In cases with three, four or five competing brands in a therapeutic class, the PBMs would alter the current practice in which most of them are covered. Instead the PBMs and their insurance company clients would cover only one or, at most, two brands.  The idea is that intense competition among pharmas to obtain one of these preferred coverage positions would oblige them to abandon their smug, cartel-like approach in which the prices of various brands differ only marginally.

Pharmas will immediately fight these more restrictive formularies by designing prospective clinical studies in an effort to differentiate their brands and, thereby, make the case that insurers should cover all competing brands in every therapeutic category.  Payers can stymie this pharma effort to keep drug prices high if the insurers use their own coverage data to create and pay for retrospective outcomes studies and then insist that those results form the basis of formulary inclusion/exclusion decisions. By using that approach, payers in most cases can treat the brands competing for first-line use among the majority of patients as commodity products.  That would allow insurers to select the low-priced brand as the preferred medication.

Pharmas with excluded brands will doubtlessly combat that effort by putting forth their own outcomes data to justify the use of those products, but the PBMs can restrict the non-preferred brands to small, niched segments of patients.  Certain brands are more appropriate for outlier patient groups and payers can approve the more expensive products for such use without substantially increasing total drug costs.

If payers succeed in this effort, it means that market share distributions of branded drugs in the various therapeutic categories will change from the classic 50%-25%-12½%-6¼%-3⅛% to something more closely resembling an 80%-5%-3%-1% split.  Pharma companies know if this practice takes hold, most products at most companies will obtain market shares in that 1-5% range. That explains their rush to create product lines of expensive specialty products, thereby making more money despite selling fewer pills and injections.

The approach of managing prescription drug use with outcomes analysis is far more rational than the exorbitant pricing that currently exists in the U.S. under the fiction of a free market.  In fact the economics of health care resources would come closer to an actual market if payers took some initiative by aggressively creating and using their own in-house data to stratify the patients they cover.

That would allow them to reserve the expensive brands for the limited segment of patients, in defined circumstances, who need those medications instead of less costly treatments.  Payers to this point have not made this effort, preferring instead to rely on their traditionally passive, live-on-the-float methods.

Read more at http://www.philly.com/philly/blogs/healthcare/Restrictive-formularies-The-path-to-more-affordable-drug-prices.html#rZDhX6HzwRtrro9f.99

1. Hire a PBM willing to sign on as a fiduciary; transparent speak isn’t enough.
2. Promote member use of manufacturer coupons for brand and specialty drugs. PBMs should communicate availability of all coupons to members. 
3. Pay only Cost Plus (no spreads or mark-ups) for all prescription drugs.
4. Include a semi-annual market check in the contract language. 
5. Attain and exercise full auditing rights. 
6. Require the PBM to identify and pass along all sources of attributable revenue from manufacturers.  Limiting agreements to ‘rebates’ leaves money on the table.
7. Use Reference Pricing — different and much more effective (when applied) than an AWP reporting service.