Medicare Could Save Billions with Additional Formulary Exclusions

Greater use of substituting generic drugs could have a major impact on Medicare Part D spending.

Lowering drugs costs is at the forefront of most conversations revolving around health care spending. To combat rising costs, pharmacy benefit managers (PBMs) implement cost-controlling tools, such as formulary exclusion lists.

The Centers for Medicare and Medicaid Services (CMS) reported that between 2012 and 2015, Medicare Part D spent $397.8 billion on prescription drugs, with out-of-pocket spending for beneficiaries reaching $54.6 billion.

With drug spending projected to increase by 77% over the next decade, PBMs are relying heavily on formulary exclusions to control costs; however, the extent to which this applies to the Part D program is unknown.

A recent study published by JAMA Internal Medicine estimated the potential savings for Part D and patients when branded drugs are excluded from a PBM’s formulary in favor of generics.

The authors identified branded products excluded from the formulary exclusion lists of CVS Caremark from 2012 through 2015 and of Express Scripts for 2014 and 2015 and the corresponding generic substitutions. The analysis was limited to excluded drugs that had available Part D data and generic substitutes.

The researchers found that between 2012 and 2015, CVS and Express Scripts excluded 62 unique medications that had Part D spending data available. CMS was found to have spent $3.6 billion on these excluded drugs, according to the study.

The authors projected that CMS could have saved $2.9 billion by substituting generic drugs during this timeframe.

Furthermore, CMS savings could have increased from $138.4 million in 2012 to $1.2 billion in 2015 when more drugs were excluded, according to the study.

During the study period, the authors found that low-income subsidy beneficiaries paid $23.9 million in out-of-pocket costs for these excluded drugs, while non-low-income subsidy beneficiaries paid $624 million out-of-pocket.

The authors estimated that low-income and non-low-income subsidy beneficiaries could have saved $14.8 million and $479.1 million, respectively, with generic substitution.

Overall, the potential savings accounted for 1% of CMS prescription drug spending in 2015, according to the study.

However, the researchers noted that the analysis was limited because they could not account for rebates and discounts, which may have dropped the price for branded products.

“Our findings suggest clear opportunities to reduce costs using strategies already in place at large PBMs,” the authors concluded.

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