TABLE 6-1 Summary of Cost Analysis for Two Treatment Groups, Including Drug and Ancillary Expenses


Average Cost in Dollars (range)



Intravenous Treatment Group

Ciprofloxacin Group

Days 1–3 (per day)

61 (10–138)

62 (7–165)

Day 4+ (per day)

46* (6–170)

8 (6–40)

Total per patient



Savings per patient



* Does not include the costs of treatment continuation with oral antibiotics (e.g., dicloxacillin, cephalexin, co-trimoxazole). Inclusion of these costs increases the total cost but reduces the average cost per day to $36.

SOURCE: Paladino et al., 1991.


Presented by Douglas L. Cocks, Ph.D.

Senior Research Scientist for Health Economics, Health Services and Policy Research, Eli Lilly and Company

Historically, most formularies were established as a mechanism for reducing costs by limiting access to certain pharmaceuticals. Results from 30 studies that analyzed the effects of formulary restrictions indicated otherwise, especially when overall costs were considered (Figure 6-4).

It is important to acknowledge, however, that this investigation was not a true meta-analysis. These 30 studies not only varied considerably in quality but also involved many different health care settings and a wide range of providers and payers, including hospitals, managed care organizations, Medicaid, and nursing homes.* Although the findings suggest that formularies can control drug costs in some cases, these results further indicated that use of formularies was associated with increases in the costs of other health care services as well as overall costs. Nevertheless, all of these studies were deficient in one major area: none analyzed the effects of formulary restrictions on the health outcomes of patients. Research needs to concentrate on this area.


 From an economic perspective, Medicaid is a provider because it pays for the health care of beneficiaries. Also, as a combined federal and state program, Medicaid also determines the components of care that will be provided on a state-by-state basis. While the federal government mandates certain basic requirements, the states can expand these as they deem necessary for their constituents.

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