.…