Using a budget impact model framework to evaluate antidiabetic formulary changes and utilization management tools

Abstract

BACKGROUND: Traditional budget impact models predict the financial consequences of a new drug entering the market. This study provides an example of applying the budget impact framework to a new research question of interest to managed care organizations—what is the budget impact of our formulary and utilization management (UM) policy changes? OBJECTIVE: To predict the 3-year annual budgetary impact of TRICARE’s antidiabetic formulary and UM policy changes using TRICARE claims data. METHODS: A budget impact model was built in Microsoft Excel using health plan claims data for a 3-year time horizon. Model outcomes included spending on antidiabetic medications and medications used for side effect treatment. In sensitivity analyses, medical costs from inpatient, outpatient, and emergency room visits were also estimated. Model inputs included health plan antidiabetic medication utilization, as well as publicly available drug cost, rebate, dispensing fee, and patient cost-sharing estimates. Type of enrollee and pharmacy were also incorporated into the model. Sensitivity analyses varied estimates for utilization switch rates between preferred and nonpreferred agents, drug costs, rebates, and dispensing fees, as well as predicted impact from implementation delays. RESULTS: For the 623,827 affected by the formulary and UM policy changes, the model predicted annual savings that increased from $24 million in the first year to $43 million in the third year after the changes. The majority of savings came from drug acquisition costs, as opposed to rebates, copays, and dispensing fees. Sensitivity analyses found savings across all varied parameters and scenarios except an unlikely scenario when 0% of utilization switched from nonpreferred to preferred agents. The model also predicted that the formulary and UM policy changes would lead to $529,439 in savings from medical visit costs in Year 3. CONCLUSIONS: This budget impact model predicted cost savings from the payer’s formulary and UM policy changes.