Study Finds Self-Insured Employers Net Substantial Savings with Revamped Formularies

A new study led by researchers at the Johns Hopkins Bloomberg School of Public health found that two large, self-insured employers that substituted prescription drugs with less expensive options that offer the same benefit saved between 9 percent and 15 percent on annual spending on prescription drugs.

The study, published online October 28 in JAMA Network Open, examined two large, self-insured employers with a combined 360,000 beneficiaries that updated their prescription drug formularies—the list of drugs their plans cover—by swapping out costlier drugs with lower-priced but clinically-equivalent options. These so-called “waste-free” formularies—named for the savings they yield by listing lower prices products—can include generic versions of a branded drug as well as different, less expensive options.

Self-insured employers, which account for about 60 percent of America’s workers, pay directly for the benefits offered to employees rather than purchasing insurance plans. Self-insured employers typically contract with pharmacy benefit managers who design drug formularies and negotiate prices with drug manufacturers on their behalf. Because pharmacy benefit managers keep a portion of the price concessions they negotiate, they may have a financial incentive to include higher cost drugs in the formulary.

For the study, the researchers analyzed the respective updated formularies used by two employers, one a Fortune 500 company, the other a large public employer. Together, the employers identified 293 drugs on their combined formularies with potential lower-cost options. Ninety-five percent (279) of these were replaced with less expensive and clinically equivalent options.

Of the 279 prescription drugs replaced with lower cost options on the two employers’ formularies:

• 76, or 26 percent, were brand-name drugs with cheaper generics;
• 118, or 40 percent, were branded or generic drugs with minor chemical differences and a higher cost than their alternatives, but no added clinical value, such as a branded drug offered in a capsule that was more expensive than the tablet version of the same branded drug.
• 85, or 29 percent, were same-class products, that is, a branded or a generic drug that had less expensive alternatives of the same therapeutic value in the same therapeutic class.

“Given the high number of drug options involving minor chemical differences and same-class products identified by these two employers, our study suggests that cost-saving opportunities go beyond generic substitutions that can be made by the pharmacy,” says Mariana Socal, MD, PhD, associate scientist in the Department of Health Policy and Management at the Bloomberg School. “Prescription drug plans offered by employers are key in reducing wasteful prescription drug spending.

Formularies play a critical role in drug prescriptions in that they help determine which drug prescriptions pharmacists can fill. While pharmacists can oftentimes offer a generic instead of a branded drug, it can get more complicated for pharmacists to provide other substitutions across different products without a new medical prescription.

For the study, the researchers compared the two employers’ spending on prescription drugs for the two quarters before and the two quarters after the companies modified their formularies. The first company modified its formulary in January 2017-December 2018; the second modified its formulary in January 2019.

Spending for 30-day prescriptions, the most common prescription refill, among the therapeutic classes with drugs targeted by the updated formularies declined by 53 percent for the first employer and 67 percent for the second employer. Overall spending on all prescription drugs covered by each employer, net of all rebates and discounts, decreased by 9 percent and 15 percent respectively.

“Association Between Waste-Free Formularies and Prescription Drug Spending Among Self-Insured Employers” was written by Mariana Socal, Ge Bai, Thomas Cordeiro, and Gerard Anderson. 

The study was supported by Arnold Ventures.