10/12/2012 03:37 pm ET | Updated Dec 12, 2012

The Democratization of Health Care: The Open Formulary Movement

The open formulary movement is a call for the elimination of all prescription drug formularies. The Affordable Care Act (ACA) sets the stage for the movement. Under the law, 30 million Americans who were previously uninsured will now have access to continuous health care. Our analysis of data from the Behavioral Risk Factors Surveillance System and the U.S. Census indicate that 43 percent of these newly insured Americans will be minorities. Formularies are inherently discriminatory and anti-consumer. They ignore medical need, ability to pay, genetic variability, culture and gender.

Our health care financing and delivery system needs a redesign before it can provide optimal care to a diverse consumer base. Health care is an ecosystem: Insurance, discovery, product manufacturing, care delivery, regulation, consumer demand, and reimbursement are all essential components. What should drive the system is consumer demand, not government regulation, insurance practices, or the profits of product and service providers. As providers and suppliers react to consumer demand, quality, product selections (including prescription drugs), distribution networks and prices should be informed by that demand to the advantage of consumers. Government's principle role should be consumer protection (safety, efficacy, insurance regulation, transparency, and conservation of consumer choice) and market encouragement to produce effective therapies to address unmet medical needs.

ACA got it right by mandating coverage, by providing means-tested premium support for those who qualify, and by allowing consumers to choose their insurers. The law creates the potential for robust competition for these new consumers. Insurers will fight for market share, and the smart ones will draw providers and suppliers into the contest as they seek to demonstrate value to each individual consumer.

But by giving the Executive Branch the latitude to define products, set distribution networks and determine who can have access to what therapies, the ACA also establishes the potential for government preferences to override consumer demand. The features, structure and outcomes of a health care system driven by government rulemaking would be vastly different from one built around consumer choice. The distribution of prescription drugs is a case in point.

ACA directs the Secretary of Health and Human Services to define a set of "essential health benefits (EHB)" that these new insurance policies must cover. The scope of these EHB must equal the scope of benefits provided under a typical employer plan. In defining EHB, however, the Secretary is instructed not to make coverage decisions, determine reimbursement rates, or establish incentive programs. Benefits must not be designed in ways that discriminate based on age, disability, or expected length of life, but must consider the health care needs of diverse segments of the population. The Secretary found that the typical employer plan provided drug coverage, but the Secretary seems to have also concluded that since typical employer plans employ drug formularies to control access, these drug management tools should be incorporated into EHB, as well.

Under pressure from employers to slow the growth of premiums, drug formularies have become a standard insurance practice -- a practice that is not defensible in the light of day. Typically, in formularies, drugs are divided into as many as four tiers, with each tier representing a different out-of-pocket payment to be made by the employee, and often different prescribing constraints for providers. The tier with the lowest copay is generally reserved for older medications whose patents have expired -- generics -- because employers can pay generic suppliers less than they pay pioneering companies for branded (patented) drugs. A branded drug can receive preferential tier placement over a competing medication, not because it produces better outcomes, but because the employer, through the insurer/payer, receives a price break from the manufacturer.

Drug formularies are not designed to consider the "health care needs of diverse segments of the population", an ACA-mandated element of essential health benefits. As a matter of routine, they make no provision for age, gender, genetic variations, culture, health status or medical need. The primary concern is controlling wages while, to the disadvantage of patients and consumers, broader medical needs such as slowing disease progression or reducing acute events are subordinated.

In 2003, when the Medicare Part D Prescription Drug Program was signed into law, the Federal Government also decided that the benefit should be administered in the private sector. With oversight from the Centers for Medicare and Medicaid Services (CMS), these plans were "bringing drug benefit strategies that are already providing effective coverage to millions of seniors and people with a disability to the Medicare population." Unfortunately, this can also be construed as a directive to discriminate.

The guidance that CMS offered to private Part D plans included two key, but contradictory, objectives: to assure that the benefit provided access to medically necessary treatments for all without discriminating against any particular types of beneficiaries; and to encourage and support the use of approaches to drug benefit management that are proven and in widespread use in prescription drug plans. This includes drug formularies, and formulary management tools such as step therapy and dispensing limits.

In response to pressure from patient groups, CMS mandated that Part D formularies include all or substantially all drugs in six drug classes: Antidepressant, Antipsychotic, Anticonvulsant, Immunosuppressant (to prevent rejection of organ transplants), Antiretroviral (for the treatment of infection by retroviruses, primarily HIV), and Antineoplastic (only those chemotherapy drugs that are generally not covered under Medicare Part B). CMS instituted this policy to ensure that Medicare beneficiaries reliant upon these drugs would not be substantially discouraged from enrolling in Part D plans, as well as to mitigate the risks and complications associated with treatment disruptions.

It is, therefore, noteworthy and disturbing that the thirteen-page bulletin issued in December 2011on EHB, the Secretary gives notice that not only would these six protected classes not be considered an essential benefit, but also suggested that one drug per therapeutic class would satisfy the nondiscriminatory provisions of the ACA. Drugs are divided into therapeutic classes based upon common characteristics, such as mechanism of action. All drugs that treat a certain disorder may not be in the same therapeutic class; nor will all drugs in the same therapeutic class will be equally beneficial to all patients.

On Oct. 2, 2012, fifty-seven patient advocacy groups delivered a letter to HHS Secretary Sebelius, correctly stating that "limiting medications to just one drug per class will not meet the needs of patients and certainly does not meet the non-discriminatory protections outlined in the law". They urged the Secretary to "abandon this approach and instead require plans to cover a full range of medications that will meet the needs of all patients." In other words, open formularies.

Prescription drug formularies and restrictive formulary management tools violate the non-discriminatory provisions of ACA and possibly the equal protection clause of the constitution. They cannot be medically justified and are anti-consumer. Open formularies are in the interest of consumers, providers, and the health of the country as a whole. The Secretary should not read ACA as conveying a responsibility to limit the distribution of medicines.