NCPA - National Center for Policy Analysis

Drug Formularies Save Money

June 16, 2003

To rein in the fast-rising cost of Medicaid, the government health plan for the poor, states are limiting which drugs doctors can prescribe for patients. Preferred drug lists or formularies require doctors to use a limited number of less expensive drugs in lieu of more expensive medications.

  • Medicaid drug costs doubled in just four years, reaching $23 billion last year, and accounted for one of every 10 dollars the program spent on health care.
  • Two years ago, only three states had authorized the use of lists of preferred drugs for such patients; since then, 19 other states have done so, according to the National Conference of State Legislatures.
  • New York State, which spends far more on Medicaid than any other state, is moving toward joining that group, and a similar program is under consideration in New Jersey.

In states with formularies, a review board divides the available drugs into "therapeutic classes" -- for heart disease, diabetes and so on. In each class, the panel designates the most effective drugs, usually two per class. Doctors who want to deviate from the list must get prior approval, a process which may require time-consuming phone calls or paperwork. Appeals of decisions are sometimes difficult.

Medicaid officials say the restrictions have resulted in savings. In Florida, officials say their program is saving more than $200 million a year, Michigan officials say theirs cut costs by $45 million a year, and some legislators in New York predict annual savings as high as $400 million.

Source: Richard Perez-Pena, "22 States Limiting Doctors' Latitude in Medicaid Drugs," New York Times, June 16, 2003.


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