But in practice, a formulary is much more than a list of drugs. It’s a way for doctors and patients to understand which prescription medications are covered by a health plan so that they can make informed decisions when choosing drug treatments. Steven Capuzzi, a licensed pharmacist who works on Highmark’s pharmacy case and disease management team, filled me in on some of the intricacies of how formularies work.
Formularies are generally broken up into tiers, or sub-lists. For example, in a simple, two-tier formulary:
Tier 1 drugs are generic drugs — or drugs that are medically equivalent to certain brand-name drugs but cost less.
Tier 2 drugs are typically brand-name drugs that may cost more than their generic equivalents. That’s partly because they often have marketing and branding costs associated with them. For example, Lipitor and atorvastatin are the same drug chemically. You won’t see any television commercials promoting atorvastatin, but you may see commercials, brochures, and other materials promoting the use of Lipitor.
All formularies have different tiers — and some have more than the two above. Capuzzi explains that there are several types of formularies you may need to know about as part of your health insurance coverage:
Comprehensive Formulary: This is a “master formulary” — it’s the master list of drugs that an open, closed, incentive, or progressive formulary are based on. Insurance companies use variations on this comprehensive formulary to create the formulary used by a specific plan.
Open Formulary: In an open formulary, there are two tiers of drug coverage. Tier 1 is for generic drugs, while Tier 2 covers brand-name drugs. An open formulary covers all drugs on its corresponding comprehensive formulary, since all drugs are either brand name or generic.
Closed Formulary: As its name implies, a closed formulary has some restrictions. It still has two tiers, but some brand-name drugs may not be covered.
Incentive Formulary: Incentive formularies have three tiers. Tier 1 includes generic drugs, while Tier 2 includes the brand-name drugs that will be covered — much like a closed formulary. A third tier includes “non-preferred” brand-name drugs, which are drugs that aren’t “preferred” by your health care plan. What that means to you is that, although the drug is covered, you will have a higher copay or higher cost-sharing percentage if you choose a Tier 3 drug.
Progressive Formulary: This formulary has four tiers. A typical breakdown might look like the chart below:
Tier 1 includes generic drugs from the corresponding comprehensive formulary. Tier 2 includes formulary brand-name drugs. Then, as you can see in the example above, Tiers 3 and 4 add specialty drugs and certain non-formulary drugs. As with the non-preferred drugs in the incentive formulary, a key point to remember is that if you choose a non-formulary drug, you’re going to pay more out of your own pocket.
Different health plans have different formularies, and different formularies come with different costs. For example, a closed formulary represents generally lower costs for members as well as insurers. (Insurers pick up the cost difference between what a member pays for a drug — your co-pay — and what the drug actually costs to purchase.)
Companies that offer group plan coverage to their employees through a company like Highmark have different options for formularies. And both employers and health plan members have opportunities to make choices that help to save money. For instance, as you probably noticed in the list above, some formularies emphasize generic drugs over their brand-name equivalents — and as we learned earlier, the generic version of a drug tends to cost less, and sometimes much less, than a brand-name version.
“It’s important to remember that a brand drug may actually cost much more than your co-pay,” Capuzzi explains. “Your co-pay may be $10, but the brand drug could cost hundreds of dollars for a 30-day supply. Yet the same drug that costs hundreds of dollars for the brand version may only cost $20 for a month’s supply of the generic version. That’s a huge cost savings, but if you have a health plan where the formulary charges you the same co-pay either way, you may not be aware of that difference.”
All forms of insurance, whether run by private companies or by a government, involve everyone sharing the total cost of health care for a given population — so we all have a stake in doing what we can to bring that total cost down. Capuzzi notes that an increasing number of health plans, and especially high-deductible health plans (HDHPs), now provide a more direct incentive for individuals to use the most cost-effective drug — typically, a generic medication. In short, with many plans, if you choose the more expensive version of a drug, you will also end up paying more of your medical costs out of your own pocket until your deductible is met.
According to Capuzzi, it’s challenging to make a statement about formularies that will apply to everybody, because formularies can vary widely throughout the industry. But, generally speaking, he says that the lower the tier on a formulary, the lower the cost. So if you are prescribed a drug and there is a generic version of it listed on Tier 1 of your formulary, that will usually cost you less out of pocket than a brand-name version of the drug listed on Tier 2. If you’re prescribed a specialty drug listed on Tier 3 or Tier 4 of your formulary, that may cost even more, and there might not be a generic alternative available.
Highmark health plan formularies are developed by Highmark’s Pharmacy & Therapeutics (P&T) committee. “The people who make this list are clinical pharmacists and physicians approved by Highmark,” explains Capuzzi.
Because they work in the field, they’re attuned to new drugs being approved for medical use. They draw on their medical expertise and research to recommend which drugs should be added to formularies, and at what tiers.
The P&T clinicians also consider what kind of pre-authorizations are appropriate to put in place to ensure that the right prescription is covered at the right time for a member.
“For example, when it comes to Hepatitis C medication, there are certain criteria that need to be met, because doctors want to give safe and effective medication to their patients,” Capuzzi points out. “With certain genotypes of Hepatitis C, for example, the virus can actually eradicate itself before a person even takes medication. So, for some people, it could be more advantageous to see if the viral load of Hepatitis C will eradicate itself before giving somebody a drug that costs $28,000 for a 30-day supply and that may have side effects.”
He explains that the P&T committee meets regularly to discuss which drugs to add to or remove from a Highmark formulary. “Once a drug is approved by the FDA, our clinical pharmacists and medical directors review it,” he says. “They’ll decide whether or not it should go on a formulary, and if so, on which tier.” He also emphasizes that Highmark manages its own formularies, not an outside organization.
Sometimes, the P&T committee elects not to add a drug to a formulary — which then makes it a “non-formulary” drug. While you may still be able to gain access to a non-formulary drug, your insurance may not cover it.
Capuzzi cites the example of two anti-fungal drugs. One was an oral drug taken by mouth, and the other was a brush-on medication. The brush-on medication was not as effective and also cost more than the oral alternative — so the brush-on anti-fungal was not added to the formulary, because there was a better choice.
“Deciding whether to put something on a formulary is a rather intensive process, including looking at clinical trial results,” Capuzzi says. “The major factor in why something may not be on the formulary is because there’s a better option already on the formulary — meaning the existing option may be safer, or it might cost less.”
Sometimes, drugs are removed from a formulary by the P&T committee. “If something like that would happen, any member who’d used the drug would get a notification,” Capuzzi reassures, adding that the written notification would explain the change, provide medication options, and encourage members to talk to their doctor.
He notes that there are always options if something is taken off the formulary. “If a member is taking one drug and it’s no longer on the formulary, more than likely, there will be a generic drug option that is still on the formulary.”
Your formulary comes with your health insurance plan, and you can consult it anytime. Log in to your Highmark Member site, choose the Prescriptions tab, and go to the “Drug List” box (see below).
You can also call the Member Service number on the back of your member ID to ask which formulary you’re on, or help you figure out if a medication is covered, and at which tier.
It’s important to understand how your formulary works so that you’re aware of medication options and your out-of-pocket costs. Before you fill your next prescription, consider talking to your doctor and calling Member Service to see if you could be saving money on your prescription medications.
If you have a member service question that involves personal health or insurance information, do not use the "comments" feature; please call the number on the back of your Member ID card.