Cost effects of restricting cost-effective therapy

Abstract

This article examines the cost effects of a closed pharmaceutical formulary on Medicaid expenditures for peptic ulcer disease. Studies were performed before and after the imposition of a closed pharmaceutical formulary and indicated that total Medicaid costs for peptic ulcer treatment were 15.0% lower during the closed formulary than open formulary periods. The overall savings were due mainly to a sharp decline in the number of peptic ulcer patients served by Medicaid. The cost per patient-month of therapy increased by 9.4% between study periods. Pharmaceutical costs per patient-month declined by 78.9%, monthly physician payments increased by 3.1%, and monthly inpatient hospital costs increased by 23.6%. The small, short-term savings may be negated by increased expenditures in the near future when sicker patients, previously denied peptic ulcer drug treatment, may reenter the Medicaid system in need of expensive inhospital treatment.