Association between formulary strategies and hospital drug expenditures

National survey data were analyzed to determine whether an association existed between formulary strategies and hospital drug expenditures. Data on community hospitals were obtained from (1) ASHP's 1987 national survey of pharmaceutical services, (2) the American Hospital Association, and (3) the Health Care Financing Administration. Along with size, case mix, and salary information, data were collected on whether the hospitals used a well-controlled formulary, whether they used therapeutic interchange, and how much money they spent on drugs. A logarithmic cost-function model was used to obtain a straight-line equation that expressed the relationships between drug cost per patient day and the other variables assessed. Summary statistics were calculated with data from 514 hospitals. The adjusted coefficient of multiple determination indicated that the model was able to explain 24.6% of the observed variation in drug cost per patient day. A significant association was found between decreased costs and a well-controlled formulary, therapeutic interchange, or both. Hospitals that used either strategy spent 10.7% less for drugs than those that used neither. Hospitals that used both strategies spent 13.4% less than those that used neither. Analysis of national survey data suggests that use of a well-controlled formulary, therapeutic interchange, or both are associated with lower pharmacy drug expenditures.