Formulary Updates Amid the Changing Climate of Healthcare

First Report Managed Care conducted an interview with James T. Kenney, RPh, MBA, one of our Editorial Advisory Board members, to discuss changes related to pharmaceutical coverage, reimbursement, and formularies in the face of the ever-changing climate of healthcare. Here you will find Dr. Kenney’s take on current events related to the healthcare system.

Q: Can you provide an overview of Harvard Pilgrim Health Care and your role as pharmacy operations manager? How has your background as a former pharmacist and MBA graduate helped you relate to and work with pharmacists, executives, and others in the healthcare industry?

A: Harvard Pilgrim Health Care is a full-service regional health benefits company that provides services to members in Massachusetts, New Hampshire, Maine, and Connecticut. Our mission is to improve the quality and value of healthcare for the people and communities we serve. Harvard Pilgrim Health Care has been named the number 1 private health plan in America, according to the National Committee for Quality Assurance for 10 consecutive years. Harvard Pilgrim’s provider network is extensive and includes [more than] 135 hospitals and 28,000 doctors and clinicians. We provide many fully insured and self-insured commercial products and a number of Medicare products, including a new Medicare Part D offering and products on the Commonwealth of Massachusetts Health Exchange.

My role consists of rebate contracting with pharmaceutical manufacturers, specialty pharmacy contracting, formulary management, and financial analyses focused on drug cost trends, potential pipeline drugs, and the impact of current and future utilization management programs.

My education and training helps me balance the importance of the clinical needs of the patients and providers with the financial needs of the health plan. My goal is to help provide viable pharmacy benefits and services in a cost-effective manner and to achieve the best value for the pharmaceutical dollars spent for our customers, which includes patients, providers, and employers. This approach combines appropriate use and best practices for the treatment of complex and chronic diseases.

Q: Within the next few years, spending on specialty pharmaceuticals is expected to reach nearly half of all drug spending. How are you coping with the increased utilization and spending on specialty drugs? What programs does Harvard Pilgrim have in place? What have been the most effective?

A: We are constantly assessing the specialty drug space in terms of current and future agents and applying utilization management programs where they are likely to provide the best return on investment by maximizing efficacy and cost-effectiveness without compromising the care of our patients. The objectives of the utilization management programs in our health plan are to reduce the inappropriate use of products and to direct patients and providers to preferred branded agents or generic drugs that are clinically appropriate and cost-effective.

[Our] plan employs a number of utilization management methods to manage our open formularies that include prior authorizations, step-edits, quantity limits, and benefit exclusions. We also have disease management programs and an extensive care management program for our membership that helps to engage patients in the treatment of their disease and to promote health and wellness. In 2015, we will be offering a new closed formulary product in addition to our open formulary product for our commercial customers and a single closed formulary for our Medicare Part D business.

The closed formulary will provide an effective tool [for] limiting the uptake of new products that lack clinical differentiation and can provide a method to direct patients and providers to the preferred formulary products. The most effective utilization management programs are those with the greatest level of restrictions and include benefit exclusions, step-edits, and prior authorizations.

Q: You have experience in pharmacy contracting and interacting with pharmaceutical companies and specialty providers. How have contracts changed through the years? Are companies paying closer attention to their contracts?

A: Contracting has evolved significantly over the years by moving from a pay-for-volume or access design to a pay-for-performance or controlled approach. The key to successful contracting is related to the level of control applied to a specific disease or therapeutic category. As the market has compressed, the discounts have increased and the level of competition has never been greater.  

Recently, we have been exploring the opportunity for outcomes-based contracts that focus on clinical end points, in addition to market share utilization and formulary access. I believe that this approach will continue to grow as more health plans expand their ability to utilize integrated medical and pharmacy claims data to assess patient outcomes.

We have a robust data warehouse that integrates medical, pharmacy, and laboratory data that allows us to identify populations of patients by disease and track all of the resources applied to those patients over a specific period of time. This supports a true outcomes management approach to pharmaceutical contracting.

In spite of predictions for years that rebate contracting would be obsolete with the launch of many high-volume generic drugs, I have seen an expansion due to the launch of numerous specialty pharmacy products. In addition, contracting has now advanced to include areas like oncology where contracting was never routinely offered to pharmacy programs. We are now receiving contract proposals for oncology agents as some forms of cancer have become more chronic due to advances in drug development, and the increased competition from manufacturers has created an opportunity for contract development.

Q: At Harvard Pilgrim, you have developed the pharmacy rebate program and Medicare Part D contracting program. What was it like developing those programs? How has the implementation gone?

A: Each program was developed from the ground up [and] allowed us to adapt our approach to meet the needs of our organization and to maximize opportunities across multiple therapeutic classes. We have been able to customize our formulary to provide high-quality clinical coverage for patients and providers, while maximizing rebates and maintaining budgetary control over the pharmacy benefit.

The implementations were very smooth due to an expert team of analysts and a rebate software system that provides accurate invoicing, reporting, and reconciliation. We are able to model potential
opportunities and to monitor existing contracts with the ability to track product or market changes to achieve optimum results.

Q: The Patient Protection and Affordable Care Act contains several provisions related to biosimilars. How do biosimilars differ from generic drugs? Will biosimilars become common? How are payers preparing for the introduction of biosimilars?

A: Biosimilars will be alternatives to branded biologic products. It is not clear whether biosimilars will be interchangeable with the “reference” products or simply alternatives that can be dispensed based on a physician’s prescription order. The manufacturing processes for biosimilars require significant capital investment and infrastructure, which suggests that there will likely be fewer companies competing in this market. In select therapeutic categories, I expect the use of these agents will be substantial as health plans strive to control costs and manage drug trends.

At this point in time, it is a wait-and-see approach, as we do not know when biosimilars will launch, and the FDA approval process is undefined. In addition, several states have passed laws related to the coverage of biosimilars, even though a biosimilar does not [currently] exist. We look forward to the launch of this new category of agents and the opportunity to integrate biosimilars into our benefits and contracting program upon FDA approval. The success of these products in Europe is encouraging, and we look forward to the challenge of expanding our pharmacy and medical benefits to include these agents.

Q: How have formularies changed through the years? Are payers such as Harvard
Pilgrim paying closer attention to costs for new drugs to treat disease states such as oncology?

A: Early formularies consisted of preferred drug lists and open designs that provided access to the majority of approved drugs. Formularies have evolved to include increased levels of management, and many plans are moving [toward] closed formulary products that allow for the increased ability to manage therapeutic categories and control costs. Closed formularies will play a key role in the future management of pharmacy benefits, including the integration of biosimilars and control of the specialty drug products.

We are paying attention to all new drugs, and oncology is no exception. Historically, health plans did not manage oncology; however, the recent approval of a number of products for select cancers, such as chronic myelogenous leukemia, metastatic castrate resistant prostate cancer, and multiple myeloma, have prompted us to take a closer look at these categories and others as an opportunity for prudent utilization management.

Q: At a recent Academy of Managed Care Pharmacy meeting, you spoke about
decision support tools to reduce treatment variability, particularly in oncology. Have support tools such as electronic medical records, electronic prescribing, comparative effectiveness research, and treatment pathways been more widely accepted? Why are payers using them? Will the tools increase in the coming years?

A: These tools have become much more prevalent over the past few years and plans are building the [information technology] infrastructure to support robust reporting capabilities for medical and pharmacy claims. The increase in risk-based contracting with providers has generated a critical need to provide sophisticated reporting tools to allow for improved management of at-risk patients with chronic diseases. [These tools] help us to determine whether we are achieving positive outcomes with the current therapies. It is one thing to diagnose a patient with a disease and a very different scenario to determine whether any interventions are actually yielding positive clinical outcomes.

Will the tools increase in the coming years? Absolutely. As we increase the number of outcomes-based contracts, we will need the tools to effectively track and monitor progress.