Navigating Drug Formularies in Pharmacy Benefit Management

There are some basic tips or tricks to getting the most out of your insurance plan and to maintain the care patients are accustomed to.

A drug formulary is a list of medications that are covered by a prescription drug plan or a hospital. It is comprised of both brand name and generic drugs that have been determined by a committee to offer the greatest overall value.

The Pharmacy & Therapeutics Committee

The committee of medical professionals, known as the Pharmacy and Therapeutics (P&T) Committee, reviews medications for efficacy with consideration for cost or reimbursement and determines which drugs will be included or excluded in the formulary. They will also consider accessibility of the medications when making a determination to add a drug to the formulary.

The purpose of the P&T committee is to:

  • Collaborate to promote safe, cost-effective drug therapy.
  • Develop policies for the selection process by evaluating drug therapy and utilization.
  • Educate practitioners regarding appropriate drug utilization.
  • Guide the health plan or institution on an ongoing basis regarding the drug formulary.

The P&T committee is comprised of health care providers such as physicians, mid-level prescribers, pharmacists, plan administrators, and quality assurance personnel. They each bring their professional judgement to support the decision-making process.

They typically will meet quarterly for an ongoing review to address new drugs and formulary change requests. Medications are always reviewed for clinical efficacy and safety first, followed by standards of medical care, other treatment options, accessibility to the consumer, and lastly for cost or reimbursement.

How does a drug formulary work?

A drug formulary can vary between open or closed.

  • In an open formulary, the insurer covers all medications. There are no limitations, offering the consumer access to a generally very large list of medications. An open formulary can have some specific drug exclusions; however, all therapeutic classes are represented. There is also a process in place for the consumer to get an override to obtain a specific drug. This is an advantage to the consumer from the perspective of access to care but can be costly to both the health insurer and the consumer.
  • A closed formulary does not cover prescription drugs that are not on the formulary list. Exceptions are only made for medical necessity. This is a cost effective way for a health insurer to control spending on drug costs. It is more economical for the consumer as well, however, a consumer may feel as though they cannot get exactly what they need.

Drug formularies can also be tiered, meaning the coverage depends on which tier a specific drug is categorized. The tiers may vary between 3 and 7 different levels. Most commonly are 3 tier plans:

  • Tier 1 = preferred generic drugs
  • Tier 2 = preferred brand name drugs
  • Tier 3 = non-preferred brand name drugs

In tier 1, the lowest level, the insurer will generally cover most or all of the drug price. In tier 3, the consumer will pick up the majority of the price. In addition to drug placement, some plans also layer in additional clinical and cost controls, known as utilization management. The most common types include:

  • Prior authorization restricts certain drugs that require physicians to obtain approval from a health insurer before they will cover the medication.
  • Quantity limit bases coverage on the amount of doses or the strength of a particular dose that you can get of a drug in a period of time, determined by the insurer.
  • Step therapy places a requirement on certain drugs that they must first try, or already have tried, an alternative medication for a particular diagnosis. Frequently, the alternative drugs are less expensive and have been determined to be safe and effective.

Are there benefits of a drug formulary?

A drug formulary can minimize overall medical costs, improve access to more affordable care, and provide an improved quality of life. For the consumer who is relatively healthy and is not taking many prescriptions, a drug formulary is beneficial to keep the out-of-pocket costs low.

An effective formulary strategy can also provide significant savings for the health insurer while focusing on quality and meeting the needs of the consumer.

How to navigate your drug formulary

There are some basic tips or tricks to getting the most out of your insurance plan and to maintain the continued care patients are accustomed to.

  • Review and be familiar with the drug formulary on your insurance plan. Being educated is a good first step to ensure you are getting the best value out of your prescription benefit. Be sure to check the drug formulary every year with open enrollment as changes are always being made to drug coverage. If choosing an insurance plan for the first time, look for one that covers the medications you are currently using.
  • When a medication is being prescribed by your doctor, be sure to ask whether there is a generic form available. They are usually much less expensive, fully covered by insurers, and equally efficacious. It is okay to discuss medication cost with your doctor. Simply because a drug is more expensive does not mean it is better.
  • Before leaving the pharmacy with your newly prescribed medication, be sure to confirm with pharmacy personnel that your insurance covered in whole or part of the cost. If it is an expensive brand name medication or simply not covered by your insurer, speak to your pharmacist, they have the knowledge to recommend an alternative, generic, or a process that to follow to apply for a formulary exception.

Whether your plan has an open or a closed drug formulary, it is important be familiar with your current drug formulary. Your portion of drug costs will depend upon your knowledge of your insurance coverage.

Nicole Kruczek earned her B.S. in Pharmacy degree from Temple University and is currently enrolled in the Masters of Pharmacy Business Administration (MPBA) program at the University of Pittsburgh, a 12-month, executive-style graduate education program designed for working professionals striving to be tomorrow’s leaders in the business of medicines. She has spent the last two decades in management roles in various pharmacy operations in long-term care, specialty, and pharmacy benefit management.