The Towers Perrin Reference Formulary System is intended as a benchmarking tool that employers can use to determine whether their current prescription-drug formularies are providing the most bang for their buck.

The reference formulary is basically a list of drugs—including both low-cost generics and high-value branded products—to treat common chronic conditions in the most cost-effective and efficacious manner, according to Dr. Gary Owens, an independent adviser to Towers Perrin from Philadelphia who was contracted to help develop the system.

The system was developed independent of benefit design, rebates and discounts, so "we're looking at the raw cost of the product," he said.

To develop the list, a development team identified more than 12,000 prescription drugs that have received approval from the U.S. Food and Drug Administration and grouped them into 16 therapeutic "chapters" organized around organ systems, such as cardiovascular or endocrine, and conditions, such as heart disease or diabetes, Dr. Owens said.

In most cases, just five of the therapeutic chapters drive most of an employer's total prescription drug costs, he said.

These are:

c The cardiovascular group, which represents about 25% of total drug spending for an average employer.

c The central nervous group, which accounts for about 15%.

c The gastrointestinal group, 15%.

c The respiratory group, 10%.

c The endocrine group, 10%.

Employers can use the formulary to compare their actual costs with what their costs would have been had they used the formulary.

At one end of the spectrum is the "theoretical extreme," which shows the costs if all plan members were using only prescribed drugs from the reference formulary.

At the other end is the current amount an employer is spending on prescription drugs. In between are the "most likely" and "practical" scenarios that might occur if a sizable portion of plan members were prescribed drugs from the reference formulary.

So far, only two employers' existing formularies have been analyzed using Towers Perrin's reference formulary tool, but the results have been encouraging. Savings ranged from 10% at the low end to 30% at the theoretical extreme, according to Paul Schott, Towers Perrin principal and Rx Collaborative team leader based Stamford, Conn.

Initially, the Towers Perrin reference formulary system will be made available to the 75 employers participating in its Rx Collaborative project. Later, the consultant will make it available to all of its clients, Mr. Schott said.

And the reference formulary will be regularly reviewed and updated, he added.

"This is a dynamic marketplace we're in," Mr. Schott said.

"We're always watching the pipeline for new brand introductions, new generic equivalents and new specialty pharmaceuticals," he said.