Formulary Management of Novel Drug Therapies

December 2020 - Vol.17 No. 12 - Page #2
Category: Formulary Software

Because novel drug therapies target a previously unmet clinical need or help significantly advance patient care and public health, many enter today’s highly complex pharmaceutical marketplace at extremely high price points. In 2019, FDA’s Center for Drug Evaluation and Research (CDER) approved 48 novel drugs, endorsed as New Molecular Entities (NMEs) under New Drug Applications (NDAs) or as new therapeutic biologics under New Biologic License Applications (BLAs).1

The overall number of approvals has significantly increased over the past decade (see FIGURE 1).2 Interestingly, these approvals have been supported by fewer pivotal trials with less rigorous study design.3 Resulting from the inception of the FDA Fast Track designation in 1988, a number of other streamlined pathways of regulatory approval have surfaced, such as Priority Review (1992), Accelerated Approval (1992), and Breakthrough Therapy Designation (2012).3 These facilitated pathways offer the FDA flexibility with respect to evidentiary requirements; however, less rigorously designed trials suggest an ongoing need for continued evaluation of therapeutic safety and efficacy after approval.3

In an age of high-priced drugs, medication evaluation models should align a drug’s price to the efficacy and clinical outcomes it provides. Health care stakeholders must now focus on the concept of value-based drug purchasing models, in which the price of a medicine is directly linked to the value it provides to patients, payors, and the health care system.4 Since 2016, the University of Virginia (UVA) Health’s Novel Therapy Subcommittee has evaluated the value of novel therapies relative to their costs (see SIDEBAR 1 for UVA’s process for adding a drug to formulary).

Establishing the Novel Therapy Subcommittee

The Novel Therapy Subcommittee was established at UVA Health to ensure new pharmaceuticals are evaluated appropriately from a financial and resource utilization perspective (see TABLE 1). This subcommittee evaluates the financial and operational impact of adding a high-cost, novel therapy to formulary and is essential in ensuring that the financial investment in the proposed therapy corresponds with UVA’s mission and vision, as well as strategic growth areas. Crucial considerations for evaluation include pharmaceutical expense, labor utilization and requests, specialty pharmacy pathways, billing methodologies, payor relationships and contracting, and other factors as applicable.

The Novel Therapy Subcommittee conducts targeted discussions on high-cost therapies meeting any of the following criteria:

  1. Annual drug expense of $1,000,000 or greater
  2. Labor or other resource requests accompany the addition of the drug to formulary (for example, requesting a nurse coordinator to oversee scheduling and coordination of patients)
  3. Lack of appropriate billing methodologies or reimbursement
  4. The request is not supported in the medical center budget
  5. Misalignment of medical center priorities and/or lacking support of service line leadership
  6. Upon the recommendation of the clinical subcommittee after their review

Examples of therapies evaluated by the Novel Therapy Subcommittee include chimeric antigen receptor therapy (CAR-T) and high-cost inpatient infusion therapy (see SIDEBAR 2).

Financial Considerations

The review by the Novel Therapy Subcommittee is guided by a financial model that incorporates best estimates of how the drug may be utilized at UVA. This process begins with estimating the patient volume and identifying the patient population, followed by a calculation of payor mix and potential reimbursement. Additional expenses and extra resource allocations associated with the therapy are evaluated as well. This combination results in a final net impact to the organization. Key components of the financial analysis of a novel therapy include the following:

  • Patient Volume: The requesting physician provides an estimate of the number of patients that may receive this therapy based on their knowledge of the disease state and drug outcomes
  • Patient Population: ICD-10 codes are used to identify the patient population based on our knowledge of the patients in consideration
  • Payor Mix: The mix of commercial and governmental payors is estimated based on the patient population
  • Billing Codes and Units: Specific billing parameters are established using current or planned billing codes, billing units, and appropriate billing modifiers
  • Care Setting: The novel therapy’s setting of care is identified (inpatient, outpatient, procedural, other) as this relates to resource utilization, billing, and reimbursement
  • Estimated Reimbursement: Reimbursement is determined based on commercial and governmental payor rates for the novel therapy; oftentimes, reimbursement must be estimated as payment rates for the new drug may not be finalized
  • Inventory Considerations: Whether to maintain stock on hand or order as needed is important to consider. Consignment programs may also be an option for some therapies
  • Specialty Pharmacy: For novel therapies that are restricted by the payor to a specialty pharmacy route of procurement (ie, white-bagging), a different financial outcome will result, which must be modeled
  • Contracting: For novel therapies that are only sourced through limited distribution or direct from the manufacturer, specific contracts will be required. The Novel Therapy Subcommittee should review the terms and conditions of the contract, focusing on length of term, additional fees, returnability, waste, etc.
  • Support Resources: Supplemental resources may be necessary to support novel therapies. For example, additional labor may be requested to coordinate patient benefit investigations, accommodate scheduling, etc.
  • Operational Impact: Issues such as chair time and appointment frequency must be factored in if infusion center capacity or prioritization is a concern
  • Supportive Care: Additional drug therapies used in conjunction or pre/post administration of the novel therapy must be accounted for
  • Patient Population Treated: Many high-cost, novel therapies are dosed based on weight. An accurate estimate of patient weight distributions can have a substantial impact on final cost estimates

The financial model incorporates the impact of each of these considerations as it applies to the novel therapy being reviewed. The goal is to project the most likely financial outcome for the organization should the P&T Committee approve the use of the therapy.


The Novel Therapy Subcommittee chooses to recommend or deny products for formulary inclusion based on the financial model as well as operational considerations. In many cases, the subcommittee will recommend a novel therapy be added to formulary, but with additional restrictions. For example:

  • Restrict to Case-By-Case Formulary Status. In this situation, the therapy is not routinely stocked; it is only ordered when a patient is identified. This approach offers the advantage of reducing inventory carrying costs; however, it cannot be applied if the drug requires urgent administration.
  • Restrict to Single-Case Agreement Between Patient and Payor. This strategy mirrors that of other types of high-cost procedures and surgeries and outlines the financial responsibilities of all parties.

Additionally, the subcommittee may request a retrospective review of the financial impact of any therapy that has been evaluated and approved. This serves to measure the accuracy of the initial predictions and to make adjustments as needed. Retrospective reviews are conducted 6 to 12 months post-implementation to ensure the data captures a sufficient number of patients receiving the therapy.


The global COVID-19 pandemic and its resulting economic effects have forced health care systems to scrutinize all expenditures, including prescription medication costs, which account for a significant percentage of UVA’s total health care spending. The operational and financial review of a high-cost, novel therapy agent is a complex process. When evaluating requests for these therapies, they must be reviewed relative to the efficacy and clinical outcomes provided, or their perceived value. An institution with an emphasis on value-based medicine improves the quality of patient care overall by ensuring health care resources are used efficiently.8

Physician and key leadership buy-in play an instrumental role in the practice of value-based care. Since its implementation in 2016 at UVA, the Novel Therapy Subcommittee has continued to assist the medical center in navigating the financial and operational considerations of novel therapies to ensure alignment with our organization’s mission and strategic goals.


  1. US Food & Drug Administration. Novel Drug Approvals for 2019. Accessed July 1, 2020.
  2. US Food & Drug Administration. New Drugs at FDA: CDER’s New Molecular Entities and New Therapeutic Biological Products. Novel Drug Approvals for 2009-2019. Accessed July 1, 2020.
  3. Zhang AD, Puthumana J, Downing NS, et al. Assessment of clinical trials supporting US Food and Drug Administration approval of novel therapeutic agents, 1995-2017. JAMA Netw Open. 2020;3(4):e203284. doi:10.1001/jamanetworkopen.2020.3284
  4. Seymore B. Taming the Trend: Managing Costs of Specialty Pharmaceuticals for Insurers. Pharm Times. March 23, 2020. Accessed July 1, 2020.
  5. Batta A, Kalra BS, Khirasaria R. Trends in FDA drug approvals over last 2 decades: An observational study. J Family Med Prim Care. 2020;9(1):105-114.
  6. US Food & Drug Administration. New Drugs at FDA: CDER’s New Molecular Entities and New Therapeutic Biological Products. Accessed November 12, 2020.
  7. Pharma’s Almanac. Drug Approval Trends: Significant Acceleration in Recent Years Accessed November 12, 2020.
  8. Bae JM. Value-based medicine: concepts and application. Epidemiol Health. 2015;37:e2015014. doi:10.4178/epih/e2015014.

Danielle Griggs, PharmD, MBA, MS, BCPS, is the pharmacy director for business services at the University of Virginia Medical Center in Charlottesville, Virginia. She completed her PharmD and MBA at the University of Kentucky, and her MS from the University of North Carolina Eshelman School of Pharmacy. Danielle completed a health system pharmacy administration residency training at UNC Hospitals and Clinics. Her professional interests include pharmacy contracting and negotiations, supply chain and 340B, and pharmacy business development.

Kaylyn Dougherty, PharmD, MHIIM, is a medication utilization strategy pharmacist at the University of Virginia Medical Center. She completed her PharmD and MHIIM at the University of Tennessee College of Pharmacy. Kaylyn also completed residency training in managed care at the University of Michigan and in drug information at the University of Wisconsin Hospital and Clinics. Her professional interests include formulary design, utilization management, drug shortages, and clinical decision support.



Adding a Drug to Formulary

The University of Virginia (UVA) Medical Center pharmacy operates on a closed formulary system: Every medication used to treat a patient in the medical center must be approved by the medical center P&T Committee prior to use. The use of a non-formulary medication must undergo a thorough assessment by a clinical pharmacist prior to approval and procurement.

An attending physician seeking to have a non-formulary medication placed on the formulary, a new formulation of a current formulary medication placed on the formulary, or to amend the restriction of a current formulary medication must complete and submit a request to the Medication Utilization Strategy pharmacy team through an online portal. The addition request form requires the physician to indicate the proposed care setting(s) for use, proposed restrictions for use, estimated usage per month, comparable formulary drugs, reasons for formulary consideration including cited literature, and potential conflicts of interest. The requesting physician must also notify the service line division head of their pending request. The medication utilization strategy pharmacist then prepares an impartial, comprehensive evaluation of the drug based on a review of published clinical trials, efficacy, safety, monitoring, financial impact, etc.

If appropriate, the request may require approval by a specialized subcommittee prior to final review by the P&T Committee. Active UVA subcommittees include Anticoagulation, Infectious Disease, Pain and Palliative Care, and Hematology and Oncology.


Examples of Therapies Evaluated by the UVA Novel Therapy Subcommittee


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