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DataWatch

Physicians’ Views Of Formularies: Implications For Medicare Drug Benefit Design

Abstract

 
As Congress considers introducing a drug benefit for Medicare, it will more than likely adopt a program that uses a formulary. We examined data from the Community Tracking Study Physicians Survey, a large, nationally representative study of physicians, to learn about physicians’ views of formularies. Our results suggest that several aspects of formularies are associated with physicians’ positive views about them. Policymakers should consider imposing limits on the number of competing Medicare formularies operating in a particular area, promoting the adoption and use of information technology, and incorporating financial incentives for physicians to adhere to formularies.

Top Editor's Notes Study Findings Conclusions And Policy... Notes

As Congress considers introducing a Medicare drug benefit, it will more than likely adopt a program that uses a formulary to help control costs and use. Although they differ greatly in their reliance on the private sector, bills passed by both the House and the Senate, as well as other bills proposed by Democrats and Republicans, included provisions for the use of formularies.

In their most simplistic form, formularies are lists of drugs that are preferred by a health plan, pharmacy benefit manager (PBM), or employer. Formularies are commonplace in the commercially insured population and typically tied to a set of administrative or financial mechanisms that are designed to promote adherence to the formulary by physicians and patients.⁴ These mechanisms typically include restricting access to certain drugs, selecting preferred drugs, requiring preapproval, or classifying drugs into different tiers, so that consumers are responsible for increasing copayments for more expensive therapeutically equivalent medications or ones for which the coverage plan could not negotiate discounts. Closed formularies restrict coverage to drugs on the formulary, while open formularies cover nonformulary drugs but often with higher consumer payments.

Because of such restrictions, many are concerned that drug formularies could be harmful to vulnerable seniors.⁵ In addition, formularies introduce an additional layer of complexity that could be difficult for the vulnerable elderly to negotiate. For instance, some patients might not know when they could request an alternative drug if faced with a higher-tier copayment.

One voice missing in the debate about formularies is that of physicians. Enacting a Medicare drug benefit that incorporates formularies will greatly expand physicians’ exposure to them. Nearly two-thirds of physicians obtain one-fourth or more of their practice revenue from Medicare.⁶ Although a majority of Medicare patients have drug coverage from a previous employer, a Medigap policy, or a Medicare+Choice (M+C) health plan, a sizable minority has no such coverage. Consequently, the use of formularies for Medicare beneficiaries as a whole is likely to be lower than for other privately or publicly insured patients.

There are few systematic data on physicians’ views of formularies. To fill this gap, we used data from the Community Tracking Study (CTS) Physicians Survey to inform this issue. We had three primary questions. First, how prevalent are formularies, and what types of physicians have the greatest exposure to them? Second, how might a Medicare drug benefit that includes formularies increase physicians’ exposure to them? Third, what are physicians’ views on the usefulness of formularies, and what factors influence these assessments? We conclude by drawing lessons for the implementation of a Medicare prescription drug benefit that uses formularies.

Data source. The data for this study are from the third round of the CTS Physician Survey, a nationally representative telephone survey of 12,406 direct patient care physicians, conducted between August 2000 and November 2001 for the Center for Studying Health System Change. The survey sample, the largest in recent history, was designed to be representative of direct patient care physicians in the continental United States, as well as in selected communities or sites.⁷ The overall survey response rate was 59 percent. All analyses are weighted to account for survey design and survey nonresponse.

Key variables. The survey asked physicians about the percentage of their patients who have drug coverage with formularies. Nine percent were unable to answer this. These cases were imputed using a weighted sequential, hot-deck procedure. Other key variables on attitudes toward formularies and use of relevant information technology had very low item nonresponse, well below 1 percent.

Study Findings

Top Editor's Notes Study Findings Conclusions And Policy... Notes

 
Exposure to formularies. Overall, physicians reported that an average of 57 percent of their patients had insurance coverage that included the use of formularies, and more than two-thirds reported that half or more of their patients had such coverage (Exhibit 1). Only 2 percent of physicians reported having no patients subject to formularies.

Involvement with managed care. Not surprisingly, exposure to patients with formularies is positively associated with the physician’s exposure to managed care. To analyze this relationship, we divided the sample of physicians into thirds, based on the percentage of their practice’s revenue from managed care. Those with the highest managed care involvement reported that 71 percent of their patients had formularies, compared with 45 percent of those with the lowest involvement (Exhibit 1). We similarly divided the sample into three groups according to the percentage of practice revenue that is capitated. This shows a similar positive relationship with involvement with formularies, although not as strong.

Formularies and Medicare. Physicians whose practices receive a majority of revenue from Medicare reported that 50.7 percent of their patients have formularies, compared with 62.1 percent for those physicians with less than 25 percent of practice revenue from Medicare (p < .01). This suggests that a Medicare drug benefit is likely to greatly expand physicians’ exposure to formularies. Medical and surgical specialists as well as physicians with low managed care involvement would be most affected by a Medicare drug benefit that involves formularies. These physicians are more likely to have both low exposure to formularies and a large dependence on revenue from Medicare.

Formularies’ effect on medical care. Overall, nearly half of all physicians indicated that they thought formularies had a negative effect on the quality and efficiency of medical care (Exhibit 2). In contrast, only 13.4 percent thought that formularies had a positive effect. These ratings varied considerably with both physicians’ personal characteristics and the characteristics of their practices. We also conducted multivariate analyses of the likelihood of giving a positive or negative assessment of formularies. The multivariate results closely mirrored the trends evident in the bivariate results, so we do not report them here.⁸

Practice setting. Practice setting was strongly related to ratings of formularies. Just 12.4 percent of physicians in solo or two-physician practices and 8.9 percent in group practices rated formularies as positive, compared with 39 percent of physicians practicing in group/staff-model HMOs. Because the latter typically deal with patients from only their own health plan, they usually have only one formulary to deal with, and it is often fully integrated into their office systems. These patterns were mirrored for those rating the effect of formularies as negative.

Practice exposure to managed care. As in Exhibit 1, we assessed physicians’ exposure to managed care along several dimensions. Regardless of the measure, as managed care exposure rises, the percentage of physicians who have neutral views about formularies declines. With the exception of the number of managed care contracts, which might indicate how burdensome dealing with multiple formulary requirements is, greater exposure to managed care is generally associated with a greater likelihood that a physician will express positive views about formularies. For instance, 19 percent of physicians in practices with high exposure to capitation expressed positive views about formularies, compared with only 11 percent among those with low exposure. We should also note, however, that in multivariable models controlling for both managed care exposure and the proportion of practice revenue that was capitated, the degree of capitation appeared to be more strongly related to positive views about formularies.⁹ The number of managed care contracts a physician’s practice has (which is presumably correlated with the number of formularies the physician must deal with) is associated with negative feelings toward formularies. Those with more than ten contracts were significantly more likely than those with none were to view formularies negatively (Exhibit 2).

Effect of information technologies. The relationship between number of contracts and physicians’ attitudes toward formularies suggests that the burden associated with dealing with multiple formulary requirements is an important factor influencing these attitudes. Information technology could be used to alleviate these burdens. We found that physicians’ use of information technology to write prescriptions and check formulary information is strongly associated with how those physicians rate formularies. Although each type of technology independently serves to move physicians’ attitudes in the positive direction, the use of both technologies together appears to be synergistic. Ten percent of physicians who do not use either technology expressed positive attitudes toward formularies, compared with almost 30 percent of physicians who use both technologies.

Conclusions And Policy Implications

Top Editor's Notes Study Findings Conclusions And Policy... Notes

 
As Congress considers a variety of proposals for implementing pharmaceutical coverage for Medicare, it is likely that formularies will be a crucial aspect of most approaches.¹⁰ Given this likelihood, it will be important for policymakers to consider physicians’ views on formularies and the aspects of practice that make these views more positive. Nearly half of all physicians reported that formularies negatively affect the quality and efficiency of care. Although we cannot dissect the extent to which this is attributable to the impact on quality versus the impact on efficiency, our analyses suggest that the increased hassle factor and resultant effects on efficiency are major concerns to many physicians.

Insurers do not specifically compensate physicians for checking formulary lists, writing prescriptions, or fielding calls from pharmacists when prescriptions do not conform with formulary requirements. Recent cuts in physician payment rates might have increased the problems Medicare beneficiaries face in accessing physician care.¹¹ This raises the question of whether new formulary requirements would further burden physicians who serve Medicare beneficiaries, potentially making them less likely to accept new Medicare patients or serve current ones.

Need for information technology. Physicians who lack information technology that can alleviate these hassles and those who are likely to have to deal with a large number of different formularies are more likely to have negative attitudes about formularies. These results suggest that policies to promote the adoption and use of information technology for both prescription writing and formulary information should be an important component of any new benefit package; its positive effects could extend beyond Medicare.

These features might include common specifications to facilitate linkages with pharmacies and facilitating the electronic retrieval of formulary information. Physicians thus would spend less time trying to identify "covered" medications among multiple formularies. These technologies, particularly those used for prescription writing, could have the additional benefit of improving patient safety by checking for drug interactions, assuring proper dosing, improving record keeping, and diminishing problems with the interpretation of handwriting.¹²

Pros and cons of multiple formularies. How managed care affects attitudes toward formularies is more complicated. Physicians with the highest number of managed care contracts tended to be less likely to view formularies positively, probably because of the inherent complexities of dealing with multiple coverage and formulary arrangements. Consequently, policymakers might want to consider adopting policies that limit the number of PBMs, and implicitly formularies, that operate in a particular geographic area. These actions, however, would have uncertain effects on any cost savings derived from the use of formularies. In addition, it would be important to maintain several choices so that beneficiaries could find a plan that covers most of the drugs they are taking.

A role for financial incentives? Physicians with higher proportions of capitated managed care revenue have more positive views. Although we cannot discern whether this finding is related to the types of physicians that choose to practice in capitated arrangements, it suggests that when economic incentives favor the use of formularies, physicians view them more positively. However, additional research is needed to assess how risk-sharing arrangements or financial incentives might affect Medicare beneficiaries’ access to care. Appropriate financial incentives might assure physicians’ willingness to treat Medicare beneficiaries, although such incentives need to be risk-adjusted for patients’ severity of illness so as to avoid problems specifically with access for the sickest beneficiaries. Lastly, when more patients have coverage that includes formularies, physicians appear to have a more positive view of formularies, perhaps because they gain experience in dealing with them.

Study limitations. Our study results must be interpreted in light of several limitations. Because of the nature of our survey, we were not able to distinguish between different types of formularies or ask physicians about detailed characteristics of formularies such as prior authorization policies, inclusiveness, or the number and magnitude of copayment tiers. We also could not ask the extent to which physicians had dedicated support staff or systems in their offices to help deal with multiple formularies. While we do not believe these limitations affect our main conclusions, variability in these areas could also affect physicians’ views of formularies.

As congress considers various strategies for implementing a pharmaceutical benefit for Medicare, it should consider adopting policies that are associated with positive views about formularies by physicians. This points to limits on the number of different Medicare formularies that exist in a particular area, new policies to promote the adoption and use of information technology for obtaining information and writing prescriptions, and possibly incorporating financial incentives for physicians or their parent organizations to adhere to formularies.

Editor's Notes

Top Editor's Notes Study Findings Conclusions And Policy... Notes

 
Bruce Landon is an assistant professor of health care policy at Harvard Medical School and an assistant professor of medicine at Beth Israel Deaconess Medical Center. James Reschovsky is a senior health researcher at the Center for Studying Health System Change in Washington, D.C. David Blumenthal is director of the Institute for Health Policy and a physician at Massachusetts General Hospital/Partners HealthCare System in Boston. He is also a professor of medicine and health care policy at Harvard Medical School.

This analysis was supported by the Center for Studying Health System Change, which is fully supported by the Robert Wood Johnson Foundation, and by the Agency for Healthcare Research and Quality (Grant no. PO-1-HS-10803). The authors acknowledge the excellent programming support provided by Ellen Singer of Social and Scientific Systems Inc., and Paul Ginsburg and Len Nichols for providing comments on an earlier draft.

Notes

Top Editor's Notes Study Findings Conclusions And Policy... Notes

 

1. D.B. Safran et al., "Prescription Drug Coverage and Seniors: How Well Are States Closing the Gap?" 31 July 2002, www.healthaffairs.org/WebExclusives/Safran_Web_Excl_073102.htm (10 February 2003); M.A. Laschober and G.L. Olin, Health and Health Care of the Medicare Population: Data from the 1992 Medicare Beneficiary Survey (Rockville, Md.: Westat, 1996); A. McCloskey, Failing America’s Seniors: Private Health Plans Provide Inadequate Rx Drug Coverage (Washington: Families USA, May 2002); and D.S. Hilzenrath, "Income Level Key in Medicare Proposal," Washington Post, 30 June 1999.
2. Centers for Medicare and Medicaid Services, Health Care Industry Market Update: Pharmaceuticals, 10 January 2003, cms.hhs.gov/reports/hcimu/hcimu_01102003.pdf (24 October 2003).
3. Safran et al., "Prescription Drug Coverage and Seniors."
4. Wyeth-Ayerst, "The Wyeth-Ayerst Prescription Drug Benefit Cost and Plan Design Survey" (Philadelphia: Wyeth-Ayerst, 1999); and R.G. Frank, "Prescription Drug Prices: Why Do Some Pay More than Others Do?" Health Affairs (Mar/Apr 2001): 115–128.
5. B.L. Walser, D. Ross-Degnan, and S.B. Soumerai, "Do Open Formularies Increase Access to Clinically Useful Drugs?" Health Affairs (Fall 1996): 95–109; and D. Dranove, E.F. Hughes, and M. Shanley, "Determinants of HMO Formulary Adoption Decisions," Health Services Research 38, no. 1, Pt. 1 (2003): 169–190.[Medline]
6. Tabulation of the 2000–2001 CTS Physicians Survey.
7. For design details, see C.E. Metcalf et al., "Site Definition and Sample Design for the Community Tracking Study," Technical Pub. no. 1, October 1996, www.hschange.com/CONTENT/157 (10 February 2003); and "Physician Survey Restricted Use File: User’s Guide, Round Two," Technical Pub. no. 27, July 2001, www.hschange.com/CONTENT/320 (10 February 2003).
8. Multivariate results are available from the authors; send e-mail to Bruce Landon at landon{at}hcp.med.harvard.edu.
9. Based on our survey, we cannot distinguish the extent to which these capitated contracts included shared risk for pharmacy and the extent to which such risk sharing affects physicians’ views. Some data from California during a similar time period suggest that shared risk was prevalent (reported by 63 percent of groups), but these data are not generalizable beyond California. M.B. Rosenthal et al., "Scale and Structure of Capitated Physician Organizations in California," Health Affairs (July/Aug 2001): 109–119.
10. H.A. Huskamp et al., "The Medicare Prescription Drug Benefit: How Will the Game Be Played?" Health Affairs (Mar/Apr 2000): 8–23.
11. S. Trude and P.B. Ginsburg, "Growing Physician Access Problems Complicate Medicare Payment Debate," Issue Brief no. 55 (Washington: Center for Studying Health System Change, 2002).
12. T.K. Gandhi et al., "Impact of Basic Computerized Prescribing on Outpatient Medication Errors and Adverse Drug Events," Journal of the American Medical Informatics Association 9, no. 6, Supp. (2002): S48–S49; [Abstract/Free Full Text]J.M. Rothschild et al., "Clinician Use of a Palmtop Drug Reference Guide," Journal of the American Medical Informatics Association 9, no. 3 (2002): 223–229[Abstract/Free Full Text]; and L.L. Leape, D.M. Berwick, and D.W. Bates, "What Practices Will Most Improve Safety? Evidence-Based Medicine Meets Patient Safety," Journal of the American Medical Association 288, no. 4 (2002): 501–507.[Free Full Text]

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