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    The role of pharmacoeconomics in formulary decision-making

    Considerations for hospital and managed care pharmacy and therapeutics committees


    The role of cost- and pharmacoeconomic-related criteria in formulary decision-making was assessed in a literature review of 31 studies of hospital (n=18) and managed care (n=13) pharmacy and therapeutics (P&T) committees. In both settings, cost was important, although the elements of cost considered varied. Acquisition cost was mentioned more frequently than pharmacoeconomic or cost-effectiveness information. Other factors, including drug characteristics, quality of life, supply-related issues, and physician demand, also influenced decisions. Despite the relatively low reported usage of pharmacoeconomic data in decision-making, most respondents considered the information to be "somewhat" or "very" important. Barriers to the use of pharmacoeconomic information included institutional factors and lack of training. Limitations in the survey methods used and issues considered restricted the ability to identify a comprehensive and consistent role for cost information in selecting formulary drugs. Further research on the use of pharmacoeconomic information is required. (Formulary. 2006;41:374–386.)

    Several decision-making criteria and methods for selecting drugs for formulary inclusion have been suggested, but the role of pharmacoeconomic information in this process remains somewhat unclear.
    The rapidly rising cost of drug therapy is a concern to healthcare providers throughout the world, particularly as new drugs frequently offer only marginal improvements over existing therapies but at substantially increased costs.1 As a result, decision-makers at all levels (national, regional, hospital, primary care, or managed care) are faced with difficult choices about which drugs to make available to their patients or members. One means of controlling costs is the development of a formulary, resulting from explicit decision-making to include or exclude particular medications from the range of drugs available to be prescribed. Several decision-making criteria and methods for selecting drugs for formulary inclusion have been suggested, but the role of pharmacoeconomic information in this process remains somewhat unclear.

    The World Health Organization (WHO) describes broad criteria to be considered in making formulary decisions (Table 1),2 but does not attach relative importance to the individual criteria. Decisions about drug selection are complex and are influenced not just by evidence-based criteria but also take into account the political, social, and ethical values of the community to which the decisions apply. A number of frameworks have been proposed to limit the influence of "emotional criteria" on decision-making and to assign relative weight to each criterion in terms of importance.3

    Table 1 World Health Organization criteria for consideration of new medications
    The System of Objectified Judgment Analysis (SOJA) utilizes a panel of experts to prospectively determine the relative importance of 8 general decision-making criteria and a variable number of class-specific criteria (eg, antibacterial resistance).3 The criteria are given a relative weight, with efficacy, safety, and acquisition cost usually comprising around 70% of the score. Wood and Bailey4 used a panel of experts to determine the relative importance of decision-making criteria for selecting oral antidiabetic agents. These criteria are similar to those in the SOJA model, and include indication, safety, drug interactions, efficacy, pharmacokinetics, convenience, and cost-benefit. Individual criteria are rated for importance by assigning a score, which is then weighted by both the strength and quality of the evidence.

    Another formal scoring system based on quality and cost factors has been used to assign priorities for purchasing drugs within a limited hospital drug budget.5 "Quality" components in this model include individual patient benefit, mortality/morbidity of the condition to be treated, evidence from literature, type of treatment (eg, well-established or trial), and clinical comparison with other treatments. "Cost" components include comparison with other treatments, total cost per year, and cost per patient. All 3 of these approaches have utilized local panels of experts to guide the decision-making process. The similarities in the key criteria examined (efficacy, safety, drug characteristics, pharmacokinetics, formulation, dosage regimen) suggest the possibility of a decision-making framework that could be broadly applicable across settings, both in developed and developing countries. An area less clearly articulated, however, is where and how cost information should be incorporated in decision-making.

    While drug acquisition costs are relevant for all formulary decisions, the importance of other costs and pharmacoeconomic information is less clear. Other relevant cost factors might include drug administration and monitoring costs, total costs (budgetary impact), and cost-effectiveness ("value-for-money"). An increasing number of national or regional organizations now require pharmacoeconomic information about a drug to be included in submissions for reimbursement or listing.6 However, the same requirements may not exist for local-level decision-making in hospital pharmacy and therapeutics (P&T) committees and managed care P&T committees. Janknegt and Steenhoek3 suggest that pharmacoeconomic data should be included in the SOJA weighting system, but point out that there may be few relevant pharmacoeconomic studies of specific drugs available. Späth et al7 conducted a literature review that examined the use of economic information in hospital drug selection processes. They also found that the use of pharmacoeconomic information was somewhat limited, with barriers to its use including a lack of methodological quality, difficulty in applying the results of existing studies to the local setting, and limited expertise in appraising economic information.

    Therefore, a literature review was conducted to assess the role of cost and pharmacoeconomic information in formulary decision-making in these 2 settings. The aim of this review was to answer the following questions:

    1. What elements of cost information are considered in decision-making and do these vary between hospital and managed care P&T committees?

    2. What is the relative importance of this cost information in relation to other decision-making criteria?

    3. To what extent are pharmacoeconomic analyses used in decision-making by P&T committees in hospitals and managed care organizations (MCOs)?

    We sought empirical studies published in English that identified the criteria used by hospital or managed care P&T committees for making drug-selection or formulary decisions, or assessed the relative importance of various criteria for decision-making, with a specific focus on the role of pharmacoeconomic analyses.


    Literature searches (January 1990–May 2004) were conducted using the electronic databases Medline, Embase, and the Cochrane Library. The initial search strategy combined free text terms, such as "decision mak$" and "formular$," with subject headings: decision-making, drug formulary, and pharmacy and therapeutics committee. Inconsistencies in the indexing of relevant articles meant that a number of supplementary searches were required (full search strategies available on request). The table of contents of key journals were searched (Formulary, Value in Health, Health Economics, Pharmacoeconomics), as were major health organization websites: WHO ( http://www.who.int/); National Institute for Clinical Excellence (UK: http://www.nice.org.uk/); OECD ( http://www.oecd.org/); Health Transition Fund (Canada: http://www.hc-sc.gc.ca/htf-fass/english/); Rational Pharmaceutical Management Plus ( http://www.msh.org/projects/rpmplus/1.0.htm); and the International Society for Pharmacoeconomics and Outcomes Research ( http://www.ispor.org/).

    Table 2 Decision-making criteria for hospital P&T committees
    Titles and abstracts of citations were reviewed by 2 of the researchers (Drs Newby and Robertson) before retrieval of relevant papers. The bibliographies of all references retrieved were reviewed to identify other studies not located in the search. Eight key authors were approached to identify other published or unpublished literature.


    The literature search identified more than 6,000 citations, the majority of which were commentaries, editorials, or opinion pieces. Of 334 papers retrieved, reviewed and classified, 31 articles met the inclusion criteria for this review. A recent literature review that addressed the role of economic information in decision-making was found,7 but opinion pieces and commentaries were included in the review. Eighteen studies addressed decision-making by hospital P&T committees and 13 by managed care P&T committees.

    Decision-making in hospital P&T committees. Hospital P&T committee study characteristics. Eleven of the 18 hospital P&T committee studies sought to identify decision-making criteria used by the committees (Table 2)8–18 and 5 examined the importance of various criteria (Table 3).15,19–22 Six studies specifically addressed the role of pharmacoeconomic information in hospital P&T committee decision-making.9,14,19,23–25

    Table 3 Relative importance of criteria for hospital P&T committee decision-making
    A survey methodology was used in 12 studies, administered by mail,11–13,15–18,20,23,25 telephone,19 or face-to-face.21 Response rates to the surveys ranged from 31.5% to 96% with between 8 and 548 participants. An additional 3 studies used a mixture of interviews, surveys, and/or focus groups;14,22,24 1 used interviews alone;9 and 2 papers presented case studies.8,10 The majority of respondents were pharmacists or directors of pharmacy, but physicians and other hospital staff involved in the P&T committees also responded. A Dutch study by Zwart-van Rijkom et al14 was part of the EUROMET project:24 a large multinational analysis of the use of pharmacoeconomics in decision-making. Participants varied between countries, but included physicians, politicians, senior regulators, and/or hospital pharmacists.

    In 8 of the studies,9,11,13,15,16,18,19,23 each respondent represented a single hospital P&T committee; in the other studies, respondents may have represented >1 committee. Four studies conducted a more detailed examination of a limited number of hospital committees,8,10,21,22 with 2 of these also relying on meeting observations and document analysis.8,10 One study was conducted amongst subscribers to Formulary.12

    Four studies asked respondents to answer questions about a specific scenario or drug.11,14,20,21 Anell and Svarvar20 asked participants respond to 1 of 3 randomly assigned treatment scenarios (mild hypertension, depression, antibacterial treatment of respiratory infectious diseases) to assess the importance of decision-making factors, but found no differences in the ratings of the importance of criteria between these scenarios. Other frameworks used were a hypothetical scenario of a new obesity drug,14 drug therapy for cardiovascular disease,11 and choice of angiotensin-converting enzyme (ACE) inhibitors.21

    Decision-making criteria for hospital P&T committees. Each of the 11 studies asked respondents to nominate or select from a list of factors they considered important, useful, or relevant to formulary decision-making (Table 2). All studies reported efficacy or effectiveness as an important criterion, although none made a distinction between the 2 measures. Two studies mentioned the importance of clinical trial results.8,11 Safety factors, including drug interactions and parenteral incompatibilities, were mentioned in 8 of the 11 papers.

    Cost information was reported as an important consideration in all 11 studies, although the aspects of costs considered varied. Six studies identified pharmacoeconomic information or cost-effectiveness as an important "cost" factor in decision-making. Martin et al10 referred to an informal assessment of cost-effectiveness where the costs of the new drug were compared with those for current treatments. There were a variety of other criteria mentioned, but those reported in >1 study included quality of life (n=5), availability of alternatives (n=3), and indication for use (n=3).

    Relative importance of criteria for hospital P&T committees. Five studies rated hospital P&T committee decision-making factors on their relative importance, relevance, or usefulness using a numeric scale (Table 3). To allow comparisons between studies, a common scale was constructed where 1=least important and 10=most important. Clinical items were the most highly rated, with scores for efficacy, toxicity, and adverse effects ranging from 6.3 to 9.8. One paper included efficacy for off-label use, with a slightly lower score of 5.8.

    Cost factors were generally rated lower in importance than clinical factors, although cost-effectiveness was equally rated with adverse effect profiles in 1 study.20 Acquisition cost or drug price was included in all 5 studies and rated in importance from 4.8 to 7.7. Only 2 of the studies included "cost-effectiveness" or "costs weighted by benefits" in their scales, scoring 8.6 and 5.2, respectively.19,20

    Table 4 Decision-making criteria for managed care P&T committees
    Drug characteristics such as dosage form and frequency of administration (scores 4.0–7.0) and the need for drug monitoring (scores 4.5–5.6) were generally rated lower than clinical or cost factors. The importance of other criteria varied between the studies. Supplier characteristics were generally rated as less important than other criteria (scores between 2.3 and 7.0). Only 1 study specifically identified pharmaceutical industry promotional activities as criteria considered, and these rated lowest in importance (promotional literature 2.3; pharmaceutical representative pressure on physicians 1.7).22 Hospital physician-related factors, such as their justification for requesting a drug and clinical expertise, scored between 4.0 and 6.9.

    Use of cost and pharmacoeconomic information by hospital P&T committees. In 6 studies,9,14,19,23-25 specific questions were asked about the use of cost or pharmacoeconomic information in decision-making. The 4 papers9,14,23,25 examining the use of different types of cost criteria in hospital P&T committee decision-making each used slightly different terminology to describe similar concepts. All listed acquisition cost and budgetary impact of the drug, and 39,14,25 mentioned cost-effectiveness as considerations in the decision-making process. The reported frequency of use of pharmacoeconomic analyses varied considerably between studies, ranging from 23%23 to 86%19 of respondents reporting the use of such data "very often." Interviewees in the French study by Späth et al9 reported that pharmacoeconomic evaluations were very rarely used in their institutions. Only 1 study asked respondents to indicate the importance of pharmacoeconomic data in decision-making, with 87% indicating that it was "somewhat or very important."19

    Decision-making in managed care P&T committees. Managed care P&T committee study characteristics. Thirteen studies addressed decision-making in managed care P&T committees. Decision-making criteria were identified in 5 papers (Table 4),26–30 and 9 studies asked participants to rank criteria in order of importance or usefulness (Table 5).26,29–36 Seven studies specifically addressed the role of pharmacoeconomic data in decision-making.26,27,32–34,37,38

    Table 5 Relative importance of criteria for managed care P&T committee decision-making
    Similar to the hospital studies, survey methods were most commonly used in the managed care P&T committee studies, featuring 5 telephone surveys27,30,32,33,37 and 5 mail surveys.28,29,34-36 One study used focus groups31 and the remaining 2 used interviews,26,38 supplemented with document analysis in 1 case.38 Survey response rates ranged from 11% to 82%, and sample sizes from 13 to 409. The majority of respondents were medical or pharmacy directors each representing different organizations. In 1 case there were 119 respondents representing 81 MCOs,36 and Grabowski and Mullins38 conducted an in-depth analysis of 5 organizations.

    The respondents in 3 studies were asked about their decision-making for particular drug classes or drug types—nonsteroidal anti-inflammatory drugs (NSAIDs),35 antihypertensives,36 and new and controversial drugs.28

    Decision-making criteria for managed care P&T committees. Four of the five studies asked MCO representatives to name important criteria used in decision-making (Table 4).27–30 Three reported efficacy or effectiveness as an important criterion; the remaining study28 indicated that FDA approval (which would include an assessment of efficacy) was an important factor. Safety factors were listed as an important consideration in 3 studies.27,28,30 Other factors mentioned included quality of life29,30 and the availability of alternative drugs.28 The 5th study in this category reported the results of a telephone survey of 21 pharmaceutical industry representatives who were asked to identify the most important decision-making factor (or factors) for their MCO customers.26 In decreasing order of frequency, these factors were efficacy, adverse drug reactions, acquisition cost, cost-effectiveness, and the availability of alternative drugs.

    Cost factors were important in all studies of MCOs, particularly acquisition costs; only 2 studies specifically mentioned cost-effectiveness or costs related to outcomes.29,30

    Relative importance of criteria for managed care P&T committees. For 826,29–35 of the 9 studies assessing the relative importance of various criteria (Table 5), it was possible to rate scores on a 10-point scale (1=least important, 10= most important). Clinical issues were highly rated, with efficacy scores ranging from 8.3 to 9.8 and safety scores ranging from 6.5 to 9.6. Scores were generally lower for criteria relating to drug characteristics (availability of a generic equivalent; dosage form and frequency of administration), with ratings of importance ranging from 2.1 to 7.0. Quality of life was included in 5 studies, with importance scores ranging from 4.2 to 7.6.

    Important cost factors included cost-effectiveness, acquisition cost, and rebate arrangements, with scores ranging from 4.3 to 9.9. However, only 5 studies included "cost-effectiveness" or "costs weighted by benefits" in their lists of factors to be considered. Cost-effectiveness was rated as more important than acquisition cost in 3 studies,30,31,33 while acquisition cost was more important in 2 studies.32,34

    Hanson et al36 used conjoint analysis to assess the importance of criteria for selecting cardiovascular drugs. Results were presented as a ratio of importance for efficacy, cost, and side-effects (2.1/1.0/1.1). Consistent with other studies, efficacy was ranked the most important criterion, followed by side effects and then cost.

    Use of cost and pharmacoeconomic information by managed care P&T committees. Four papers examined the frequency of use of pharmacoeconomic information for decision-making,26,32,34,37 and 4 assessed its importance.27,32–34 Pharmacoeconomic evaluations were used "often" or in "most" decisions by 35% to 51% of the MCOs surveyed. Despite this reported usage of pharmacoeconomic data in decision-making, the vast majority of respondents considered pharmacoeconomics to be "somewhat" or "very" important (with proportions of respondents in the range of 66%–97%). The companies interviewed by Grabowski and Mullins38 felt that cost issues were only important in situations where the drug under consideration was essentially interchangeable with other drugs in its class.


    Despite the disparate nature of the studies included in this review, there appears to be some consistency between committees and settings regarding the role of costs and pharmacoeconomic information in decision-making. First, the primacy of efficacy and safety data is confirmed; the consideration of all other criteria follows after the drug has established its clinical credentials.

    Drug costs are important, although the information on how and which elements of cost information are used in decision-making is less consistent. It is reasonable to suggest that drug acquisition costs and total budgetary impact will be important in decision-making, but the studies in this review provide no clear guidance on the relative importance of information on the costs of therapy per patient and cost-effectiveness compared to existing treatments.

    Quality of life was a criterion considered in a relatively small number of studies and rated lower than estimates of efficacy in importance. This may suggest that quality of life is a more subjective and less tangible outcome for decision-makers than patients cured, strokes averted, or years of life saved. It may also reflect concerns about the reliability and reproducibility of measures of this dimension, making it a difficult outcome to value. However, quality-adjusted life-years (QALYs) are the preferred outcome measure in a number of formal guidelines for conducting pharmacoeconomic analyses (NICE, Canada, New Zealand, and many European countries).39

    While most respondents to the included studies considered pharmacoeconomic data to be "somewhat" or "very" important in decision-making, the reported usage of this data was relatively low. MCO surveys were more likely to assess the importance of pharmacoeconomic data than the hospital surveys, perhaps reflecting a greater perceived importance of such data in MCO decisions. Nevertheless, a number of both hospital8–10,14,20,23–25 and MCO26,27,33,37,38 studies detailed barriers to the use of pharmacoeconomic information in decision-making. Some barriers were a result of institutional factors such as closed budgets (inability to move resources from one sector to another) and limited budgets (focus on immediate cost-containment) as well as a lack of competence/training in pharmacoeconomic methods. Other barriers were related to committee members' beliefs about the applicability of economic evaluations to their situation: the limited availability of relevant pharmacoeconomic evaluations; the belief that the results of economic evaluations are theoretical, based on many assumptions, biased (in the case of industry-funded studies), and cannot be applied to the specific P&T committee's situation; and difficulty in comparing studies with different methodologies. Although the same barriers were not always examined in all studies, concerns about the relevance of currently available pharmacoeconomic evaluations to each organization's environment appears widespread. These same issues are reported anecdotally by health professionals involved in formulary decision-making. These professionals cite the failure of the pharmaceutical industry to collect pharmacoeconomic data alongside clinical trials as a concern, making it necessary to rely on economic models. These models are often seen as lacking in transparency and therefore difficult to evaluate. Comparisons may not be helpful to decision makers, with economic analyses rarely comparing new treatments with current practices.

    In response to the challenge of ensuring consistent and informed decision-making, many organizations have developed standard formats for applications to hospital and managed care P&T committees (eg, Regence BlueShield,40 Academy of Managed Care Pharmacy [AMCP]41 ). Increasingly, these include requirements for pharmacoeconomic data and the result has been the development of guidelines for the conduct and reporting of economic analyses to make these data more useful for decision makers.39,42 While the guidelines are clear on what information is required and how it should be presented, there is little guidance to committees as to how best to incorporate this information into their decision-making.

    It is perhaps not surprising that the results presented in this review are consistent with "rational" decision-making. Others have noted that research relying on written accounts of drug decision activities and/or accounts provided by members themselves is likely to produce an account utilizing scientific or evidence-based medicine rationality rather than local rationality, which may be less objective.8 Emotional or subjective criteria may play an under-reported role in the decision-making process, particularly if the committee member wishes to present the process in the most positive light.3

    Surveys and interviews were the dominant methodologies used in these studies, often relying on a single respondent to represent a hospital or managed care P&T committee. However, single respondents may present views that are incomplete, biased, or inaccurate and may not reflect the views of the whole committee.43 Only 1 of the papers15 clearly stated that the survey answers were approved by all committee members before being returned to the researchers. As illustrated by Jenkings and Barber,8 document analysis and observation of the interactions between committee members can provide a contextually rich analysis that overcomes some of the limitations of survey and interview methods. Observation will also capture some of the effects of the group process that exist within committees. The disadvantage of the method is that the results are so grounded in local rationality and local context that the generalizability of the study results may be limited.

    Further research is required to better understand the criteria used and the relative importance of pharmacoeconomic criteria for different types of decisions. For example, it is likely that cost considerations may differ for new chemical entities offering novel treatments for patient groups currently not well managed, for drugs that offer few (or no) clinical benefits over existing treatments, and for expensive drugs that are the only treatment option for small numbers of patients. The challenges lie in developing reliable methods for assessing this complexity and identifying the logical decision-making pathways for each. This is likely to require a mix of quantitative survey and qualitative methods that are able to explore both the context of decision-making as well as the committee processes and interaction between committee members.

    Dr Walkom is a research officer in the Department of Clinical Pharmacology, School of Medical Practice and Population Health, The University of Newcastle, New South Wales, Australia. Dr Robertson is senior lecturer in the Department of Clinical Pharmacology, School of Medical Practice and Population Health, The University of Newcastle. Dr Newby is senior lecturer in the Department of Pharmacy, School of Biomedical Sciences, The University of Newcastle. Dr Pillay is director, Pharmaceutical Economic Evaluations, National Department of Health, Pretoria, South Africa.

    Acknowledgments: The discipline of Clinical Pharmacology, The University of Newcastle, was supported in this project by Management Sciences for Health and the United States Agency for International Development.

    Disclosure Information: The authors report no financial disclosures as related to products discussed in this article.


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