Review of Literature on Prescribing Restrictions

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More than 42 studies have been published on this topic. Two major reviews have summarized this literature: Jang26 and Kozma et al.,27 who reviewed literature on four prescribing influence methods.

Restrictive Formularies

As the term is commonly used, formulary can denote a wide range of prescribing influences. At one extreme is a simple list of drug products approved for use in a health care organization or for payment by a third party. (These are more accurately called drug lists.) At the other extreme is a primarily educational program of recommended drug products with one or more provisions for a prescriber to obtain nonformulary drugs. (These were described above.)

In his review article, Jang found that where restrictive formularies are used in ambulatory care, other drugs or services tend to be substituted. The substitutions often cost more than drug product savings. For example, using restrictive formularies, Louisiana Medicaid reduced its drug expenditures by $4 million, but spent $15 million more on nonprescription expenditures, e.g., hospitalizations. Furthermore, Jang questioned the therapeutic appropriateness of some substitute therapy. He concluded, " ... restricted drug lists appear to save money but the savings are illusory. They cost ... other services or represent a reduction in benefit to participants."26

Kozma et al. found that formulary restrictions often succeed in affecting drug choices and program expenditures for targeted drugs. However, restrictions may have unintended economic effects. They note that the literature shows a complex relationship among formulary restrictions, overall program costs, and therapeutic effects.27

Susan Horn et al. studied the relationship between formulary restrictive-ness and utilization of other health care services in six managed care organizations (MCOs) located in six states.28,29 The study included 13,000 patients over 1 year and used prospective data collection and multiple regression analysis. Formulary restrictiveness was associated with higher rates of emergency department visits and hospital admissions for all included diagnoses except otitis media, and was associated with higher drug cost, more prescriptions, and more office visits for some diagnoses. The range of effect was approximately twofold; i.e., the most restrictive formulary tended to be associated with twice the utilization of the least restrictive formulary.

Bloom and Jacobs studied the cost effects of prescribing restrictions on peptic ulcer disease (PUD) in the West Virginia Medicaid program during 1982, using a before-after comparative design.30 They found that total Med-icaid costs for PUD treatment were 15% lower during a period when a restrictive formulary was in effect than during a period when an "open" formulary was in effect. However, this overall 15% savings was explained by a sharp decline in the number of patients receiving care under the Med-icaid program for PUD. The cost per member per month (PMPM) for PUD patients actually increased 9.4%. Furthermore, although pharmacy costs fell by 80%, physician costs increased by 3.1% and inpatient hospital costs increased by 24%.30

Cromwell et al. studied the effect of moderate prescribing restrictions on PUD in Florida. They found that restricting payment to only one PUD agent at a time, allowing only one refill per prescription, and imposing time limits for high-dose therapies were associated with a significant reduction in prescription expenditures without a significant increase in PUD-associated hos-pitalizations. Use of other ambulatory care services, e.g., office visits, was


Effects of Hospital Formularies

Author, Year (reference no.) Principal Result

Riffenburg et al., 1996 (32) Degree of formulary restrictiveness (FR) was related to cost shifting

Sullivan and Hazlet, 1995 (33) Restrictive formulary was related to 26% lower drug cost per patient day, with no increase in length of stay

Sloan et al., 1993 (34) Degree of FR was related to cost shifting

Hazlet and Hu, 1992 (35) Restrictive formulary was related to 10-13% lower drug cost per patient day not included in the analysis. It is noteworthy, however, that the use of six alternative PUD therapies was reimbursed under this policy.31

Hospital Formulary Studies

Table 6.1 summarizes four studies of the financial effects of hospital formularies. One unpublished study (Sullivan and Hazlet33) suggests that restrictive hospital formularies are associated with reduced drug cost without increasing length of stay (a surrogate for total cost per admission). The others show that reductions in drug cost associated with hospital formulary restrictiveness result in part from cost shifting, i.e., reducing expenditures in one account (the drugs budget) at the expense of another, e.g., the nursing budget.

Prescription Limits

Some managed care programs may limit the number of prescriptions that they will pay for per month, or their monthly expenditure per capita. Soumerai et al. studied the effects of a limit of three prescriptions per patient per month, established for an 11-month period by the New Hampshire Medicaid program. As intended, the limit caused substantial reductions in both prescriptions and expenditures for drugs.36,37 However, the limit seemed to lower prescribing of both ineffective and effective drug products. In addition, the study found significant adverse consequences for poor elderly patients and chronically mentally ill patients. For elderly patients who had been using more than three prescriptions per month, there was a 35% reduction in prescription expenditures, but this was offset by a twofold increase in the risk of nursing home admissions and a 20% increase in the risk of hospital admission. Furthermore, many elderly poor who had entered nursing homes or hospitals during the period of the prescription limit were permanently dislocated from their communities. For chronically mentally ill patients, the average increase in total cost of care was $1530, 17 times the drug cost savings.

Years after the publication of these works, prescription caps continued to be used by state Medicaid programs, among others. (See the discussion of Donald Ashwell in Chapter 5.)

Prior Authorization

Prior authorization (PA) is a type of prescribing restriction that is related to a formulary or drug list, and often is a supplemental provision. "In essence, PA is an administrative tool that requires a prescriber to get a pre-approval for ... a drug ... before reimbursement "38 In essence, the prescriber must apply for coverage of a nonformulary drug product. The payer, usually on advice of a pharmacy and therapeutics committee, may agree to provide (or to pay for) the drug product on a case-by-case basis, subject to advance review and approval. In the usual example of hospital restrictions on antibiotic use, a consultation with the Infectious Disease Service is required to use certain antibiotics.

Kozma et al. reviewed a number of studies showing that prior approval programs are highly effective in reducing antibiotic prescribing and overall drug costs for hospitalized patients. However, they recommend caution when applying results from institutions to health care systems. Some state Medicaid programs report substantial savings in drug costs, but according to Kozma et al., their study methods are questionable.27 MacKinnon and Kumar reviewed the literature on PA in 2001. They concluded,

Overall, PA programs appear to be effective at reducing drug-related costs. There is some evidence that they reduce nondrug-related costs but little evidence that they have a positive impact on clinical or humanistic outcomes. None of the studies had a randomized, controlled design; most of the studies had severe methodological limitations.38

Drug Use Evaluation as Enforcement

DUE is described above as a prescribing evaluation procedure rather than a restriction. A critical issue involves the criteria used for DUE when the method is used for management (rather than research). There are no comparative studies to show the kinds of criteria used in management DUE. However, the DUE literature suggests that management DUE often is used only to measure compliance with a formulary or other list of approved drug products. Kozma et al. concluded that there is a strong need for more clinically meaningful criteria for selecting drug products and therapeutic classes for DUE. In particular, they point out that quality of care has not been incorporated routinely into DUE programs operated by third-party payers and that valid outcome measurement tools are needed to determine the true impact of DUE programs.27

DUE may be followed up with administrative enforcement of prescribing restrictions or with educational programs to change prescribing. Consistent with the prescribing focus of DUE, the prescribing physician is usually the target. One comparative study of patient-oriented DUE suggests that DUE directed at physicians did not increase the efficiency of prescribing for asthmatic patients (Table 6.2). However, DUE targeted at physicians and pharmacists significantly decreased prescription expenditures, with a smaller (although not statistically significant) total outlay for care per member per month.39


Average Monthly Cost per Patient for Asthma Medications by Study Group


Average Monthly Cost per Patient for Asthma Medications by Study Group




Mean $ (SD)

Mean $ (SD)

(Before - After)

Letter and Fact Sheet to Physician

158 (94)

139 (124)


Only (45 Patients)

239 (354)

362 (815)


Letter and Fact Sheet to Physician

153 (96)

132 (91)


and Pharmacist (35 Patients)

201 (138)

171 (127)


a Indicates statistical significance.

a Indicates statistical significance.

Source: Sleath et al., Am. J. Health Syst. Pharm., 54, 2197, 1997. Conclusion from Literature Review

The evidence clearly shows that PrRs influence prescribing, which presumably is their primary objective. There is, however, little support for the belief that PrRs increase the cost-effectiveness of drug therapy, i.e., that they either reduce total cost per capita or improve patient outcomes. On the contrary, there is considerable evidence that PrPs may have unintended consequences. In particular, despite its limitations (and the controversy that surrounded its publication), the Horn28,29 study cited above is not an aberration. It is consistent with the majority of evidence. There is no countervailing evidence in the literature.

The ostensible intention of prescribing influence programs is to replace inappropriate prescribing with evidence-based prescribing. However, the balance of evidence is that prescribing restriction programs may actually reduce the appropriateness and cost-effectiveness of care, when patient outcomes and total costs PMPM are considered. There is no obvious explanation for why this happens. Perhaps prescribing restrictions and DUE overemphasize the scientific appropriateness of prescribing at the expense of other issues, e.g., suitability to patient need. Perhaps prescribing restrictions interfere with appropriate decsion making in some way.

Remarkably, selection of prescribing restrictions appears to be perverse, as the least supported techniques, e.g., formularies, seem to be used the most often. This interesting anomaly should receive attention from health service researchers and students of organizational policy making and behavior.

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