Formulary Value Assessments: Dr John Watkins

John B. Watkins, PharmD, MPH, BCPS, pharmacy manager for formulary development at Premera Blue Cross, discussed using cost-effectiveness data for formulary decisions.

High-cost specialty drugs have forced pharmacy benefit managers to rethink formulary decisions. Premera Blue Cross implemented a value-based formulary and after 1 year, pharmacy costs decreased 3%.

John B. Watkins, PharmD, MPH, BCPS, pharmacy manager for formulary development at Premera Blue Cross, discussed using cost-effectiveness data for formulary decisions.

AJMC: What are the challenges of formulary value assessments for specialty medications, like those for chronic hepatitis C or multiple sclerosis?

JW: Value is very important when we’re talking about expensive specialty drugs, the reason being because they are higher cost and therefore you need to justify their value. It helps us distinguish between things that are high-cost, high-value, and things that are high-cost, maybe not-so-high value.

So the hepatitis C drugs are a great example, because they’re very expensive, but they’re also life saving. They can produce a complete cure now in the current generation in the vast majority of patients, which is something we’ve never been able to do before. And that certainly is valuable.

AJMC: How are pharmacoeconomic models currently used in these value assessments, and should they be used differently?

JW: They’re not being used for cost utility among most payers. We are among the few that are in the US. Of course, this is done in Europe quite regularly. I would like to see more of it. I think the value of cost utility analysis is that it provides a quantitative way of documenting the value of a particular drug in a given clinical context at a given price.

AJMC: What is the importance of using cost-effectiveness data in a formulary plan?

JW: Having a formulary plan use this data enables you to place drugs on formulary most intelligently by looking at their value rather than just their price.

What we are doing is a reaction to a trend that started almost 10 years ago when the specialty drugs first appeared and so many plans created a specialty tier and they just put all specialty drugs in that tier. So the problem with that, of course, is that it does tot distinguish between high-value expensive drugs and low-value expensive drugs.

If you include the cost utility analysis, that enables you to place the high-value drug in the lower tier so that our members are able to get access to that without the larger out-of-pocket costs for the higher-tier copay.

AJMC: And can you explain the value-based formulary design that Premera implemented?

JW: Our value-based formulary is a 4-tier design. It’s based on explicit cost-utility thresholds. For the different tiers the upper bounds are $10,000 per [quality-adjusted life-year (QALY)], $50,000, and $150,000, and then the fourth tier is anything above that.

And at the time we set this up, that corresponded roughly to the World Health Organization guidelines that set tiers at 1 times and 3 times the per capita growth domestic product in a country, which at that time in the US was I believe about $49,000.