FAQ: What You Need to Know About Formularies

Understanding these lists of covered drugs can make a difference in the treatment of your chronic condition.
Author: By Matt Morgan

Navigating health insurance can be confusing, especially around formularies, which are a key component in determining what treatments you have access to and how much you’ll pay out of pocket for them. So, it’s in your best interest to know as much as you can about formularies.

To help you fully understand formularies, here are answers to frequently asked questions.

What is a formulary?

A formulary is a list of all the brand-name and generic prescription drugs that are covered by a health insurance plan. Formularies often have different tiers associated with different copays.

What is a pharmacy benefit manager?

A pharmacy benefit manager, or PBM, is a third-party company that manages prescription drug benefits on behalf of health insurers, Medicare Part D drug plans, large employers, and other payers. PBMs also contract with pharmacies and negotiate discounts and rebates with drug manufacturers to manage costs.

As part of this responsibility, PBMs develop formularies for health plans.

Who decides what drugs are put on a formulary?

Many pharmacy benefit managers have a panel of experts to advise on which medications go on a plan’s formulary. Panels usually consist of physicians, medical specialists, nurses, pharmacists, and legal experts. When involving treatments for blood and bleeding disorders, the panel may include hematologists.

What does prior authorization mean?

For certain drugs to be covered, health plans require authorization or approval from a physician before the drug is prescribed. This prior authorization may be necessary for drugs that are on the formulary or not on the formulary but for which an exception is requested.

Prior authorization is typically needed for brand-name drugs that have generic alternatives, expensive drugs, drugs for certain conditions, drugs with potentially dangerous side effects, and drugs that are not covered but a physician says are medically necessary.

What are the most common types of formulary restrictions?

Many medications are removed from formularies because of cost, which is a form of restriction. Brand-name medications usually are more expensive than generic medications, so if a generic is available, the brand-name product may be removed from the formulary.

A formulary restriction can also be a limit on the amount of a drug that the health plan will cover.

Sometimes, health plans will require a step process, which is a type of restriction. Before a certain drug is covered, a person must take another drug first, and only if the first drug doesn’t work will the second one be covered.

What are common barriers to medication access?

When PBMs implement cost-saving measures based on utilization of a small number of people and don’t account for the breadth of unique needs of people with certain chronic conditions, it could have unintended consequences, advocates say.

For example, this could result in approval processes that delay timely access to appropriate treatment. Not having access to an effective prescribed medication can potentially lead to more costly health complications.

If a medication is removed from a formulary, the insurer will no longer cover the cost, leaving someone who needs the medication responsible for out-of-pocket payment, which can be prohibitively expensive.

Also, a pharmacy benefit manager may decide that an alternative medication is therapeutically similar to one that you take, but if the alternative is not an effective treatment for