Understanding the Impact of Formulary Exclusions on Medication Adherence

Join us as guest expert Gary Owens discusses how formulary exclusions can impact patient medication adherence and lead to adverse economic outcomes, making the need for non-medical switching and formulary exception requests an important issue for both patients and health care providers.

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Welcome back to PopHealth Perspectives, a conversation with the Population Health Learning Network where we combine expert commentary and exclusive insight into key issues in population health management and more. 

Hello everybody, my name is Gary Owens and I'm a primary care physician by background but most of my career was spent in the payer world working in the Blue Cross system as well as more recently in the consulting world, consulting around issues of market access and economics. And I'm president of my small consulting organization here in the state of Delaware.

Wonderful. So why is patient drug adherence so critical for both health care providers and patients? 

That's a really great question, Hannah. Certainly, in my years as a practicing physician, medication adherence, or I should say non-adherence was always a great source of frustration. We have a lot of data on medication adherence and it's really not as good as we'd like to see. The literature generally suggests that adherence would be 80% or more is needed for optimum therapeutic efficiency. But when you really study articles that are in the literature, adherence to chronic medicine often drops down to around 50%. And that adherence wanes over time. I think some of it is just human nature. People just tire of taking a medication, or perhaps when they're taking a medication for chronic illnesses really don't see any cause and effect even though the medicine is working and it's preventing complications downstream. And we really do know if you track it that adherence rates go down over time. And the WHO is taking that kind of a role in medication adherence points out that there's a lot of impact. It affects quality of life. It can affect the length of life. Remember, I said adherence goes down with a lot of chronic medications that are treating asymptomatic conditions like hypertension, for instance. And the WHO estimates that non-adherence is responsible for about half of all treatment failures which means it's not the drug's fault, it's the fact that the drugs are not being taken. And they estimate that worldwide that can account for 125,000 deaths and even up to a quarter of the hospitalizations in the US. So it's a significant problem. 

From a payer perspective, it's also a problem because I'm often asked what's the most expensive medicine? And the answer is not a single medicine but it's the medicine paid for and not taken because you incur all of the cost and none of the benefits at that point. And then impact is huge. And even when you look at cancer medications, maybe the drop-off rate is not as sharp although sometimes even there it is. I once saw a study that in MS, where you would think patients would have a strong incentive to avoid progressive debilitating disease, that adherence rates even drop below 60% for many patients. Now, there are many reasons why patients stop taking some of those things like cancer drugs and MS drugs that are even more complex, some of it may be due to cost issues or other perceived issues that maybe they haven't discussed the need to take medicines well. 

Could you review what formulary exclusions are and then why they are an increasingly important health care topic? 

Yeah, this is a very interesting and important topic. Formulary exclusions are a relatively new concept, and I say relatively because it’s a 21st century concept, really started growing after 2010 and has been progressive. And what an exclusion basically says is that there is a list of drugs on PBM health plans formularies that are considered non-covered.

On the other hand, that appearance on an exclusion list isn't an absolute guarantee that patients won't lose access. Plan sponsors or clients of the PBM or health plan can choose not to adopt a standard formulary and therefore not to adopt some of the exclusion list. And patients do have the ability to get an exception to the exclusion list. But that being said, they are a bit of a two-edged sword. On one hand, they are a really powerful tool for PBMs and health plans to gain negotiating leverage, especially where there are multiple products in the same category. And we all know even from the recent state of the union address that the high cost of drugs is front and center in the US today.

So on one hand, it's a negotiating and leverage tool. On the other hand, exclusions may actually create some problems for patients. We talked about adherence to medications. And sometimes if a patient finds a drug, their medication is excluded, they just don't take the time and effort to have that proper discussion with their physician about what do I do next. Also, sometimes exclusions, you know, can really drive the difference between the actual cost of the drug that the plan pays and the cost of the drug that the member pays, because what the member pays out of pocket may be based on the list price of a drug and what the plan pays is based on the net price, that kind of net to list price gap.

And the exclusions have been growing. Back when I was managing formularies in the earlier part of this century, we had a handful of exclusions. Major PBMs now their exclusion lists are numbering the hundreds, up to 400 to 600 drugs. So it's a growing number of drugs. 

Could you share a little more about how formulary exclusions influence patients' adherence to their prescribed medications? 

I can and I think there are a number of ways that can happen. One is a patient may find that medicine they've been taking and taking successfully winds up on an exclusion list in a new plan year. Perhaps they change employers and that employer has a different formulary so their drug is excluded. You would think the logical thing to that is contact your physician find out what to do next is there a reasonable alternative, is there something else that I can try? Is there a generic equivalent? All of those questions. But again, it's human nature. Sometimes simple inertia says that patients don't do that and they simply let their prescription run out and then not only do they suffer the consequences of not taking the medication, but perhaps even their physician is unaware that they're taking the medication.

There was even a study done, it's a bit dated now. It was back in 2016 and published in the American Journal of Managed Care that it looked at just a handful of these policies, about 27 of these policies. And they showed that formulary exclusions did reduce overall drug costs but then many times there were other adverse economic impacts because patients' conditions worsened.

Remember WHO, the data I talked about earlier, that up to 25% of hospitalizations are due to medication non-adherence. I don't want to blame formulary exclusion solely on medication non-adherence because it's much more complex than that. And we had poor medication adherence before we had formulary exclusions. But it's just one more factor that can go into that. And so basically what formulary exclusions ultimately do is create the issue of the need for what's called non-medical switching, right, where you're switching the drug not because the patient isn't tolerating it or isn't effective but you're switching the drug simply because the patient needs a new drug which is covered or the patient can sometimes go to their doctor and ask for a formulary exception request if there's a valid medical reason.

But again, that's a lot of work, it stresses physicians to have to do that. On the other hand, PBMs have collected their own data. There's some data from CVS from 2023 that points out that only about 3% of their members are affected by formulary exclusions. Most of us look at that and say, well, 3% is not a big number. But when you're covering millions, tens of millions of members, 3% of that still affects a number of patients.

So it's a non-trivial problem. There probably are some good solutions around most formulary exclusions, but it does require time and effort and it's just one more contributing factor to the potential for non-adherence. And again, I'm not blaming exclusions totally because it's way, way more complex than that.

So how do health care providers and insurance companies currently communicate formulary exclusions to patients? 

Well, certainly all of the major health plans and PBMs have their formularies available online. That's a good thing, it's easy to access. Unfortunately, it also requires members to even think about is my drug excluded and go look it up. Typically, members don't find out they have an excluded drug that they've been taking until they attempt to refill the product. And one of the most common reasons for rejection of a claim at point of sale in the pharmacy is an exclusion. I mean, there are many, many others, but that's one of the more common ones. 

PBMs and health plans do communicate their formularies usually at the beginning of a plan year in Medicare. That's a mandate. But again, I'll point out to you human nature. How many of us read all of that stuff? I would wager that most of us have not read our formulary recently, and certainly most of us have not read our plan benefit booklets until an issue arises. Again, just human nature. 

Changes are often communicated quarterly or on the half year, but again, that requires patients to read it. So usually patients find out about exclusion when their claim doesn't process. And then it's usually a scramble or they go, oh, I'll get around to taking care of this and never do until perhaps they go back for their 6-month checkup with their doctor for some chronic condition. So the communication vehicles are out there, but again, like most things, it does require some effort on the part of the patient and providers have an even bigger challenge because they participate with multiple health plans and their patients often have multiple different PBMs, depending on who their employer is. And so they have to keep up with all these. Fortunately, EMRs help that a bit because most EMRs now, if they prescribe a medication, they'll match that with the formulary and point out this isn't an excluded drug or the alternatives. That's one of the, you know, key benefits of automation. 

What solutions or resources are available to help patients overcome difficulties with formulary exclusions and improve medication adherence? 

I think one of the main ways obviously is still to discuss those alternatives with the prescribing physician. There are many times really safe and reasonable alternatives to the excluded medication, often generic alternatives or many times multiple brand name products in a category. There's always the exception process that we talked about earlier, that you can ask for an exception if there is a medical reason why the particular product that's excluded is in essence the only one or the most optimal one for a member to take. But again, that takes time and effort by both patients and physicians. 

I think another thing that we need to do is continue to do research into the impact of formulary exclusions. Yes, the PBMs are doing some of that and yes, the health plans are doing some of that. But I think it even is a good topic for additional research because we do have in this country the issue of high cost of drugs and employers who pay for a large amount of health care and the government pays for the rest of it, with the exception of those who are uninsured, need to be prudent buyers of medications. So tools like formulary exclusions and formulary management are important, but we want to make sure that the tools we're using are not impacting patient care in a significantly negative way. It really begs for more research. So that's not necessarily a solution, but in the end, yes, it is because if we learn more about the impact, both the positives and the negatives, we can adjust these programs to improve them.

Excellent. And then what are some of the current industry trends and forecasted development of formulary exclusions?

The formulary exclusion number, as you know, has grown rapidly since their introduction shortly after 2010. But recent data shows that perhaps that number is somewhat peaked in that 400 to 600 range of exposure, and what drugs are targeted for exposure because I think that's important. First of all, some of them are brand name drugs with generic equivalents or generic therapeutic alternatives. Reference biologics with biosimilars now are sometimes being targeted. Sometimes drugs that are already non-preferred but have extremely low utilization get targeted. Interestingly enough, we live in a country where drugs are promoted very heavily. Turn on the evening news and you'll see that, and sometimes heavily promoted drugs get targeted because of that potential.

And very often the medicines that get targeted do treat chronic conditions because those are the ones with therapeutic alternatives. So I think the trend is going to be to continue exclusions. I don't know that the exclusion lists are going to grow that much, the actual growth has slowed down over the last couple of years. But I think the trend is going to be to apply more science and experience, perhaps, to the exclusion list, which many times now are in large part driven by contract negotiations. And that's still going to be an important part in order to keep the cost of medications down. But I think you have to first do the scientific and evidence-based approach and then couple that with contract negotiations. Really, managing the cost of drugs isn't going to go away. So these exclusion lists are here to stay as well as other management techniques with which we're familiar like prior authorization and other things that I won't go into this conversation. But these exclusions aren't going away, we just have to refine them and make them better and try to do something that manages costs and at the same time minimizes impact on patients and patient outcomes.

In your opinion, what roles should pharmaceutical companies play in addressing issues related to formulary exclusions and medication adherence? 

I think there's a number of things that they can do. Sometimes a drug gets excluded because there's inadequate data or no comparative data. So when there's no comparative data, multiple drugs are in the same therapeutic class. It's often very tempting to take the less expensive one, especially if they're perceived to be therapeutic equivalent. So maybe pharmaceutical manufacturers need to do some more comparative studies to really show is my drug equivalent or is it better in some way? Sometimes it's also important to maybe study patient subpopulation for a drug may have a particular benefit that we haven't necessarily determined yet for a patient subpopulation.

I also think communication with PBMs and payers is important to really communicate the latest data. I guess I would admonish some manufacturers not to necessarily quote fight the exclusions but really to develop the data and the resources necessary to defend their position. Payers and PBMs certainly want to make their formularies as evidence based as possible, yet there's still that financial incentive to keep prices down. So we need good evidence to help make those informed decisions. So I think really it becomes a collaborative effort between pharma and payers rather than an adversarial effort that's going to improve this process. 

I think my only final message here is whenever we as payers look at managing care, we have to look at all of the aspects of that management, not only the impact on the finances, the impact on medical outcomes, the impact on patients, and now even the impact on physicians. We're reading more and more about physician stress, physician burnout, especially in the post-COVID world.

So I think as payers we have to consider all of those aspects and sometimes things that we do may have unintended consequences and just be alert to those unintended consequences and continue to try to refine ways to manage the high cost of care. 

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