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In a 2017 joint position paper on prior authorization spearheaded by the American Medical Association, 17 medical organizations representing clinicians, patients, and hospitals advocate that drug formularies should never be implemented based solely on cost criteria.1 Their first principle rightly states, “Any utilization management program applied to a service, device or drug should be based on accurate and up-to-date clinical criteria and never cost alone.” Organizations considering the adoption of a drug formulary should use the best available guidelines and consider patient outcomes, as these are the drivers of value-based care and reduced costs.

Formularies and Patient Outcomes

We need to shed the notion that all drug formularies improve both patient outcomes and costs. This premise is not true. Extensive literature demonstrates that formulary characteristics drive patient outcomes and total costs, sometimes with deleterious results.2,3 Unintended, negative consequences of ill-informed and overly restrictive formularies can include increases in drug therapy discontinuation (i.e., non-adherence), outpatient visits, and inpatient hospitalizations. For example, patients within a health maintenance organization (HMO) who were only allowed a single selective serotonin reuptake inhibitor (SSRI) for mental health disorder treatment were 80% less likely to complete therapy than patients from an HMO that offered prescribing physicians a choice of two available SSRIs.4 Further, antihypertensive medication restrictions in a Medicaid population were shown to increase the number of outpatient hospital and physician visits.5 A restrictive “one size fits all” approach to prescribing medication does not appear to benefit varied patient populations and reduced utilization does not necessarily equate to quality care.

A limited view of just comparing costs saved by restricting the list of paid prescriptions ignores not only the total medical costs but also societal costs.6,7 Roy et al. (2008) warn policymakers that drug benefit program “evaluations have fallen short of employing a broader perspective in their consideration of direct and indirect costs involved with the interventions.” The authors argue that major health care decisions should never be based solely on costs saved in one area.7 In a systematic review of the relationship between drug formularies and health outcomes, Happe et al. (2014) state, “It is essential that [drug] restrictions be rooted in evidence and that a balance between clinical, economic, and humanistic outcomes is achieved.”6 Advanced studies that evaluate the effects of prior authorization limits on patient and societal outcomes may reveal the true costs of drug benefit programs.

Improved Decision Support

Formularies can vary widely in the rigor that goes into their creation and intended use. Some drug formularies are yes/no lists, primarily designed to automate the claims process and value expediency over patient care. Other formularies—ones that explicitly tie drug recommendations to clinical research— provide an alternative. These tools provide evidence-based treatment recommendations contingent on condition, phase of treatment, and even pain classification. “Decision support” formulary tools are designed to help clinicians and case managers provide the best care for their patients, prioritizing evidence-based research over claims automation. The title of a recently published study, “Transforming Prior Authorization to Decision Support” succinctly describes how these decision support formularies are best used.8 In this study, Newcomer et al. (2017) illustrate how claim denials were reduced and total costs were improved when clinicians were enabled with point-of-care decision support tools that provided them with evidence-based recommendations. There needs to be a concerted effort by all stakeholders to promote the adoption of clinically valid drug formularies at the point-of-care that reduces the burden of prior authorization on clinicians and improves patient outcomes.

Bottom Line

Often, the toughest questions to answer are the most important. Organizations should never ignore patient outcomes when deciding on health care policies involving drug formularies.


  1. Prior Authorization Reform Workgroup. Prior Authorization and Utilization Management Reform Principles. 2017. https://www.ama-assn.org/sites/default/files/media-browser/principles-with-signatory-page-for-slsc.pdf.
  2. Carroll N V. How effectively do managed care organizations influence prescribing and dispensing decisions? Am J Manag Care. 2002;8(12):1041-1054.
  3. Ovsag K, Hydery S, Mousa SA. Preferred drug lists: Potential impact on healthcare economics. Vasc Health Risk Manag. 2008;4(2):403-413. doi:10.2147/VHRM.S926.
  4. Streja DA, Hui RL, Strja E, McCombs JS. Selective contracting and patient outcomes: a case study of formulary restrictions for selective serotonin reuptake inhibitor antidepressants. Am J Manag Care. 1999;5(9):1133-1142.
  5. Murawski MM, Abdelgawad T. Exploration of the impact of preferred drug lists on hospital and physician visits and the costs to Medicaid. Am J Manag Care. 2005;11 Spec No(March):SP35-42. http://www.ncbi.nlm.nih.gov/pubmed/15700908.
  6. Happe LE, Clark D, Holliday E, Young T. A systematic literature review assessing the directional impact of managed care formulary restrictions on medication adherence, clinical outcomes, economic outcomes, and health care resource utilization. J Manag care Spec Pharm. 2014;20(7):677-684. doi:10.18553/jmcp.2014.20.7.677.
  7. Roy S, Madhavan SS. Making a case for employing a societal perspective in the evaluation of Medicaid prescription drug interventions. Pharmacoeconomics. 2008;26(4):281-296. doi:10.2165/00019053-200826040-00002.
  8. Newcomer LN, Weininger R, Carlson RW. Transforming Prior Authorization to Decision Support. J Oncol Pract. 2017;13(1). doi:10.1200/JOP.2016.015198.

Fraser Gaspar

Fraser Gaspar

Dr. Fraser Gaspar is an Epidemiologist with MDGuidelines at ReedGroup since July 2016. His research focuses on the factors that influence a patient’s successful return-to-activity and the use of evidence-based treatment guidelines in improving health outcomes. Dr. Gaspar completed his PhD and MPH at University of California- Berkeley’s School of Public Health in Environmental Health Sciences.

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