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    • Patient Assistance Programs
    • Policies Limiting Choice of Prescription Drugs
      • Prescription Drug Formularies
      • Preferred Drug Lists
        • Lower Cost at What Price?
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Pfizer Public Policy: Preferred Drug Lists (PDLs)

Some states have been using a specific type of formulary, known as a Preferred Drug List (PDL), to influence drug prescribing and utilization in their Medicaid programs. States are relying on PDLs to reduce their health care costs. Research suggests, however, that PDLs may exact a high price, both in terms of patient health and overall health care costs. Further, there is evidence that PDLs may exacerbate health disparities.

A PDL is a complete catalog of drugs covered by a person's health insurance plan. Patients can access the medicines on the PDL simply by receiving a prescription from their physician. But other drugs that are not on the PDL are not available to consumers through their benefit package. This type of arrangement is known as a "closed" formulary.

There is evidence that PDLs influence physicians prescribing behavior and could constrain their ability to offer the most appropriate medicinal treatment to patients. For instance, say that a doctor believes drug A is the best treatment for a Medicaid patient and would like to prescribe it. But drug A is not on the Medicaid PDL. The doctor is then forced to make a decision: he or she will either have to alter his or her treatment decision and prescribe a different drug, or the patient will have to pay for the whole cost of the drug out-of-pocket (it's likely this would not be easy for most Medicaid patients).

If the doctor decides it's medically necessary for the patient to receive that particular drug (and that hence, the health plan should cover it), then he or she must go through a process of appealing to the patient's health insurance plan to pay for it (this is called obtaining prior authorization). Either way, the outcome is less than ideal for both doctors and patients, as it makes patients wait for approval for treatment and increases doctors' administrative burdens.

Assuming that Medicaid PDLs offer patients access to the latest treatments generating the best outcomes, perhaps there is no reason to be concerned about their impact on patient health.

But research indicates this may not be the case. A Jan. 2005 issue of the American Journal of Managed Care (72 KB) explored the impacts of PDLs on patient health, health care costs, and other factors. A study by Frank Lichtenberg (59 KB),a professor of business at Columbia University, found that Medicaid PDLs favor older drugs across therapeutic classes. Combining this finding with an earlier study by Lichtenberg (see Chart 1) - which found that people using newer drugs have better health outcomes - highlights how PDLs may prevent patients from tapping into benefits of all available therapies, and thus being their healthiest.

PDLs have also been shown to disrupt patients' drug regimens and reduce compliance. A recent study by Wilson, Axelson and Tang (66 KB) found that implementation of a preferred drug list (PDL) for hypertension medications in one state led to a statistically significant increase in the likelihood of patients discontinuing therapy-after controlling for other important factors. As shown in Chart 2, the chance of discontinuation is estimated to have increased 39 percent after PDL adoption - as the percentage of patients taking their medications less than half of the time grew from 17 percent to 21 percent.

Additionally - and in direct contrast to what policymakers intended when they created them - PDLs may actually increase patients' need for overall health care, even if they reduce pharmaceutical expenditures. Recent research by Murawski and Abdelgawad (63 KB) found that Medicaid PDLs may actually raise total health care costs by increasing rates of hospitalization and physician office visits, as shown in Chart 3.

Remarkably, even those who do not have PDL-style prescription coverage may be affected by changes in physician prescribing brought about as a result of PDLs. A recent study by Virabhak and Shinogle (68 KB) found that PDLs have "spillover effects" that influence doctors prescribing behavior even for patients whose health plans are not governed by PDLs. Given the high adoption rate of PDLs, the resulting impact on total health costs nationwide could be substantial.

Another worrisome dilemma presented by PDLs is that they may serve to exacerbate disparities in health care. Medicaid policy influences physician behavior, and physicians most affected are those who treat minority patients. In fact, nearly 60 percent of non-whites in the U.S. live in areas where physicians are likely to be influenced by Medicaid policy decisions, according to a study by Headen and Masia (61 KB). Given the "spillover" effects of PDLs mentioned earlier, that means that the majority of non-whites living in the U.S. could be subject to physician prescribing decisions related to Medicaid PDLs, even if they are not on Medicaid themselves.

Chart 1: Holding Other Things Constant, Mortality Rate Declines When Newer Medicines are Used

Chart 2: Medicaid Access Restrictions Resulted in Greater Discontinuation of Hypertension Medications

Chart 3: Preferred Drug Lists: Cost-Effective or Costly?

In This Section

Lower Cost at What Price?

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Last Updated September 2007

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