Determinants of HMO Formulary Adoption Decisions


  • David Dranove,

  • Edward F. X. Hughes,

  • Mark Shanley


Objective. To identify economic and organizational characteristics that affect the likelihood that health maintenance organizations (HMOs) include new drugs on their formularies.

Data Sources. We administered an original survey to directors of pharmacy at 75 HMOs, of which 41 returned usable responses. We obtained drug-specific data from an industry trade journal.

Study Design. We performed multivariate logistic regression analysis, adjusting for fixed-drug effects and random-HMO effects. We used factor analysis to limit the number of predictors.

Data Collection Methods. We held initial focus groups to help with survey design. We administered the survey in two waves. We asked respondents to report on seven popular new drugs, and to describe a variety of HMO organizational characteristics.

Principal Findings. Several HMO organizational characteristics, including nonprofit status, the incentives facing the director of the pharmacy, size and make-up of the pharmacy and therapeutics committee, and relationships with drugs makers, all affect formulary adoption.

Conclusions. There are many organizational factors that may cause HMOs to make different formulary adoption decisions for certain prescription drugs.