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Formulary Considerations: The Past, Present, and Future

Evidence-Based OncologyOctober 2017
Volume 23
Issue SP12

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.5

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.

Protocol to Incorporate Formulary Changes

When planning for formulary additions and changes, the medication’s integration into technology should be carefully coordinated:

  • Dosage forms, concentrations, and ordering options should be limited and standardized.
  • Required monitoring for efficacy and toxicity should be built into computerized prescriber order entry (CPOE) panels or sets whenever possible.
  • If a drug is infused through a smart pump, it should be programmed with a standardized concentration and volume and the appropriate limits.
  • All formulary drugs should be available for ordering in the CPOE system, minimizing the need for verbal orders.

In addition to the clinical and operational considerations necessary for formulary evaluation, the focus of health systems has changed. Healthcare organizations now focus on value-based reimbursement models and participating in accountable care organizations. These changes are simultaneously forcing P&T committees to change. There has been a transition to ensuring compliance with regulations and meeting publicly reported quality metrics.6 P&T committees have also expanded their focus to include the oversight of CPOE and the associated medication orders and order sets and building the necessary clinical decision support. However, the most significant change in healthcare that has impacted P&T committees and formulary management is the focus on cost containment and reimbursement while being able to provide high-quality patient care. As the healthcare payment structures continues to change, the structure and oversight of P&T committees will continue to transform, too.

Oncology Drugs

One of the most notable drivers of this change is the high cost and complicated treatment regimens of oncology drugs. It is now essential for health systems to, in addition to input from the medical staff, consider the patient mix and chief insurance provider when making a formulary decision. To make this transition, P&T committees will need to transform how they have historically conducted business.

Traditional drug monograph reviews are solely based on safety, efficacy, and acquisition cost. After a request for formulary addition is received, the monograph is created by a clinical pharmacist and reviewed by physician stakeholders. The recommendations are often based on a published consensus statement or guideline, which may not consider the overall cost within the recommendation. In the future, health systems will be looking at P&T committees to take different factors into consideration to determine how best to utilize drugs to provide the most value to their patients, weighing efficacy, safety, cost, and outcomes.

Cancer care accounts for 5% of total US healthcare costs, and these costs continue to rise. Estimates suggest that the annual rate of spending will rise to $158 billion in 2020 from $120 billion in 2010, and the expenditures for oncology drugs are rising more rapidly than any other facet of healthcare.6 There continues to be an increasing financial burden associated with chemotherapeutic agents. The rising cost of cancer treatment is a significant contributor resulting in personal bankruptcy.7

To start the discussion around value and to determine the best way to include pharmacoeconomic analyses into formulary management, several initiatives have been undertaken in an attempt to define the value of drugs used for cancer care, including the American Society of Clinical Oncology’s Value Framework, the European Society of Medical Oncology’s Magnitude of Clinical Benefit Scale, the National Comprehensive Cancer Network’s Evidence Blocks, Memorial Sloan Kettering Cancer Center’s Drug Abacus, and the Institute for Clinical & Economic Review’s Value Assessment Framework. These frameworks display similarities, but differ in their purpose, focus, and means of assessment. The final objective of all of these initiatives is to assist with the assessment of value in cancer care; however, most of these frameworks are relatively new and a significant amount of work remains to be done to determine how best to integrate these assessments into the ultimate formulary decision.8-12

Although the costs of drugs continue to rise, the question of the relative value of the drug itself is left unanswered by our current healthcare system. We cannot continue to review drugs in silos based only on safety, efficacy, acquisition costs, and outcomes. Healthcare systems also need to be aware of all the current regulations and intricacies of their CPOE system to ensure safe delivery of drugs that are added to the formulary.


Molly Billstein Leber, PharmD, BCPS, FASHP, is manager, Medication Policy and Formulary Management, Yale New Haven System, New Haven, Connecticut.


Molly Billstein Leber, PharmD, BCPS, FASHP

200 Orchard St. Scranton (SRC)-Department of Pharmacy

Yale New Haven Health System

New Haven, CT 06510



1. Tyler LS, Cole SW, et al; ASHP Expert Panel on Formulary Management. ASHP guidelines on the pharmacy and therapeutics committee and the formulary system. Am J Health-Syst Pharm. 2008;65(13);1272-1283.

2. Poon EG, Keohane CA, Yoon CS, et al. Effect of bar-code technology on the safety of medication administration. N Engl J Med. 2010;362(18):1698-1707. doi: 10.1056/NEJMsa0907115.

3. Seibert HH, Maddox RR, Flynn EA, Williams CK. Effect of barcode technology with electronic medication administration record on medication accuracy rates. Am J Health-Syst Pharm. 2014; 71:209-218. doi: 10.2146/ajhp130332.

4. <800> Hazardous drugs—handling in healthcare settings. United States Pharmacopoeia website. usp.org/compounding/general-chapter-hazardous-drugs-handling-healthcare. Published February 1, 2016. Accessed August 23, 2017.

5. § 602; PHS Act § 340B; 42 U.S.C. § 256b. Government publishing office website. gpo.gov/fdsys/pkg/USCODE-2010-title42/pdf/USCODE-2010-title42-chap6A-subchapII-partD-subpartvii-sec256b.pdf. Accessed August 23, 2017.

6. Boucher B. Formulary decisions: then and now. Pharmacotherapy. 2010;30(6 Pt 2):35S-41S. doi: 10.1592/phco.30.pt2.35S.

7. Meropol NJ, Schrag D, Smith TJ, et al; American Society of Clinical Oncology. American Society of Clinical Oncology guidance statement: the cost of cancer care. J Clin Oncol. 2009;27(23):3868-3874. doi: 10.1200/JCO.2009.23.1183.

8. Schnipper LE, Davidson NE, Wollins DS, et al. Updating the American Society of Clinical Oncology Value Framework: revisions and reflections in response to comments received. J Clin Oncol. 2016;34(24):2925-2934. doi: 10.1200/JCO.2016.68.2518.

9. Cherny NI, Sullivan R, Dafni U, et al. A standardised, generic, validated approach to stratify the magnitude of clinical benefit that can be anticipated from anti-cancer therapies: the European Society for Medical Oncology Magnitude of Clinical Benefit Scale (ESMO-MCBS). Ann Oncol. 2015;26(8):1547- 1573. doi: 10.1093/annonc/mdv249.

10. NCCN Clinical Practice Guidelines in Oncology (NCCN Guidelines) with NCCN Evidence Blocks. National Comprehensive Cancer Network website. nccn.org/evidenceblocks/. Published 2016. Accessed August 23, 2017.

11. Drug Abacus. Memorial Sloan Kettering Cancer Center website. https:// drugpricinglab.org/tools/drug-abacus/. Accessed August 31, 2017.

12. Ollendorf D, Pearson SD. ICER evidence rating matrix: a user’s guide. Institute for Clinical and Economic Review website. icer-review.org/wp-content/ uploads/2016/01/Rating-Matrix-User-Guide-FINAL-v10-22-13.pdf. Published 2016. Accessed August 23, 2017.

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