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Formulary Considerations: The Past, Present, and Future

Molly Billstein Leber, PharmD, BCPS, FASHP
The hospital formulary system is an ongoing process that evaluates and selects the safest, most effective, and most economical care for hospitalized patients. As healthcare continues to change, so will the formulary management process.
IN THE 1940s, when health system formularies were created, they were simply a current list of medications stocked in the pharmacy, along with some related information about each drug.1 In the 1980s, the clinical and economic value of well-controlled and managed formularies were highlighted.2 Today, Pharmacy and Therapeutic (P&T) committees are considered a critical tool for healthcare organizations to ensure safe, appropriate, and cost-effective use of pharmaceuticals for patient care. A guideline on P&T committees and formulary systems, developed by the American Society of Health-System Pharmacists, summarizes the best practices and techniques that should be implemented for optimal formulary system management.1 Policies and procedures for procuring, dispensing, administering, and appropriate utilization of medications are also included in the formulary management process.

To promote evidence-based medicine, there must be a systematic approach to the evaluation of biomedical literature and its application to clinical practice, which should be applied to formulary decision making.1 This often goes beyond the FDA approval process. The most important decision at hand for a P&T committee is the definition of a formulary drug. Typically, formulary agents are deemed urgent or used with sufficient frequency that they are stocked in the pharmacy in appropriate quantities to ensure patients have sufficient access to safe, efficacious, and cost-efficient drugs.
A formulary agent may be restricted or unrestricted, with restrictions defined by indication, service, or specialty group (eg, infectious disease); medical staff hierarchy (eg, attending only), or patient population (eg, cystic fibrosis, pediatric). Off-criteria uses of formulary agents constitute a nonformulary use. Ideally, medication utilization evaluations should be conducted on a regular basis to assess compliance with formulary restrictions. When multiple agents within a therapeutic category are available on the market (such as low-molecular weight heparins or histamine-2 receptor antagonists), drug class reviews are often conducted in an attempt to declare therapeutic equivalence and maintain only 1 preferred agent on the formulary. An increasing number of medications within a therapeutic category can lead to greater price variation among the medications, which creates potential for significant cost savings through declaring agents therapeutically equivalent and allowing them to be interchanged. 

In addition to cost savings, patient safety is enhanced by minimizing look-alike sound-alike medications through streamlined inventory and the medication reconciliation process. Minimizing the number of agents available on a formulary also improves staff competency and knowledge about specific medications. 

Selecting an agent for inclusion in a formulary requires numerous operational considerations: 
  • With respect to purchasing, it is important to determine if a drug is supplied by the organization’s pharmaceutical distributors or if it is a specialty/limited-distribution drug requiring direct shipment. Not all pharmaceutical wholesalers are able to supply the drug product, particularly high-cost specialty medications. Since most pharmacy departments purchase products from wholesalers at a cost minus discount, the pharmacy will be charged a higher price if the drug being reviewed comes from another source, potentially resulting in a significant increase in drug expenditures due to the loss of the cost-minus discount. Manufacturers can switch between different distribution strategies to best fit the needs of patients and providers as the marketplace changes. 
  • Drugs with a limited distribution are not shipped as frequently as deliveries from wholesalers. Under these circumstances, additional storage space may be needed, such as a refrigerator or a freezer, to ensure timely patient care. Packaging of the pharmaceuticals is also important to take into consideration, especially with increased usage of barcode medication administration (BCMA). BCMA can improve medication safety by verifying that the right drug is being administered to the right patient. BCMA technology has been proven to reduce medication administration errors.2,3 To ensure BCMA is being used effectively, compliance rates should be evaluated regularly and any potential barriers to compliance should be investigated. 
Often, the barrier identified is the lack of a barcode. The FDA currently requires barcodes on containers, but does not require that unit dose containers be available for all medications. Since not all manufacturers provide barcoded unit-of-use dosage forms, pharmacies are often required to prepare dosage forms through automated repackaging equipment. The barcodes are also used to ensure the correct drug is loaded into the automated dispensing cabinet (ADC) and in compounded sterile products (CSP)—all in an effort to improve patient safety. Technology-assisted CSP preparation uses computerized workflow processes that require barcode scanning of containers and ingredients. 

The stability of the CSP also plays a role in formulary management. For medications that require refrigeration, the refrigerator must be connected to an ADC on the patient care unit where the patient room is located. Ensuring there is space to appropriately store the medication is crucial; size and product classification determine storage conditions and how medications can be dispensed. ADCs ensure secure storage of drugs, but require careful inventory management so that all of the needed drugs in adequate quantities are available for patient use. Compliance with USP <800> is vital to determining what drugs can be stored in an ADC or compounded at the organization. USP <800> describes hazardous drug handling related to the receipt, storage, compounding, dispensing, administration, and disposal of both sterile and nonsterile products and preparations.4 

Drug Cost and Reimbursement 

When selecting a preferred formulary agent, the cost of the drug and the reimbursement amount should also be considered. However, the cost of a drug should only be considered after its clinical efficacy and safety are established. For health systems that are 340B-eligible, providing a competitive 340B price is critical to the formulary decision. Created by Congress through the Veterans Health Care Act of 1992, 340B is a drug discount program that allows safety-net providers with large shares of low-income patients to access discounted drug pricing.

Reimbursement should also be an important consideration in the formulary evaluation. For hospitalized patients (in-patients), drugs are reimbursed as part of a Diagnosis-Related Group (DRG), so the best-priced product is the preferred product. However, on the outpatient side, the price of the product is as important as the reimbursement. With rising medication costs, pharmacy benefit managers are increasing the number of tiers in a formulary, changing co-payment structures, and dictating the brand, where, and how patients can receive their medications. These decisions often conflict with the final hospital formulary decision and require a routine audit process to compare the actual reimbursement with what was projected. Insurance companies often change their preferred formulary agent to match changes within pricing structures or rebates. 

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