Pharmacy benefit management, cost-effectiveness analysis and drug formulary decisions

Abstract

Pharmacy benefit management companies (PBMs) have evolved over the past decade in response to the increased demand for health care cost containment. Their activities include the implementation of drug formularies and the negotiation of rebates from manufacturers. Our analysis of this industry is based on interviews and materials provided by the top five ranked PBM companies which account for over 80% of beneficiaries covered within formulary plans. The formularies of these companies are relatively inclusive, but they are becoming more restrictive over time. At present the use of cost-effectiveness (C-E) studies in the formulary decisions of PBMs has been limited. In this regard, the surveyed PBMs emphasized that most C-E studies have not compared therapeutic substitutes in populations with characteristics that are similar to those of their clients. Pharmacy benefit management companies also have had strong incentives to focus narrowly on drug costs because they typically manage drug benefits on a "carved-out" basis. However, PBMs anticipate a growing future role in the integrated management of patient care (disease management) for certain high cost chronic diseases and conditions. All of the leading firms we surveyed have disease management programs in development. The importance of C-E studies to PBM decisions is expected to increase significantly as disease management programs are implemented. The data infrastructure inherent to the PBM industry and the increasing number of employees with advanced training in pharmacoeconomics will permit firms to perform their own internal C-E studies. They are also establishing various alliances and joint ventures with drug manufacturers, health maintenance organizations, and academic institutions to perform these analyses. The leading PBMs tend to favor active participation in the development of methodological approaches to C-E studies over government regulations such as those proposed by the FDA in 1995.