CPOM Module 4, Section 1: Formulary Management and Drug Utilization Review (DUR) Processes
MODULE 4: DRUG COST MANAGEMENT & PAYER OPTIMIZATION

Section 1: Formulary Management and Drug Utilization Review (DUR) Processes

A deep dive into the P&T Committee and the architecture of the formulary. Learn how to build the clinical and financial foundation of the hospital’s drug armamentarium through rigorous evidence-based review and ongoing utilization analysis.

SECTION 4.1

Formulary Management and DUR

Building the Clinical and Financial Constitution of Your Pharmacy.

4.1.1 The “Why”: The Formulary as the Hospital’s Strategic Blueprint

To the uninitiated, a hospital formulary is merely a list—a catalogue of medications that are approved for use within the institution. This is a dangerously simplistic view. In reality, the formulary is the single most important strategic document in the pharmacy department. It is the constitution upon which all clinical and financial decisions are built. It is not a passive list; it is an active, dynamic representation of the organization’s commitment to evidence-based medicine, patient safety, and fiscal responsibility.

Every time you, as a pharmacist, recommend switching from an expensive brand-name drug to a clinically equivalent, less costly alternative, you are executing a micro-formulary decision. Every time you question an order for a broad-spectrum antibiotic when a narrower agent would suffice, you are upholding the principles of formulary management. Your entire career has been an informal apprenticeship in this discipline. This section is designed to formalize that expertise, scaling your patient-level decision-making to an institutional level, and providing you with the structure, language, and tools to lead this critical process.

A poorly managed formulary, or the absence of one, leads to chaos. It results in wild clinical variability, where the treatment for a heart attack in Room 201 is completely different from the treatment in Room 203, based solely on physician preference. This variability introduces unnecessary safety risks and makes it impossible to measure quality or control costs. Conversely, a well-managed, evidence-based formulary is the bedrock of excellence. It standardizes care around best practices, reduces medication errors by limiting the number of available agents, and creates predictable, manageable drug expenses. It transforms the pharmacy from a cost center into a strategic asset that drives clinical and financial value for the entire organization. Your role as a pharmacy operations manager is to be the chief architect and defender of this strategic blueprint.

Retail Pharmacist Analogy: The “Medicine Cabinet” Overhaul

Imagine a long-term patient, an elderly man with multiple chronic conditions, comes to your pharmacy for a consultation. He brings a large grocery bag and dumps the contents onto your counter. It’s his entire “personal formulary”—a chaotic collection of fifteen prescription bottles from four different specialists, seven OTC products, and a handful of herbal supplements.

Your expert mind immediately begins a formulary review. You see therapeutic duplications (Zantac from his GI doctor and Pepcid from his PCP), safety risks (high-dose ibuprofen with his warfarin), and significant financial waste (a prescription for brand-name Nexium when he has a $5 copay for generic omeprazole). His personal medicine cabinet is an unmanaged, open formulary, and it’s causing him harm and costing him a fortune.

What do you do? You act as his personal Pharmacy & Therapeutics (P&T) Committee.

  • Clinical Review: You assess each medication for efficacy and safety. You identify the duplicate H2 blockers and the dangerous NSAID/anticoagulant combination.
  • Pharmacoeconomic Review: You identify the expensive brand-name drugs where equally effective, cheaper generics are available.
  • Formulary Decision: You consolidate his therapy. You recommend he speak to his doctors about stopping the Pepcid, switching to generic omeprazole, and using acetaminophen instead of ibuprofen for his arthritis.

The result is a new, streamlined “personal formulary”—safer, more effective, and financially optimized. You have just performed the core functions of formulary management. Now, simply replace the patient’s medicine cabinet with the hospital’s entire pharmacy inventory. The principles, the logic, and the goal are exactly the same. You already have the foundational skills; this module will teach you how to apply them at scale.

4.1.3 The Engine Room: Deconstructing the Pharmacy & Therapeutics (P&T) Committee

The P&T Committee is the formal, multidisciplinary body charged with the governance of all aspects of medication use within the health system. It is not merely a pharmacy committee; it is a medical staff committee, a crucial distinction that grants it the authority to make decisions that are binding on all prescribers. Its mandate, as defined by accrediting bodies like The Joint Commission and the Centers for Medicare & Medicaid Services (CMS), is to ensure the safe, effective, and cost-conscious use of medications. This committee is the engine that drives the entire formulary management process.

Masterclass Table: The Anatomy of a P&T Committee
Committee Role Typical Member Primary Perspective & Contribution
Chairperson A respected physician leader (e.g., Chief of Medicine, Hospitalist Director). Provides clinical leadership and credibility. Chairs the meeting, facilitates discussion, and helps build consensus among the medical staff. Their buy-in is essential for successful implementation of P&T decisions.
Secretary Director of Pharmacy or Clinical Coordinator This is the operational heart of the committee. You (or your designee) set the agenda, prepare and distribute all materials (monographs, DURs), present the pharmacy’s analysis, and record the minutes. You are the chief strategist and subject matter expert.
Medical Staff Representatives Physicians from key specialties: Infectious Diseases, Cardiology, Oncology, Anesthesiology, Surgery, Pediatrics, etc. They are the voice of the front-line prescriber. They provide crucial real-world context on how medications are used, highlight the clinical needs of their specific patient populations, and act as champions for P&T decisions within their departments.
Nursing Leadership Director of Nursing, Clinical Nurse Specialist. Represents the perspective of medication administration. Provides vital input on safety issues, workflow challenges (e.g., complex IV admixtures), and patient education needs. They are the key to understanding the “last mile” of the medication use process.
Hospital Administration Chief Medical Officer (CMO), Chief Financial Officer (CFO), or their designees. Brings the high-level strategic and financial perspective. The CFO ensures decisions align with the hospital’s budget, while the CMO ensures they align with overall quality and patient safety goals. Their presence underscores the institutional importance of the committee.
Quality & Patient Safety Patient Safety Officer, Director of Quality Improvement. Views every decision through the lens of risk reduction. They analyze potential for medication errors, contribute to the development of safety guidelines (e.g., high-alert medication policies), and help track the impact of formulary decisions on safety metrics.
Ad Hoc Experts Risk Management, Legal Counsel, Information Technology (for CPOE/order set builds). Brought in as needed to provide specialized expertise on specific issues. For example, legal may weigh in on policies related to off-label use.
The P&T Process: From Request to Reality

The P&T committee operates on a structured, cyclical process designed to ensure that all decisions are transparent, evidence-based, and properly implemented.

1. The Request

A physician requests a new drug be added to the formulary. This initiates the process. A formal request form is required to ensure the clinical rationale is documented upfront.

2. The Monograph

The pharmacy department’s clinical specialists perform a comprehensive literature review and economic analysis, culminating in a detailed drug monograph. This is the primary evidence document.

3. The Meeting

The monograph is presented at the P&T meeting. The requesting physician may be invited to speak. The committee debates the clinical and financial merits and votes on the formulary status.

4. The Rollout

The decision is documented in the minutes and communicated hospital-wide. This involves building the drug in the system, updating order sets, educating staff, and purchasing the product.

4.1.4 Masterclass: The Drug Monograph – Building an Unassailable Case

The drug monograph is the single most important piece of work product your clinical pharmacy team will produce. It is not a simple summary of a drug; it is a meticulously researched, data-driven policy proposal. It must be comprehensive enough to answer any question the committee might have, objective enough to be credible, and clear enough to lead to a definitive decision. A well-constructed monograph anticipates debate, preempts questions, and presents a recommendation so logically sound that it becomes the obvious choice. This is your opportunity to showcase the intellectual rigor of the pharmacy department.

Monograph Philosophy: From Reporter to Analyst

A novice pharmacist writes a monograph that reads like a book report, summarizing the findings of clinical trials. An expert manager crafts a monograph that reads like a senior analyst’s report to a board of directors. The difference is synthesis and critical appraisal. Don’t just report what a study found; tell the committee what it means for your hospital and your patients. How does the study’s patient population compare to yours? Were the endpoints clinically meaningful or just statistically significant? Is the comparator drug in the trial the same one you currently use on formulary? Answering these questions is how you add value and demonstrate leadership.

The Anatomy of a World-Class Drug Monograph

A truly effective monograph follows a standardized, logical structure. Below is a template that covers all the critical domains required for a robust P&T review.

Monograph Template: [Drug Name (Generic & Brand)]

1. Executive Summary: A one-page “briefing document” for the busy executive.

  • Drug & Class: E.g., Sacubitril/Valsartan (Entresto), Angiotensin Receptor-Neprilysin Inhibitor (ARNI).
  • Requested Indication: E.g., To reduce the risk of cardiovascular death and hospitalization for heart failure in patients with chronic heart failure (NYHA Class II-IV) and reduced ejection fraction.
  • Current Formulary Alternatives: E.g., Enalapril, Lisinopril, Valsartan, Losartan.
  • Core Clinical Question: Does Sacubitril/Valsartan offer a significant clinical advantage (mortality, hospitalization) over standard ACE inhibitor or ARB therapy in our HFrEF population?
  • Bottom-Line Recommendation: E.g., “Recommend addition to the formulary with criteria for use restricting it to patients with HFrEF who are symptomatic on a stable, optimal dose of an ACEi or ARB, as prescribed by the Cardiology service or in consultation with them.”
  • Estimated Net Financial Impact: E.g., “Estimated annual budget impact of +$250,000 based on projected utilization of 100 patients per year, partially offset by reduced hospitalization costs.”

2. Clinical Efficacy Deep Dive: The scientific core of the monograph.

  • Summary of Landmark Trials: For each major trial (e.g., PARADIGM-HF for Entresto), present a structured summary:
    • PICO: Patient Population, Intervention, Comparison, and Outcome.
    • Results: Present the primary and key secondary endpoints with absolute and relative risk reductions, NNT (Number Needed to Treat), and confidence intervals.
    • Critical Appraisal: This is key. Discuss the study’s strengths (e.g., large, randomized, double-blind) and weaknesses (e.g., run-in period, industry funding). Does the study population reflect your hospital’s patient population?
  • Comparative Efficacy Table: A head-to-head comparison against your current formulary mainstays.

3. Safety & Tolerability Analysis:

  • Adverse Event Profile: Table comparing rates of key adverse events (e.g., hypotension, hyperkalemia, angioedema) between the new drug and the current formulary alternative from head-to-head trials.
  • Contraindications, Warnings, and Precautions: Including any Black Box Warnings.
  • Monitoring Requirements: Specific labs or assessments required (e.g., monitoring K+ and renal function).

4. Pharmacoeconomic Masterclass: The financial argument.

  • Cost Comparison Table:
    DrugStrengthAcquisition Cost (per tablet)Cost per DayCost per 30 Days
    Sacubitril/Valsartan97/103 mg$9.50$19.00$570.00
    Lisinopril20 mg$0.05$0.05$1.50
  • Cost-Effectiveness Analysis (CEA):

    While a full CEA is complex, you can present published data. “Published analyses based on the PARADIGM-HF trial have found the Incremental Cost-Effectiveness Ratio (ICER) for Sacubitril/Valsartan to be approximately $45,000 per Quality-Adjusted Life Year (QALY) gained, which is generally considered to be of intermediate value.”

  • Budget Impact Model (BIM):

    This is your custom analysis for your institution. $$ \text{Net Budget Impact} = (\text{New Drug Cost} – \text{Old Drug Cost Avoidance}) – (\text{Hospitalization Cost Avoidance}) $$

    MetricAssumption / CalculationValue
    A. Estimated Eligible Patients/YearBased on cardiology clinic volume and HFrEF prevalence100
    B. Annual Cost of New Drug per Patient$570/month x 12 months$6,840
    C. Total Annual New Drug Spend (A x B)100 x $6,840+$684,000
    D. Annual Cost of Old Drug per Patient$1.50/month x 12 months$18
    E. Total Annual Old Drug Cost Avoidance (A x D)100 x $18-$1,800
    F. Reduction in HF Hospitalizations/YearTrial data suggests NNT of 21 to prevent one HF hospitalization~5 hospitalizations avoided
    G. Avg. Cost of HF HospitalizationYour hospital’s internal data$15,000
    H. Total Hospitalization Cost Avoidance (F x G)5 x $15,000-$75,000
    Net Annual Budget Impact (C+E+H)$684,000 – $1,800 – $75,000+$607,200

5. Final Recommendation & Proposed Criteria for Use:

  • Recommendation: “Add Sacubitril/Valsartan (Entresto) to the Formulary with Restrictions.”
  • Proposed Criteria:
    • Patient has symptomatic (NYHA II-IV) heart failure with a documented ejection fraction ≤ 40%.
    • Patient is currently on a stable, target dose of an ACE inhibitor or ARB for at least 4 weeks.
    • Therapy is initiated by or in consultation with the Cardiology service.
    • Patient does not have a history of angioedema.

4.1.5 Beyond the Monograph: The Formulary System in Action

A P&T Committee’s decision is only the beginning. The true work of formulary management lies in building a robust system to implement, enforce, and maintain these decisions.

The Non-Formulary Request (NFR) Process

No formulary can account for every unique patient scenario. The NFR process is the safety valve that allows for rational access to unapproved drugs in specific circumstances. A well-designed NFR process balances clinical need with stewardship.

The Dangers of a Poor NFR Process

If your NFR process is too easy (“rubber-stamp” approvals), your formulary becomes meaningless, and costs will spiral. If it is too difficult or bureaucratic, providers will grow frustrated, patient care may be delayed, and you will be perceived as a barrier rather than a partner. The key is a process that is prompt, evidence-based, and transparent.

A Model NFR Workflow:

Step 1: The Request

A provider enters an order for a non-formulary drug. The CPOE system fires an alert, directing them to an electronic NFR form. The form requires them to specify the clinical indication and why formulary alternatives are not appropriate.

Step 2: Pharmacist Triage

The request routes to a clinical pharmacist’s queue. The pharmacist reviews the patient’s chart and the provider’s rationale.
Question 1: Is there a clear, evidence-based reason (e.g., allergy to all formulary options, failure of all formulary options) for this request?
Question 2: Is this a medical emergency requiring immediate dispensing?

Step 3: Intervention & Resolution

If a formulary alternative seems appropriate, the pharmacist contacts the prescriber to discuss it. If the non-formulary drug is truly indicated, the pharmacist approves a limited course of therapy (e.g., a 72-hour supply) and arranges for procurement. All NFRs are logged for P&T review to identify trends that may signal a need for a formal formulary review.

4.1.6 Drug Utilization Review (DUR) – The Guardian of the Formulary

If the P&T committee creates the law (the formulary), then Drug Utilization Review (DUR) is the process of enforcing it. DUR is a systematic, ongoing quality improvement process that analyzes prescribing patterns and patient outcomes to ensure that drugs are being used in alignment with the formulary’s goals: safely, effectively, and appropriately. Your skills in reviewing patient profiles for accuracy and appropriateness are the foundation of DUR.

The Three Faces of DUR
Type of DUR When It Occurs Your Existing Skillset Hospital Management Application
Prospective (Pro-DUR) Before dispensing Verifying a new prescription for a patient at your retail counter: checking for allergies, duplicate therapy, drug interactions, and correct dose. This is the core, real-time work of every inpatient pharmacist. Every order you verify is a prospective DUR, preventing errors before they reach the patient.
Concurrent During therapy Calling a patient on a new blood thinner after three days to see if they are experiencing any bruising or bleeding. Monitoring a patient’s daily INR while on warfarin, checking renal function for a patient on vancomycin, or reviewing culture results to de-escalate antibiotics.
Retrospective After therapy Noticing that a specific clinic is prescribing an unusual amount of a high-cost medication and deciding to investigate. This is the key management function. It involves analyzing aggregate data to find system-level problems and opportunities. This is where you move from managing one patient to managing the health of the entire system.
Masterclass: Executing a High-Impact Retrospective DUR Project

A formal retrospective DUR, often called a Medication Use Evaluation (MUE), is a powerful tool for driving change. It provides the objective data necessary to justify changes to policy, education, or clinical practice.

The MUE Playbook: A Step-by-Step Guide

Scenario: You notice that your hospital’s spending on IVIG (Intravenous Immunoglobulin), a very high-cost drug, has increased by 30% in the last year. You decide to launch an MUE.

  1. Define the Objective & Criteria:

    Objective: To assess the appropriateness of IVIG use at the institution and identify opportunities for cost savings and improved stewardship.
    Criteria: You consult evidence-based guidelines (e.g., from AABB, neurology societies) to create a list of approved, evidence-based indications and appropriate dosing regimens. You define any use outside this list as “non-guideline-concordant.”

  2. Mine the Data:

    You work with your IT or data analytics team to run a report of every patient who received IVIG over the last six months. The report should include patient name, medical record number, ordering physician, service, dose administered, and diagnosis code.

  3. Conduct the Chart Review:

    This is the manual labor. Your team reviews the charts of all patients on the list. For each patient, you compare their documented indication and dose against your pre-defined criteria and mark them as “Concordant” or “Non-Concordant.”

  4. Analyze and Synthesize the Findings:

    You collate the results. You find that 40% of IVIG use was for non-guideline-concordant indications. You also discover that 75% of this inappropriate use came from two specific medical services. You calculate the total drug cost associated with this non-concordant use: $400,000.

  5. Develop and Implement an Action Plan:

    The data is useless without action. You present your findings at the P&T committee with a multi-pronged action plan:

    • Education: You and your ID pharmacist conduct “academic detailing” sessions with the high-utilizing medical services, presenting the data and reviewing the guidelines.
    • System Controls: You build a new IVIG order set in the CPOE that requires the provider to select a specific indication from a pre-approved list. Indications outside the list require a formal non-formulary review by a clinical pharmacist.
    • Monitoring: You commit to re-running the analysis in six months to measure the impact of your interventions.

You have just used a data-driven process to improve patient care, eliminate waste, and save the hospital hundreds of thousands of dollars. This is the essence of high-level pharmacy operations management.