Life Sciences

Blocking access: Closed formulary article generates more discussion

Medicare & Reimbursement Advisor Weekly, May 20, 2009

Editor’s note: We received requests to rerun the closed formulary article in MRAW to see whether we could get some reaction and generate more discussion about this topic. The following is a prior article that ran in February. Send comments to Editor Bryan Cote at If follow-up discussion is warranted, we’ll run it over the next few weeks.

The following are two points of background to note:

  • Six managed markets readers say they have used the February article that ran on closed formularies as an account manager discussion tool with customers
  • Four managed care plans said they have shared the article with their contracting folks to help them with forecasting

Closed formularies

The idea that closed formularies can extend beyond the plan and change a physician’s behavior across all plans is an important takeaway, which many of you agree with. Losing new prescriptions—if blocked out of a closed formulary—has a kind of sentinel effect, according to some managed care plans, because at the point of clinical decision-making, behavior begins to change. The patient, pharmacist, and physician may file for a coverage determination or perhaps switch to a generic or an on-formulary brand because of messaging at the retail pharmacy but, clearly, the brand will lose many new prescriptions.

Paul Lakomski, RPh, MBA, regional pharmacy director at WellPoint NextRx, agrees to a point. “I agree [with this], although, I would not call a [National Drug Code (NDC)] block a sentinel effect. We usually refer to sentinel effect for a product that has an edit on it [like a step or NDC block], even though you most likely will approve the medication. But just knowing there is an edit reduces the number of requests for the drug that most likely would not be approved. Plus, only those that truly need the therapy would apply for one,” Lakomski says.

Access agreements

Closed formularies create an environment that is difficult for manufacturers and prescribers to navigate. For example, when manufacturers launch with aggressive campaigns to contract for access, there are a lot of plans that won’t entertain access agreements for a period that ranges from six to 12 months. NDC blocks make trial and usage by patients and doctors really difficult in those situations.

When Lakomski was a director at a small plan, he implemented a moratorium period on any new drug. This was actually quite common in hospitals, and many of the P&T physicians had a self-imposed moratorium of six to 12 months on new drugs as well.

The reasoning behind this is that clinical trials often do not reveal all of the potential side effects when used in a real-world population, so they did not want to use their patients as guinea pigs. There have been many instances, in which drugs, once on the market, have shown severe or even fatal side effects when used in the general population and not under the rigid control or guidance of a clinical trial, Lakomski says, citing Bextra/Vioxx and any of the other recently pulled drugs. This is a safety step.

“For drugs that are truly groundbreaking, there is always a way to get the medication through the appeals process, and this also limits the trial-and-error uses that could be potentially harmful to the patient,” Lakomski says. “If we are talking about a new therapy that will extend life or significantly alter a disease state, there will be a way for the patient to get the medication. If we are talking about the latest once-daily antihypertensive, with a novel mechanism of action when there are a multitude of options proven not only to reduce blood pressure but reduce morbidity and mortality [which is often not the case for the new entry], an NDC block or moratorium is appropriate.”

Some plans ask why they would take a discount on a short-term basis to allow for the manufacturer to gain leverage. From the plan’s view, manufacturers ought to rely on their clinical studies and product labels if they want quick access. Plans also look at demand. If a plan has multiple coverage determinations for a new drug, they are typically more willing to consider a formulary position due to input from the prescriber community.

Separating The noise from control

Closed formularies with NDC blocks and step edits have a lot of control, and result in lower plan costs. An open formulary with a lot of communication produces noise, but not much control. For example, communication could be retrospective formulary change programs designed to move patients from tier 3 agents to tier 2 or generics. These communications (e.g., faxes, letters, coupon programs aimed at doctors or consumers) have a much lower conversion rate compared to a closed formulary, but they tend to be perceived as less disruptive. Pharmaceutical manufacturers need tools to determine whether a given plan manages with edits or just noise. Tools may be internal models to look at actual share migration when formulary positions are lost. Manufacturers, if they haven’t already, need to inventory a plan’s ability to move share.


In a closed formulary, the NDC block removes a lot of new prescriptions for a given brand. Your managed care customers are seeing migration to the generics and other formulary agents. Depending on how rigid a closed formulary is, your branded agent left out could lose 90%–95% of those scripts. Consider a company that invests in its sales force and generates 1,000 new scripts in one month: with an NDC block, the scripts aren’t filled, and, typically, the patient would end up with the generic or, in some cases, a script for the on-formulary brand.

If your company’s managed markets strategy is to get access to your product with closed formulary plans, that’s probably smart. Contracting is the key to access because, without it, you could lose around 90%–95% of your volume (i.e., 950 out of those 1,000 scripts). With step edits, the effect is less, but you could still lose around 50%–70% in volume if your drug is restricted in this way. Pharmaceutical manufacturers will need to adapt their contracting strategies to accurately determine a plan’s level of control. It is imperative that manufacturers segment the market into plans with open versus closed formularies.

Most plans in Medicare D have some closed formularies. Closed formularies and the use of NDC blocking are a great cost-control strategy for plans because they drive the brand cost down. —BC