Experts estimate the cost of waste in the US healthcare system may be as high as 25% of total healthcare spending. While many healthcare sectors contribute to the waste, the pharmaceutical supply chain is an area worthy of particular attention. Known for its opacity and misaligned incentives, this supply chain has become a wellspring for “wasteful” prescription drug expenditures.
What is a wasteful drug, and how do you spot one?
Wasteful drugs are those that do not provide additional clinical value when compared to lower-cost alternatives used for the same indication. These can include multi-source brands, combination products, and “me too” brand drugs, to cite a few examples. Unfortunately, the number of wasteful drugs is rising, and in some cases, the Pharmacy Benefit Managers (PBMs) tasked with controlling drug costs are encouraging this to happen.
While individual drugs themselves are not inherently bad, some PBMs promote certain drugs when there are less costly alternatives that would save patients and plan sponsors money without sacrificing outcomes.
Why would they do that?
It comes down to misaligned incentives. Traditional PBMs typically retain a portion of a drug’s total cost as profit through spread pricing, rebate retention, and dispensing margin. This framework creates a powerful financial incentive for PBMs to promote drugs with higher prices and larger rebates. As a result, many higher-cost drugs frequently end up as preferred products on the formularies of our nation’s largest PBMs, which control 80% of the market.
Eliminating wasteful drugs through financial alignment and new technology
Capital Rx’s position as an agnostic PBM with a true pass-through model and absence of spread pricing ensures that financial interests are aligned. Our Clearinghouse Model® and NADAC-based commercial network bring transparency to drug prices and eliminate arbitrary price variability. As a result, clients receive the full value of all pricing concessions from the drug supply chain, and wasteful drugs can be removed from formularies.
Where and how does technology help? Leveraging JUDI®, our custom-built Enterprise Pharmacy Platform (EPP), Capital Rx prevents plan dollars from being incinerated by excluding many wasteful drugs from coverage on our Liberty Formulary, which is restrictive (i.e., access to drugs is narrower than with “open” formularies like Freedom). Member disruption is minimized through a comprehensive communication strategy. For plan sponsors electing an open formulary or those with custom formularies, Capital Rx maintains wasteful drug lists that can easily be implemented to exclude or up-tier such drugs.
JUDI also allows for notification to members and plan sponsors of any changes to drug lists and deploys point-of-adjudication messaging to pharmacies and point-of-prescribing messages to prescribers to ensure a pleasant experience across all stakeholders.
Savings and satisfaction rise when wasteful drugs are eliminated
At Capital Rx, the impact of a waste-free formulary is reflected in overall client savings and member satisfaction. On average, Capital Rx clients see a 10% - 30%* reduction in PMPM in the first full year after switching to us as their PBM. Our 96 Net Promoter Score reflects a positive client and member experience that stands out in the marketplace.
*Savings calculated based on member weighted average PMPM, net of rebates and administrative fees, for clients where reliable prior plan cost data are available.
Wasteful Drug Examples (as of June 2022)
Below are various examples of the larger, broader categories of wasteful drugs that Capital Rx excludes from coverage resulting in savings ranging from 90-99% per switch to a lower-cost alternative.