UPTAKE AND DIFFUSION OF PHARMACEUTICAL INNOVATIONS IN HEALTH SYSTEMS - Innovation in the Biopharmaceutical Industry - page 97

Formularies
Formularies define a “basket of drugs” for reimbursement, and are used in most
countries as a policy tool to control costs and influence demand (Jacobzone, 2005).
The effectiveness of formularies in controlling drug costs is not universal, but
instead varies by country and therapeutic group (Huskamp, 2003). High degrees of
restriction limit access to innovative medicines, increase health care utilisation and
decrease incentives for innovation, all without containing costs (Goodwin, 2003)
especially over the long-term.
In the US, patients who live in states with closed Medicaid formularies have sig-
nificantly restricted access to new innovative drugs, including first-in-class drugs
(Grabowski, 1988). Conversely, when restrictive formularies are disallowed, access
to innovative medicines increases (Walser et al. , 1996). For example, in the case
of patients who are mentally ill, open access has led to rapid uptake of innovative
medicines, and to an increase in drug costs. But overall health expenditure declined
due to reduced nursing home use and enhanced equity, as racial disparities in treat-
ment access were eliminated (McCombs et al. , 2004). Medicaid's removal of drug
formulary restrictions has led to an increase in the number of prescriptions, physi-
cian visits, and outpatient visits per person, along with a decline in the number of
inpatient hospital admissions (Kozma et al. , 1990).
Discussions and Conclusions
Multiple interacting factors influence the uptake and diffusion of drugs, but no
studies have yet explored how regulatory and health system elements interact to
collectively influence the uptake and diffusion of innovative medicines. A few stud-
ies have analysed how particular regulations aimed at containing costs influence
prices, utilisation and expenditure of medicines. However the impact of these mea-
sures on diffusion of innovative medicines has not been adequately explored. To
date, the studies which explored the effect of regulatory interventions on the uptake
and diffusion of medicines have relied on aggregate measures, such as volume of
medications prescribed and the expenditure for drugs, without analysing the impact
on total health expenditures. Further, by focusing exclusively on efficiency, these
studies have not adequately explored the impact of regulatory interventions on
other health system goals and objectives, such as health outcomes, user satisfac-
tion, effectiveness equity and patient choice. They underscore the dangers of partial
understanding of innovation and adverse consequences of regulatory interventions
that do not take a holistic view of innovation and health delivery.
Many cost containment policies have consequences beyond drug budgets alone.
Strong price regulation adversely affects access to innovation, as innovative
medicines are less likely to be launched first in countries that strongly regulate drug