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Fixed and flexible formularies as cost-control mechanisms.
Carolyn S Dewa1, Jeffrey S Hoch
1Centre for Addiction and Mental Health, Health Systems Research & Consulting Unit, 33 Russell Street, ARF T319, Toronto, Ontario M5S 2S1, Canada. carolyn_dewa@camh.net
Expert Review of Pharmacoeconomics & Outcomes Research
|October 8, 2009
Summary
This review examines drug formularies and economic principles for controlling pharmaceutical costs. Effective cost control depends on aligning payer and agent incentives within formulary structures.
Area of Science:
- Health Economics
- Pharmaceutical Policy
Background:
- Rising drug expenditures necessitate cost-control strategies.
- Formularies are key tools for managing pharmaceutical costs.
Purpose of the Study:
- To review formulary types, economic principles, and evidence for cost control.
- To analyze formularies using the principal-agent economic model.
Main Methods:
- Described principal-agent model in healthcare.
- Examined five formulary types (closed, best available price, reference-based pricing, tiered, open).
- Reviewed evidence on formulary cost-effectiveness.
Main Results:
- Formulary success hinges on identifying agents and aligning principal-agent objectives.
- Different formularies have distinct incentives and limitations for cost control.
- System factors influence formulary effectiveness.
Conclusions:
- Formularies are essential for managing pharmaceutical spending.
- Optimizing principal-agent alignment is crucial for formulary success.
- Future formulary design should consider these economic principles.
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