Formulary, Drug

A drug formulary is a list of pharmaceutical products; formularies are often created for the purposes of drug purchasing, dispensing, or reimbursement. Many different entities involved in the delivery of, and payment for, health care services use formularies, including health plans, institutions, and government bodies. A common reason for creating a formulary is to specify which drugs may be purchased, or which drugs’ purchase will be subsidized, by the entity. The use of drug formularies is largely a reaction to increasing prescription drug costs and the multiplicity of drugs produced by different manufacturers that are available to treat common conditions. For instance, the Veterans Administration (VA) of the United States has used a National Formulary since 1997 that indicates which drugs the VA will routinely pay for. The VA will also grant exceptions to the formulary for particular patients, but the individual or his or her doctor must complete an application process and state why the nonformulary drug is necessary for the individual's care (e.g., if the patient has had an adverse reaction to the formulary drug, or if no formulary alternative exists).

In a multitier formulary, the insurer classifies drugs into tiers and grants favorable treatment to drugs in lower tiers, typically requiring consumers to make higher copayments for drugs in higher tiers. In a typical two-tier plan, generic drugs comprise the first tier and brand-name drugs the second tier. In a three-tier plan, generic drugs constitute the first tier, and brandname drugs are split into preferred drugs (second tier) and nonpreferred drugs (third tier). A study by Strunk and Ginsberg found that in 2002, 57% of employees with prescription drug coverage had health insurance plans that included three-tier formularies. Some companies have four-tier plans, which are similar to threetier plans with the addition of a fourth tier of drugs whose purchase is not subsidized by the company, but which are available for purchase by plan members at a negotiated price. Use of a drug formulary allows insurance companies to save money in three ways: It is a bargaining tool that allows the insurer to negotiate for lower prices from pharmaceutical companies; it encourages health plan members to reduce drug utilization and use lower-cost generic or preferred drugs; and it produces income from copayments.

Formularies are a contentious issue in the United States because most Americans get their health [Page 399]insurance coverage through private insurers, many of whom have instituted multitier drug formularies to manage costs. However, the U.S. federal government does not negotiate or regulate drug prices so that a wide range of drugs at a wide range of prices are available for purchase in the United States. Some people feel that the use of drug formularies may endanger patient health by restricting the choice of therapeutics drugs, since the unsubsidized portion of a higher-tier drug may be prohibitive to the patient.