Medicaid formularies

The use of restrictive formularies can add a measure of uncertainty and delay to the drug development process and could affect manufacturers returns to R D. In the past, there were reports of long delays in the adoption of new drugs into Medicaid formularies after FDA approval. A study of delays in Medicaid formulary approvals for new drugs introduced between 1975 and 1982 in six States with restrictive formularies found the average delays in approval time for drugs eventually accepted ranged from about 1 to 4 years after approval by the FDA (153). An update of that study, which examined nine States over the period 1979 to 1984, found similar delays (156). 

Until 1991, State Medicaid agencies had the authority to restrict the drugs that Medicaid covers. In 1990, about 22 States had restrictive formularies, which limited reimbursable drugs to a defined list. Another 28 States had open formularies," under which all drugs are reimbursable except for those explicitly identified as ineligible. 

While the US doesn t believe in the government negotiating prices with the pharmaceutical industry, the rise of formularies by Medicaid and by private insurers has played a similar role in cost contaimnent and has dramatically transformed the potential returns on research investment. The principle of tiered formularies is theoretically simple - insurers cover the cost of basic dmgs for an indication and the consumer then makes choices about how much additional value they want, and accepts the additional costs. Most formularies have three tiers, possibly four as shown in Table 11. Managed care formularies vary considerably in the co-payments expected for each tier, and the tiers assigned to a given dmg. 

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