Designing a Value-Based Formulary for a Commercial Health Plan: A Simulated Case Study of Diabetes Medications

The healthcare expenditure for managing diabetes with glucose-lowering medications has been substantial in the United States. We simulated a novel, value-based formulary (VBF) design for a commercial health plan and modeled possible changes in spending and utilization of antidiabetic agents.

We designed a 4-tier VBF with exclusions in consultation with health plan stakeholders. The formulary information included covered drugs, tiers, thresholds, and cost sharing amounts. The value of 22 diabetes mellitus drugs was determined primarily in terms of incremental cost-effectiveness ratios. Using pharmacy claims database (2019-2020), we identified 40 150 beneficiaries who were on the included diabetes mellitus medicines. We simulated future health plan spending and out-of-pocket costs with 3 VBF designs, using published own price elasticity estimates.

The average age of the cohort is 55 years (51% female). Compared with the current formulary, the proposed VBF design with exclusions is estimated to reduce total annual health plan spending by 33.2% (current: $33 956 211; VBF: $22 682 576), saving $281 in annual spending per member (current: $846; VBF: $565) and $100 in annual out-of-pocket spending per member (current: $119; VBF: $19). Implementing the full VBF with new cost shares, along with exclusions, has the potential to achieve the greatest savings, compared with the 2 intermediate VBF designs (ie, VBF with prior cost sharing and VBF without exclusions). Sensitivity analyses using various price elasticity values showed declines in all spending outcomes.

Designing a VBF with exclusions in a US employer-based health plan has the potential to reduce health plan and patient spending.