2025 promises to be a year for continued health care scrutiny especially when it comes to transparency of drug costs. With news headlines such as, “The Opaque Industry Secretly Inflating Prices for Prescription Drugs,” as well as recent lawsuits like the one the Federal Trade Commission (FTC) filed against three pharmacy benefit managers (PBMs) in September 2024, This demand is exemplified when it comes to formulary decisions.
Formulary management, a critical role of PBMs, is both an art and a science, and, yet it is oftentimes misunderstood. The sweet spot of formulary management is at the intersection of market dynamics, clinical objectives and affordability. The tricky bit can be navigating all the intricacies to drive value and optimize outcomes.
The stakes could not be higher: mismanagement and the high cost of a single outlier drug has the potential to put a small employer out of business. Poor management that does not prioritize the best interest of employees can also expose employers to lawsuits and significant financial liability.
But there is hope. Employers can help reduce costs while prioritizing the health of employees and their families with the right formulary strategy.
Three Steps to Help Employers Reduce Costs and Improve Care: A Formulary Roadmap
1. Rethink how you measure success
For years, limiting member disruption (when a member must make a medication or pharmacy change) has been a key measure of PBM formulary management success. While it's important to limit disruption, it should not be the ultimate objective. For example, when you need to demonstrate you’re making decisions in the best interest of your company and your employees, disruption to reduce aggregate spend may be a good thing.
Strategic disruption can drive overall savings by optimizing care, improving efficiency and fostering smarter spending choices. After all, when more people switch to an equally effective, but more affordable drug, it’s better for all plan participants.
2. Zoom in on your formulary
A well-managed formulary directly influences the cost, accessibility, and quality of healthcare for employees to shape both health outcomes and overall financial sustainability of your organization. Formulary management is undeniably complex and challenging, but understanding the factors that contribute to this complexity can empower employers and brokers to make more informed, strategic decisions, particularly in a year of change.
Every aspect of your formulary requires ongoing clinical review, the implementation of responsible prior authorization criteria, and proactive monitoring of anticipated FDA approvals.
Employers should look to choose a PBM partner that pays close attention to these factors and prioritizes formulary decisions based on the lowest net cost, while simultaneously improving health outcomes for your employees.
3. Stay ahead of change
While there is the potential for immense change with the new incoming presidential administration, too often, formulary practices lag behind market and legislative change.
For example, significant advancements in GLP-1s and new indications have been made in just one year and 2025 will likely see more innovative new treatments and indications gain approval. Your PBM must stay on top of these developments to provide access to proven treatments for patients that need them and restrict expensive off-label spending.
In fact, it’s vital to choose a PBM that regularly monitors and optimizes formulary performance to quickly adapt as drug costs change, new medications enter the market, and existing drugs gain new FDA approvals.
Employer health care costs are projected to rise in 2025 by 8%, being prepared and knowing you’ll need to remain flexible and open to strategic member disruption will help maintain smooth sailing through any potentially rough waters.
Ultimately, to truly support both employee health and employer costs, your PBM must be structured to manage formularies that put people before profits, every time. Decisions should never be driven by external financial interests - no spread pricing, no confusing contracts, no AI-controlled prior authorizations, and absolutely no compromises when it comes to the health and well-being of your employees.