Implementing a Strategy for Drug Cost Management

September 2017 - Vol.14 No. 9 - Page #6
Category: Formulary Software

Maximizing drug cost control opportunities is a mandate for every health-system pharmacist. As health systems expand, many have chosen to manage the formulary on a system-wide basis to take advantage of economies of scale. Centralization of formulary policy management can accelerate the benefits of cost-saving initiatives, such as therapeutic interchanges, restrictions, and enhanced contracting opportunities.1

University Hospitals (UH) is a 15-hospital health system (ranging in size from 25 to 1032 beds) that includes 28 outpatient health centers and primary care physician offices in 15 counties in and around Cleveland, Ohio. Six disparate electronic medical records (EMRs) are utilized throughout the health system: one covers eight hospitals, and the remaining five EMRs will be integrated in the future. UH manages its formulary process through two system-level pharmacy and therapeutics (P&T) committees, one for adults and one for pediatrics. After creating the system-wide formulary structure in 2013, it became apparent that additional optimization was necessary to maintain effectiveness and facilitate additional cost management.

Financial Optimization Strategies

Medication costs play a significant part in the total value of care equation. Therefore, the UH system has embraced an intense focus on appropriate utilization and overcoming integration barriers to fine-tune its cost management strategy. The UH formularies are integrated into 3 system-wide programs, each with a distinct purpose: High-Reliability Medicine (HRM), Value-Improvement Programs (VIP), and Clinical Effectiveness Teams (CET).

High-Reliability Medicine Initiatives

HRM mirrors the concepts of high-reliability organizations (HRO), the gold standard used by The Joint Commission to recognize ongoing effectiveness and efficiency in maintaining compliance and safety.2 HRM applies the same principles of efficiency and effectiveness to medications. UH HRMs target a specific disease pathway (eg, colorectal surgery) and utilize a fast-paced, interdisciplinary team approach to analyze opportunities for enhanced standardization and elimination of unnecessary variation in drug therapy, while also addressing waste reduction.

Each HRM comprises, at a minimum, a project manager and an interdisciplinary team of pharmacists and physicians. The team is rolled out over the course of 12 weeks and maintained thereafter in case additional follow-up is required. UH has rolled out 4 waves of HRM initiatives with 4 teams per initiative; as of the summer of 2017, 16 teams have been rolled out. Each pharmacist serving on an HRM team works to identify any formulary changes or restrictions that may require additional evaluation by the UH formulary process. For example, UH re-evaluated the use of alvimopan and created a tighter restriction to better manage appropriate use; alvimopan is now permitted for use in certain colorectal surgeries, and a maximum number of doses has been set.

Once recommendations from an HRM are made and approved, senior leadership requires that they be implemented across the system within all EMRs and into all affected workflows. Using this method, HRM has been successful in standardizing service-line areas throughout the system, including medication use in those areas.

Value-Improvement Programs

While HRM goals focus on standardization, the primary goal of VIPs is to enhance value by decreasing cost. Similar to HRM, VIP initiatives have senior leadership support and are implemented system-wide. At UH, several VIP initiatives are underway, including but not limited to pharmacy, supply chain, human resources, nursing, physician services, etc. The specific VIP team focusing on pharmacy includes a select pharmacy team with support from the operational effectiveness department. Current initiatives include antimicrobial stewardship, drug distribution, 340B program compliance, and medication assistance/recovery.

Within the antimicrobial stewardship objective, UH has successfully decreased utilization of daptomycin by implementing restrictions within the EMR and establishing effective monitoring. With the decreased utilization and subsequent market unit cost reduction, UH has achieved a $445,000 savings from June 2016 to June 2017. Within the drug distribution objective, the team reviewed strategic sourcing and successfully renegotiated UH’s wholesaler agreement. Future initiatives will address improving system-wide contracting, incrementally increasing new revenue (eg, development of specialty pharmacy services), outpatient pharmacy expansion, and blood factor stewardship. Many of these initiatives have the capacity to improve value to the organization by utilizing an interdisciplinary team to accomplish its goals.

Clinical Effectiveness Teams

While the HRM and VIP teams are relatively new initiatives at UH, CETs have been an integral part of UH’s fabric for many years. One significant responsibility under the CET purview is managing EMR order sets. Thirteen CET teams review order set optimization changes monthly, and a pharmacy presence is maintained on most teams. These teams are disease-specific (eg, anticoagulation) and multidisciplinary to review order set recommendations and changes. When order set changes are recommended that include new medications or new uses, these formulary requests are routed to the formulary process from the CET manager. Once a medication change is approved, the CET manages the request moving forward. This integration of the CET and formulary process provides another opportunity for standardization and formulary maintenance within the EMR.

The Impact of Cost Management Strategies

The HRM and VIP programs are part of a broad strategy for managing pharmaceutical costs. These teams provide an additional opportunity within the formulary process to evaluate medications and increase physician buy-in for current UH formulary policy. The total value of care approach in standardizing service lines (HRM) and cost reduction (VIP) relies on a vertical drill-down review of one specific area. Conversely, the medication class review within the formulary process delivers a horizontal review of an entire medication class over a specific course of time at the institution. By incorporating both HRM and VIP programs into the formulary process, UH can identify opportunities for added value, standardization, and cost savings across all continuums. In essence, the HRM and VIP initiatives facilitate a class review of care that encompasses a totality of care approach, of which medications are one piece. For example, one of the HRM initiatives resulted in a medication cost decrease of 31.4% for joint replacement patients after standardization and cost reduction.

The utilization of HRM, VIP, and CET illustrate that pharmacy cannot operate alone in pursuing cost containment or formulary policy management, and that these processes cannot function without guidance from the UH adult and pediatric system P&T formulary teams.

Formulary Standardization Opportunities

Integrating EMRs

In addition to the aforementioned initiatives, UH has focused on formulary integration of our several disparate EMRs. An updated process for annual formulary compliance of the adult and pediatric system formularies has identified opportunities for additional therapeutic interchanges and integration of newer sites, as well as opportunities to review highly used non-formulary medications.3 For example, UH has a preferred IVIG product on formulary. Interaction with newer sites includes discussions on how to pivot toward the UH formulary for IVIG with provider education and EMR integration.

Managing Biosimilar Adoption

The availability of biosimilars—ie, biological products that are highly similar to FDA-approved biologic reference products and that have no clinically meaningful differences in terms of safety and effectiveness from the reference product (there may be minor differences in clinically inactive components)4—provides an exciting opportunity for cost savings. UH has taken a proactive approach to managing biosimilars. When a biosimilar becomes available in the US, UH evaluates the product for potential formulary addition. A biosimilar is treated as a new drug for review. The formulary review process utilizes a checklist to evaluate efficacy, safety, and operational implications, such as EMR impact, insurance coverage, and more.

With over 660 companies currently involved in the biosimilar development pipeline,5,6 the next 5 to 10 years will prove interesting. FDA-approved biosimilars are listed in TABLE 1. Biologics that may be reviewed by the FDA in the near future include additional infliximab biosimilars, trastuzumab, epoetin, and adalimumab biosimilars. At this time, only 2 of these agents, Zarxio and Inflectra, are available on the market; the FDA has not deemed either biosimilar interchangeable with the reference product.4

The UH formulary process determines equivalence of a biosimilar to a biologic product, similar to other therapeutic interchange processes. However, 2 additional issues must be taken into account when reviewing biosimilars:

  • Legal Concerns. Litigation related to patent claims can significantly impact biosimilars coming to market. The Supreme Court heard a case in May 2017 between Amgen, the manufacturer of filgrastim (Neupogen), and Sandoz, the manufacturer of filgrastim-sndz (Zarxio), to clarify specifics on the FDA’s biosimilar patent requirements. The case decision ruled in favor of the biosimilar company, determining that the company is not required to wait an additional 6 months after FDA approval to market a biosimilar.7
  • Availability of Multiple Biosimilars for One Biologic Product. In the near future, multiple biosimilars may become available for the same reference product. Each organization will need to determine which product is most appropriate for their patient population and take into consideration insurance payor preference.

UH took 2 distinct approaches, based on adult P&T committee input and insurance payor implications, to address the 2 biosimilars available in the US. For Zarxio, the product is made available in FDA-indicated situations when Neupogen is denied insurance coverage. Conversely, Inflectra is on formulary with no restriction and is considered equivalent to Remicade, unless the patient’s insurance denies Remicade and only allows Inflectra use. This allows the provider flexibility in respect to biosimilar usage, as some providers expressed interest in switching all patients to Inflectra, while others were only willing to use the biosimilar in new-start patients. The successful addition of both biosimilars can be attributed to including providers into the UH formulary process discussions. In addition, provider and pharmacy education on specific biosimilars and the general biosimilar landscape have proven useful to increase understanding of these products.

The challenges of managing biosimilars illustrate the increasing need for a total care continuum, including the ambulatory environment. In this area, payors’ decisions on prior authorization approval significantly impact formulary decision-making. Although the cost of a biosimilar agent to the health system may be low, the payor reimbursement must also be assessed and weighed before adding the biosimilar to formulary. This presents another challenge to the normal formulary process (ie, reviewing agents for inpatient use), since reimbursements and transitions of care are key factors for these agents in the ambulatory setting. Therefore, when evaluating biosimilars for formulary inclusion, be sure to consider their use in both inpatient and outpatient populations.

The addition of a biosimilar to formulary is dependent upon both provider comfort with biosimilars and the uptake of patient insurance payors. Without support from both providers and payors, it is unlikely that the biosimilar will be added to formulary.

Overcoming Barriers

Multiple obstacles can impact a cost-containment strategy, including:

  • Drug shortages
  • Drug cost inflation/spikes
  • Disparate EMRs within a health system
  • Provider preference
  • Infusion reimbursement

Robust communication among sites is critical to managing shortages and the impact of disparate EMRs for all cost-savings initiatives. Infusion reimbursement is a key driver for outpatient infusion formulary management. If the infusion is not covered, the institution typically is less willing to provide the medication, regardless of provider preference.

At the center of this difference between payor coverage and formulary is ensuring optimal patient care. Innovative solutions must be considered when coverage is not an option, such as utilizing a patient’s own medication. Moreover, drug cost inflation can be better managed utilizing system contracting and analytics for trend monitoring.

Data Monitoring Analytics Tools

Many tools are available to assist with drug cost management. UH has focused on reporting tools available from our GPO, such as a clinical surveillance tool that provides specialized reports and targeted patient lists to manage large-scale surveillance of pharmacy use in real time, as well as a purchasing and utilization tool that integrates UH purchasing with utilization metrics, such as amount of use and primary physician in comparison to a peer group. The clinical surveillance tool plays a key role in UH’s antimicrobial stewardship program (ASP), helping identify future initiatives and document ASP successes. Additional tools available include third-party analytics, top-down cost reporting by drug, and year-to-year drug inflation monitoring. Each institution must assess these resources to determine which suit their individual needs.

Future Goals

UH has taken a proactive approach to integrating specific initiatives within the formulary process to better assess and implement strategic, fast-paced change, which ultimately improves cost management. The most significant benefits have derived from a focused effort on cost efficiency and standardization. In addition, the resulting system-wide culture of medication cost stewardship now includes disciplines outside of the department of pharmacy.

Future drug cost management goals include seamless integration of day-to-day market cost changes with more longitudinal management strategies, such as reviewing biosimilars, addressing non-formulary medication management, and launching new VIP/HRM initiatives.


  1. Glowczewski JE, Osborne SM. Aligning health system formularies for cost savings. Pharm Purch Prod. 2015;12(11):4-8.
  2. High reliability in health care. Joint Commission Center for Transforming Healthcare. Accessed June 30, 2017.
  3. Her QL, Amato MG, Seger DL, et al. Review of nonformulary medication approvals in an academic medical center. Jt Comm J Qual Patient Saf. 2017;43(2):89-96.
  4. Information on biosimilars. Food and Drug Administration. Accessed June 30, 2017.
  5. Reinke T. Biosimilars: The pipeline seams seem to be bursting. Managed Care (March 2017). Accessed June 30, 2017.
  6. Biosimilars/Biobetters Pipeline Directory. Accessed July 17, 2017.
  7. Amgen Inc vs Sandoz Inc. SCOTUSblog. Supreme Court of the United States. Accessed June 30, 2017.

Indrani Kar, PharmD, is the drug policy/formulary pharmacist at University Hospitals in Ohio. She is responsible for managing the system adult formulary, system pediatric formulary, and system medication management policy. Indrani earned a PharmD from the University of Pittsburgh and completed her post-graduate drug information training at University of Missouri-Kansas City School of Pharmacy and Robert Wood Johnson University Hospital/Rutgers, Ernest Mario School of Pharmacy.

Shawn M. Osborne, PharmD, MBA, is vice president of pharmacy and supply chain services at University Hospitals in Ohio. He is responsible for pharmacy operations, practice model advancement, and enterprise strategy. Most recently, he established a system-wide drug policy governance model and formulary process. Shawn earned a BS Pharm from the Ohio State University, an MBA from Xavier University, and a PharmD from the University of Cincinnati.

Jason E. Glowczewski, PharmD, MBA, FASHP, chief operating officer at UH Conneaut and Geneva Medical Centers in Ohio. He previously served as the director of pharmacy for community hospitals at UH and was responsible for new program implementation, strategic planning, process integration, and pharmacy service line development across 11 community hospitals. Jason received his PharmD from the University of Toledo, an MBA from Indiana Wesleyan University in Marion, Indiana, and most recently completed a Lean health care certification from Kent State University in Ohio.


  • GPO: Premier
  • Clinical Surveillance Tool: Theradoc
  • Purchasing and Utilization Tool: Service Line Analytics


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