Funding the New Biologics – Public Policy Issues in Drug Formulary Decision Making

One function of drug formularies is to allow health care providers to exert some control over spending. Decisions about whether to include a given medication in a formulary are based on estimates of its costs and effectiveness, relative to other treatment strategies. These decisions are made from a societal perspective, as opposed to that of individual patients, which sometimes results in conflicts. The clinical response to a medication often varies widely among subjects, which means that a small subgroup of patients might benefit dramatically, while others with the same disease do not. The result would be that a drug might appear not to be cost effective in an economic analysis, even though it is of proven value for some patients. New and innovative medications are assessed according to high standards of cost effectiveness, even though established treatments are wasteful of valuable health care resources. Moreover, quality-adjusted life-years (QALYs) discriminate against certain patient groups, including those with diseases that are associated with a high morbidity but a low mortality. Such patients often incur high indirect costs, including loss of employment income and costs incurred by family caregivers that QALYs do not reflect. Therefore, even though QALYs are transparent and widely applicable, they are not necessarily appropriate in the evaluation of a particular therapeutic intervention. A new paradigm should be developed for evaluating emerging therapies. An example would be a risk-sharing approach, whereby the pharmaceutical industry and public insurers share in the costs and rewards of introducing new treatments. This would have implications for the prices charged for new medications.