Pharmacy Benefits Glossary
A guide to general pharmacy benefits terminology.
The Meaning of Non-Formulary Medications
A non-formulary medication refers to a drug that is excluded from a health plan and PBM’s list of covered medications.
Every health insurance company has a formulary, which is the company’s list of preferred medications covered under its insurance plans. Therefore, non-formulary drugs are not included on an insurance provider’s list of covered or preferred drugs.
The Meaning of Non-Formulary vs. Formulary
A health insurance company’s formulary lists medications covered under its policies. Non-formulary medications are not covered by an insurance company, and they are not included in an insurer’s list of preferred medications.
Physicians, pharmacists, and pharmacy benefits managers (PBMs) review new and current drugs to determine the formulary list of covered drugs. Non-formulary drugs often include drugs not approved by the FDA or drugs with a less-expensive alternative, although insurance companies may have other determining factors for exclusion.
Reasons for Exclusion
There are numerous reasons why a drug might be excluded from a health insurer’s formulary:
- It hasn’t been approved by the FDA.
- It doesn’t meet the health plan’s safety or effectiveness standards.
- It is effective but more expensive than other medications in the same category.
- It has only recently been approved by the FDA, and there are other more established medications trusted for the same use.
- It is used to treat a rare condition and is more expensive than what a plan covers.
Generally, if there is a less expensive drug with a comparable therapeutic effect, it is likely that more expensive options will be excluded. This might include therapies with a new active ingredient that treats the same conditions as lower-cost generic drugs on the market. Even if doctors want to prescribe the new pharmaceuticals because they’re more effective, insurance companies may not cover them.
Examples of Non-Formulary Drugs
- New Brand-Name Medications: Drugs representing breakthrough technologies can be significantly more expensive.
- Specialty Drugs Targeting Rare Conditions: Treatment for rare conditions can be considerably more expensive than other medications. In some cases, policies may provide partial coverage with pre-authorization.
- Drugs with Limited Generic Availability: Sometimes, a drug’s patent has just recently expired, and there aren’t generic options.
- Drugs with Questionable Effectiveness: Some experimental drugs may have limited evidence of effectiveness compared to more established options.
- Drugs with High-Risk Side Effects: There may be safer alternatives to a non-formulary with potentially serious health risks.
The Process for Non-Formulary Medication Coverage
- Prior Authorization: A provider can obtain approval from a PBM or insurer before prescribing a non-formulary.
- Step Therapy: Also called fail-first therapy, this requires the patient to test using formulary medication; if it does not treat their medical needs, the insurance company may approve the physician’s non-formulary recommendation.
- Exception Requests: Physicians can submit a written medical explanation for treating a patient with a non-formulary medication.
- Appeals: If an insurer denies requests for non-formulary coverage, physicians can assist in appealing to get the medication covered.
