With the right formulary, plans can control drug costs while preserving access

As list prices for drugs continue to climb, formulary management is key to controlling costs and assuring access to the medications patients need.

Formularies list each drug covered by a specific plan. As new drugs come to market, formulary management allows plans to continue offering superlative clinical and financial value. Additionally, formulary management involves tracking the evolving market on a daily basis and adjust accordingly, enabling plans to capitalize on opportunities to manage costs. 

Used in tandem with appropriate utilization management and complementary benefit design, formularies can be key to managing trend. While an effective formulary focuses on opening access to clinically superior medications, it also meets the specific plan’s needs. For example, some plans choose to offer more choices to their members, while others prefer to eliminate options lacking added clinical benefit but carrying higher costs.

Without a well-managed formulary, plan sponsors will pay significantly more for medications, which could result in higher cost-sharing for patients.

Building a formulary

An independent panel of clinical experts that focuses first on clinical factors should guide the approach to drug formulary management. They may consider excluding a product if there are proven, clinically comparable products available for members or where there may be a newly available product that has questionable efficacy. Members with a clinical need for a medication that is not on a plan’s formulary should have a clear pathway to have that drug covered, such as by requesting a medical exception.

By partnering with thousands of plan sponsors, Pharmacy Benefit Managers (PBMs) use their collective scale to negotiate deeper discounts on the medications members need and to offer clinically and financially cost effective products on the national formularies which can be used by their clients. These national formularies preserve member choice by providing access to clinically effective – and cost-effective – generic, biosimilar and brand name drugs.

For example, the Inflammatory Conditions therapeutic drug class has consistently been the top driver of per member per year spending for employers, yet there are more therapy options than ever. Biosimilar products may hold a similar promise of savings that generics did 20 years ago by yielding direct cost savings and/or driving competition that encourages use of more cost-effective options without compromising clinical efficacy.

Choosing the best formulary for plans and patients

Just as plans vary, so do formularies. Each plan determines which formulary, cost-sharing formula and appeals processes is best utilized. While many types of formularies are available on the market, they usually fall into these three basic types:

• Open formulary: The plan sponsor pays a portion of the cost for all drugs, regardless of formulary status, although a plan sponsor may choose to exclude certain products, such as “lifestyle” drugs that treat concerns such as baldness which are often considered cosmetic instead of a true medical condition.
• Closed formulary: The plan sponsor covers only drugs listed on the formulary. Non-formulary drugs are not covered unless approved through a formulary override process.
• Controlled (Tiered) formulary: Plan sponsors may offer different copays or other financial incentives to encourage members to use preferred formulary drugs or otherwise pay a higher portion of the cost of non-preferred drugs. For example, when a plan sponsor offers a three-tier benefit design, it may cover non-preferred, non-formulary products on its third tier with a higher copay.

When selected carefully and used in concert with other cost-mitigation programs, formularies can yield significant savings for plan sponsors and patients while helping achieve optimal clinical outcomes.

Originally published on 8/24/21 and updated on 9/12/23.