Patients in the US often hear the term ‘drug formulary’ when they go to see their physician. A formulary, essentially, is a list of prescription medicines that are readily available in the hospital or that are covered by the patient’s drug insurance plan. The contents of formularies provide a strong reflection of the business priorities of each payer or insurer.

Due to payers’ aggressive pricing and contracting efforts, drug developers are faced with increasingly leaner formularies. Indeed, more formularies are being considered ‘closed formularies’ wherein there is a heavy preference for generics over branded drugs, there is a limitation in the number of products included per drug class, or there is a limitation in the number of drug classes (i.e. drugs with the same or related mode of action, similar chemical structure, and/or same disease target). ‘All or nothing’ pharmaceutical tenders, in some ways, are an extremely narrowed down form of a closed formulary where only one prescription drug is covered.

The closed formulary challenge

Closed formularies are typically under Medicare D Plans, which are also referred to as the Prescription Drug Plan. The US healthcare system adopts an identification system for all prescription and over-the-counter drugs in the form of a 10-digit National Drug Code (NDC).

Payers’ decision outcomes for formulary selection and restriction are influenced by the growing number of value assessment models, as well as the types of available evidence regarding a drug’s ability to offer value to the entire healthcare system. However, in instances where they are doubtful of a new product’s ability to offer value based on the utilised models and evidence, payers have the power to issue an NDC block, whereby the new product is not reimbursed at all or only under very special circumstances.

Given the multiplicity of high priced drugs in the market, payers have practical reasons for blocking certain products from formulary.

• To prioritise low price or high value. Formularies are internal control measures that help lower total costs per coverage plan. It may also be a strategy to get pharma companies to drive down their initial prices. When physicians prescribe a brand with an NDC block, they will be asked to migrate to a generic or an on-formulary brand (if switching is not complicated).

• Administrative uniformity. Limiting the number and types of products helps streamline processing of scripts. Payers additionally position messaging material at the pharmacy level to inform or remind patients of the option to switch to a generic or an on-formulary drug. Although some non-formulary drugs are eligible for prior authorisation or exemption, filing for such documents often requires a great amount of paperwork. Typically, only physicians with patients who are in dire need of a medicine with an NDC block will pursue a prior authorisation or exemption to access a non-formulary drug.

• Prevent risks associated with new products. Many payers also conduct a moratorium period, which is a 6- to 12-month lock out that bars manufacturers from negotiating access for a newly launched product. Moratoriums are a safety measure against unexpected side-effects. Insurers may be unwilling to use their beneficiaries as the trial-and-error recipients of a new product in the real-world clinical setting adopt a wait-and-see approach. A few doctors also personally decide to avoid prescribing new drugs that so far have little or no evidence of performance.

NDC blocks can be difficult to manage. After the launch of Novartis’ heart failure drug Entresto (sacubitril/valsartan), a 6-month moratorium was granted. One key challenge the company faced was the physicians who thought, “I cannot write the script [for Entresto].” Filing for prior authorisation would entail massive amounts of time and effort. The doctors also needed to start a new conversation with their patients about a new therapy, when they were already managing over 20 medications.¹

Dealing with an NDC block

NDC blocks render a company’s early sales and marketing efforts ineffective, which can be costly. Companies need to proactively deal with NDC blocks and closed formularies by utilising the power or evidence and patient/physician engagement. Some of the strategies to deal with formulary lock outs include:

Providing evidence of drug value
An NDC block becomes appropriate in situations where a new drug offers similar clinical benefits as its comparators and thus does not add much value for payers and patients. However, insurers provide opportunities to file for NDC block exemptions where medically appropriate, and drug developers need to optimise these. Medicines that are highly innovative are less likely to be interchangeable and are easier to be applied for NDC block exemption. Therefore, pharma companies need to document, collate, and communicate the evidence demonstrating clinical advantages (to mitigate concerns over potentially unknown side-effects) and economic advantages (to emphasise how the new product is designed to target a specific unmet need of a payer).

Reviewing the measures used to evaluate the medication-related quality of Medicare Part D plans is also important. The domains being measured include:²

1. Drug plan customer service
2. Improvement in the drug plan’s performance, member complaints, and problems with receiving services
3. Member experience with the drug plan
4. Patient safety and drug pricing accuracy.

Medicare utilises a Star Rating System that ranges from 1 to 5, with 5 being the highest, to evaluate drug plans. Each plan is granted individual star ratings per category, along with a summarised star rating covering its entire performance. These ratings are used to compare drug plans and identify areas for improvement, and so pharma companies need to target those areas for improvement and complement the individual goals of a particular drug plan.

Building patient and physician preference
If an NDC block cannot be avoided, companies need to increase engagement with physicians and patients to influence their preference for the product. Physicians will assist their patients in accessing the most appropriate drug and might go out of their way to prescribe a non-formulary drug as long as the clinical benefit is justifiable. Additionally, most committees tasked to develop formularies include physicians, nurses and pharmacists. Informing physicians about the unique benefits of a non-formulary drug may not provide immediate access to the product, but when the time comes that the committee must re-evaluate the formulary, the medical practitioner is already aware of the product information.

Blocks also limit the patient’s choice because payers have been required to choose one product over another, rather than both, resulting in some products becoming out of reach for many patients. Although generics and on-formulary drugs can take the place of non-formulary or blocked products, switching can potentially lead to problems, such as undesirable treatment response due to genetic variation. In such cases, limiting the selection of drugs covered by a plan becomes unfavourable for the patient, which is a major concern for patient advocates. Engaging patients and patient advocacy groups is important, so they can lobby for access to the product. Going back to the example of Novartis’ Entresto, the product had the ability to reduce mortality and hospitalisation by 20%, enabling the user to live longer. So, the company started to think in terms of optimising patient access versus optimising revenue.¹

Plan for a possible moratorium
A 6- to 12-month lock out is extremely prohibitive for market access teams of newly launched products. Drug developers must consider offering discounts to payers, as well as co-pay coupons for patients, to assist the product in gaining traction. The market access team at Novartis, for example, evaluated how much patients who were eligible to use Entresto would pay out-of-pocket based on different prices to determine co-pay opportunities.¹

However, these methods must be treated as a temporary fix or a preliminary step towards a more elaborate access plan. With the growing body of evidence and increasing types of value assessment models available to payers, rebates will soon have less influence on formulary decision-making than evidence of a drug’s potential value contribution to the overall healthcare system. Payers will ultimately prefer medicines that produce outcomes and support a sustainable healthcare over cheaply priced products.

Drug developers can prepare for NDC blocks by establishing profitability across entire portfolios. Companies must evaluate the payer landscape and determine how individual payers distribute access across their on-formulary medicines. What is their access/budget allocation for specific classes, disease indications, and patient demographics? What are the advantages and disadvantages of being on a private formulary (private insurers) versus a public one (Medicaid formulary), and how can an optimal balance between the two formulary types be achieved? Once this balance is defined, pharma companies need to extend it across their product portfolio by compensating for access losses in one area with access gains in other areas to achieve overall profitability.

To find out more about how we can assist with contracting and pricing strategies, contact us at discover@validinsight.com.

References

1. Oransky, I. (2016). Entresto: A Case Study in Value-Based Pricing? Retrieved from http://www.medpagetoday.com/cardiology/chf/56545
2. Academy of Managed Care Pharmacy (2014). Medicare Part D Quality Measures.