A drug formulary is a continually updated list of medications and related information, representing the clinical judgment of pharmacists, physicians, and other experts in the diagnosis and/or treatment of disease and promotion of health. It is often described as a list of medications routinely stocked by the health care system. The formulary was developed by hospitals in the 1950s as a management tool. A key purpose of the formulary was to discourage the use of marginally effective drugs and treatments.
Over time, the formulary has evolved beyond a simple list of medications. It is now one element of a system that includes medication use policies, a pharmacy and therapeutics committee, medication use evaluation, and formulary management. The formulary, today, can be more accurately defined as a continually updated list of medications and related information, representing the clinical judgment of pharmacists, physicians, and other experts in the diagnosis and/or treatment of disease and promotion of health.
- Closed formulary: A list of medications (formulary) which limits access of a practitioner to some medications.
- Open formulary: A list of medications (formulary) which has no limitation to access to a medication by a practitioner.
- Tiered formulary: Plan sponsors offer different copays or other financial incentives to encourage participants to use preferred formulary drugs but pay a portion of the cost of non-preferred drugs.
Formularies are fundamental to the formulary system—defined as an ongoing process which methodically evaluates medications on an ongoing basis for inclusion or exclusion, establishes guidelines for optimal medication use, and develops policies and procedures for prescribing, dispensing, and administering medications. The formulary system is managed by the pharmacy and therapeutics committee or equivalent group—made up of an organized team of medication system experts.
When considering a formulary, access defines the basic aspects of a pharmacy benefit design which includes but is not limited to:
- The products that will be covered
- The products that will not be covered
- The products that need prior approval
- Plan cap or maximum dollar amount a plan will pay for outpatient drug benefits
- Mail service benefits including specialty pharmacy, if any
- Pharmacy network makeup
There are advantages and disadvantages to a formulary system. The primary advantage is that it provides a systematic method to review scientific evidence on clinical effectiveness and cost effectiveness in drug selection decision, thus potentially improving health outcomes while reducing costs. A major disadvantage, however, is that an overly restrictive formulary system may potentially reduce the quality of care by limiting access to clinically indicated medications.
Managing a formulary and improving its efficiency involves an ongoing assessment of the drugs on the formulary as well as any new potential drug therapy treatments. Again, do not leave this responsibility solely in the hands of the PBM unless it has agreed to accept fiduciary responsibility. Rebates should never be the primary reason a drug is selected to be on the formulary. The purpose of your health plan’s formulary is to steer members to the least costly medications that are sufficiently effective for treating their health conditions.
“Thank you Tyrone. Nice job, good information.” David Stoots, AVP
