Pharmacy Benefits Glossary
A guide to general pharmacy benefits terminology.
What is a Drug Formulary in Healthcare?
A drug formulary is a list of prescription medications approved for coverage by a health plan or pharmacy benefit management (PBM) organization. It serves as a guideline for healthcare providers and patients regarding which drugs are preferred for treatment within a specific plan or network.
What is the Difference Between a Formulary and a Drug List?
Unlike a simple drug list, which may include all available medications, a formulary is a curated selection of drugs chosen based on various factors such as safety, efficacy, cost-effectiveness, and clinical outcomes. It categorizes medications into tiers, with each tier representing a different level of coverage and associated cost-sharing for patients.
What is the Purpose of a Formulary?
The primary purpose of a formulary is to promote cost-effective medication use while maintaining quality of care. By selecting preferred medications within each therapeutic class, formularies help PBMs negotiate lower drug prices with pharmaceutical manufacturers and control overall healthcare expenditures. PBMs review and evolve their formulary throughout the year, adding new drugs that come to market and removing drugs that may no longer be preferred.
What Does it Mean if a Drug is Not on Formulary?
If a drug is not on the formulary, it means that the medication is not included in the list of preferred drugs covered by the health plan or PBM. In such cases, patients may face higher out-of-pocket costs or require prior authorization from their healthcare provider to obtain coverage for the non-formulary medication. Patients and prescribers may also need to consider alternative formulary drugs within the same therapeutic class.
Formulary Management Strategies
- Step therapy: Step therapy is a treatment plan starting with the most cost-effective drug within clinical guidelines. If the drug is effective, it helps save on costs. Step therapy typically means beginning with a generic before approving a more expensive branded drug.
- Quantity limits: Quantity limits can help prevent medication overuse and filling prescriptions that go unused by capping the amount dispensed within a period of time. The right balance can lead to better health outcomes and lower costs.
- Prior authorization: An insurance company may require prior authorization before it will pay for a prescription. Common reasons for prior authorization include high cost, serious side effects, and risks of addiction or misuse.
- Formulary exceptions: When non-formulary drugs meet certain criteria, they may be the right fit for a patient. Seeking exceptions on a case-by-case basis can help reduce costs and prevent a less successful treatment outcome.
