Medication Musical Chairs! (or Yearly Formulary Changes)

"Round and round the medicines go, which drug will be preferred nobody knows!" Madelaine T. Feldman, MD

There is a time of the year when all of the pharmaceutical manufacturers vie for the prized preferred spot on the formulary. The formulary is the list of drugs that the insurance company will pay for. It can change from year to year or even every 6 months, a little like musical chairs. For expensive specialty drugs it is very competitive to get the preferred spot, because the non-preferred medications will not be paid for until the preferred drug is taken first, even if your doctor thinks a non-preferred drug would be better. What if someone is doing great on one medication and the next year the preferred drug changes to something else?

Who determines these formularies and picks the preferred drugs? It is the Pharmacy Benefit Managers or PBMs. How do drug manufacturers get their medication in that preferred spot on the formulary? They submit bids to the PBMs and the highest bid (or rebate promised) wins the spot. The rebate is an amount of money that is paid to the PBM every time the preferred medication prescription is filled. The more prescriptions filled, the larger the total rebate. Remember, the preferred spot doesn't go to the drug that works the best, or that is the safest or even the one with the lowest list price. It's all about the total size of the rebate bid. The rebate formula appears to be - Rebate total = the list price x % discount x # of prescriptions filled (market share). The higher the list price, discount promised, and market share, the better the chance of winning top spot on the formulary.

Yes, this does appear backwards and seems to offer a perverse incentive to manufacturers to raise the list price of their drugs. PBMs claim they are saving money by changing to a "less expensive" drug from one year to the next. Yet the list price of the new preferred medication is sometimes higher than the one that was dropped.

What if the preferred drug actually has a higher list price, giving the PBM a bigger rebate but making the patient pay a higher coinsurance? What if a percentage of the rebate was reclassified as a fee to avoid passing any savings back to the 3rd party payer? (Patients never seem to share in the rebates.) What if the insurance company owns the PBM and gets to keep all of the rebates as profits? What if PBMs claim they they are not just middle men but are an integral part of the health care system saving billions of dollars for the American people? What if when PBMs are sued for not living up to their fiduciary responsibility to the public, they claim that they are JUST the middle man?

Yes, how PBMs change formularies yearly can seem like Medication Musical Chairs. The big difference is, in the real musical chair game, if you are left without a chair when the music stops, you are only out of the game. Whereas if your medication is dropped from the formulary or loses its preferred spot, and you can't afford it - it is your health that you may lose - and that's not a game you want to play.