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Development of Drug Formularies
Author: Alan Silverman, M.D., F.A.C.P.
Last Revised: Mon, 04-Sep-2000
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Development of Drug Formularies

Alan Silverman, M.D., F.A.C.P.


The institution of managed care and cost containment plans has resulted in an increasing number of drug formularies. Insurance agencies, HMOs and PPOs have all developed their own formularies, basing their choices on recommendations, guidelines and, very often, pricing. Frequently their choices meet the needs of the patient population, but on occasion the most effective drugs may not be included because of their high cost or recent emergence on the pharmaceutical scene. In addition, the Managed Care Organizations have created an opportunity for pharmaceutical companies to vie for choice formulary placement by offering financial concessions. With these new alliances, physician prescribing behaviors and patient drug utilization patterns are being influenced by Managed Care Organizations.1

Dealing with Formularies

Physicians are faced with the challenge of treating patients within the drug benefit restrictions imposed by insurers. The emergence of multiple formularies increases the frustration felt by physicians, who must now be familiar with each plan\'s formulary. Typically distributed in printed form, Managed Care Organization formularies are difficult and time-consuming for physicians to use.

Drugs are now often thought of as \"on\" or \"off\" formulary but, in reality, formulary positions can often be more significant, especially to pharmaceutical companies competing for the preferred rankings, which will translate into increased sales and revenue. Examples of the complexities of formulary rankings are given in Table 1. Some formularies are designated as \"closed,\" indicating that certain drugs are essentially \"locked out\" or not reimbursed.2,3 Prescribing \"locked out\" and other \"non-formulary\" medications can trigger significant hassles for patients, physicians, and staff. Such hassles include: 1) varying out-of-pocket payments by the patient; 2) varying degrees of availability at local pharmacies; 3) responding to requests for substitution of medications within a class; and 4) the need to call for prior authorization and wait for an \"OK\" - a process which can be time-consuming and frustrating to the provider and patient, as well as cause delay in treatment.

Providers may ask how committee members of the various plans take into account \"quality of life\" issues when ranking formulary medications. \"Quality of life issues\" may include whether the medication will reduce hospital admissions and/or length of stay, whether it will decrease the number of physician office visits and medical-related telephone calls, whether it will help the patient resume previous activities, how it impacts other aspects of the patient\'s life, such as activity and mobility, etc.

Table 1. Formulary Medication Rankings


Developing a Model for a Provider-Directed Drug Formulary

In developing a drug formulary, there should be an objective evaluation of a pharmaceutical\'s therapeutic merits, safety and cost-effectiveness. This is not always the case, as many formularies make cost the primary criteria for ranking therapeutic agents. With these issues in mind, we proposed a model for the selection of medications for the UCLA Primary Care Network. Our premise was to focus on medical and clinical conditions rather than drug class alone. Our pilot program evaluated \"Care for Acute Sinusitis,\" which included algorithms, comparisons of cost, clinical options and drug interactions. The committee that helped developed this program consisted of specialists in pulmonary, infectious diseases, ENT, general internal medicine, and pharmacy.

Steps in Developing a Provider-Directed Formulary

  1. Determine the approach: medication category or medical condition focus. We chose to focus on a single medical condition, acute sinusitis (see Figure 1).

  2. Invite practice representatives who work closely with the drug or the condition. For acute sinusitis, we wanted representatives who approached the condition from different perspectives, such as infectious disease, head and neck, and pulmonary, as well as internist and the specialist viewpoints. We also included pharmacy representatives who were familiar with not only the clinical action of the drugs but the utilization patterns in the system and relative cost factors.

  3. Discuss guideline recommendations, actual practice scenarios, first line and second line treat ments, preference of the representatives and recognition of potential drawbacks, i.e., costs, side effects/toxicity.

  4. From the discussion and consensus, an algorithm can be drawn up and distributed to the discussion members for comments, changes, and approval.

  5. Distribute the algorithm to the primary care physicians, for their comments and approval.

  6. Suggestions and comments are considered, inves tigated, and integrated as appropriate.

  7. The Pharmacy and Therapeutics committee of the hospital or group medical staff ultimately must approve the formulary; once approved, the algo rithm can be distributed as a recommended course

    of action
  8. The final step is to gain the Managed Care Organization\'s acceptance of these internally developed formularies for the group\'s patients.

Figure 1. Example of Provider-Directed Formulary

Use of Provider-Directed Formularies

It is important that the drug formulary reflect not just the \"least expensive\" option, but the concurrence of PCPs and sub-specialists for optimum care of thepatient. This rule is not always adhered to bypharmacy benefit plans. Evidence has shown thatmany cost-containment policy decisions have hadserious and unintended impacts on patient health.4,5,6Consequently, the cost-containment efforts may haveincreased the over-all cost of care offsetting anysavings from the drug budget.

In a provider-directed formulary program, the prescribing physicians assume responsibility for the well-being of their patients, while still controlling costs in a capitated environment. In most cases, these formularies are developed with the input of practicing physicians who contribute their knowledge about the drugs being recommended. In addition, utilization reports can direct decision-making.

In rare cases, clinical data alone will be used to make formulary recommendations. These cases occur only if clinical profiles of a new drug demonstrate distinct superiority over existing treatments, as in the case of the ever-evolving AIDS treatment regimens.7

We have developed this formulary plan as a pilot program for our physicians; we are not unique in this type of project, as groups around the country have inaugurated similar undertakings. Development of provider-directed formularies will hopefully bring prescribing control back into the hands of physicians. We envisage expansion of the program to include other common conditions where a set of evidence-based guidelines may be beneficial to the physician and patient, such as anti-depressant and anxiolytic therapy, diabetic therapy, and alternative care therapies.


  1. Navarro RP. Pharmacy Practice: Influencing drug formulary and contract performance. Managed Care Interface. 1999 Apr. Available
    from: URL:
  2. Liang FZ, Greenberg RB, Hogan GF. Legal issues associated with formulary product-selection when there are two or more recognized drug therapies. Am J Hosp Pharm. 1988;45(11):2372-5.
  3. Jackson RA. Practice guidelines, physician groups, and drug formularies. JMCP. 1997 Sep-Oct. Available from: URL:
  4. Ginsberg S. Managed care\'s paradoxical effect. Int J Partial Hosp. 1991 Dec;7(2):171-7.
  5. Wickizer TM, Lessler D. Do treatment restrictions imposed by utilization management increase the likelihood of readmission for psychiatric patients? Med Care. 1998 Jun;36(6):844-50.
  6. Wickizer TM, Lessler D, Boyd-Wickizer J. Effects of health care cost-containment programs on patterns of care and readmissions among children and adolescents. Am J Public Health. 1999 Sep;89(9):1353-8.
  7. Lewis BE, Fish L. Formulary decisions in managed care: the role of quality of life. Drug Benefit Trends. 1997:9(8):41-7.

Development of Drug Formularies
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