Understanding Your Health Benefits: What’s a Formulary?
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Understanding Your Health Benefits: What’s a Formulary?

Sep 24 2018

Understanding health insurance can be daunting, especially with strange words like “formulary.” While the word may be strange, the concept is pretty simple—and understanding how it works will save you some hassle.

The word “formulary” sounds like something out of a calculus textbook. In reality, it’s a key part of a health insurance plan. A formulary is the list of prescription drugs that a health insurance plan covers in some capacity. It’s more commonly referred to as an “approved drug list.”

The word’s origin comes from the fact that a formulary was literally a list of formulas pharmacists used to mix together medications—a “pharmaceutical cookbook” of sorts. It may seem out of place today when drug companies do most of the manufacturing and mixing, but the term hangs on and it’s good to know what it means.

Purpose of a formulary

The purpose of a formulary is to find both brand name and generic drugs and drug therapies that are safe, effective and also affordable. The goal is to save money while still providing the best care, said Matt Colvin, manager of Clinical Pharmacy Services for Priority Health. “We develop our formulary to encourage the use of lower cost alternatives when available,” he said. “We feel it’s how Priority Health can help protect patients from the rising cost of prescription drugs.”

Forming the formulary

Different entities can have different formularies—hospitals, insurance plans, Medicare, the Veterans Health Administration, etc. Some formularies fall under state or federal rules dictating certain medications that must be included. For instance, formularies for Medicare Part D plans must be approved by the Centers for Medicare & Medicaid Services, the federal agency for Medicare and Medicaid. That approval includes the number of drugs covered in a particular group or groups, the number of tablets or capsules that are covered and any prior authorization criteria.

“States may also pass laws that require drug formularies to include certain drugs or drug groups,” Colvin said. “For example, a state may require that drug formularies include drugs that treat cancer.”

Design by committee

No matter who the formulary serves, entities all use a similar method to form their drug lists—a pharmacy and therapeutics, or P&T, committee.

The P&T committee is composed of physicians, specialists, pharmacists and other experts. Committees base their decisions on sound medical research and recommended patient care. It is separate and independent from the entity using the formulary, avoiding any conflict of interest. It’s not a one-and-done job, either. Because medical research and federal regulations are constantly evolving, a P&T committee meets regularly to ensure the formulary reflects the latest research and recommendations.

At Priority Health, Colvin said the P&T committee is continually monitoring several sources of information on new drugs coming on the market. “This includes new brand name drugs that the U.S. Food and Drug Administration is approving, but also new lower cost generic versions of drugs.”

How it works

A formulary not only identifies which drugs are approved under the plan, it can also outline steps a physician needs to take before prescribing certain drugs. It serves as a cost-saving measure. While new, expensive drugs may work for a condition, a less-expensive existing medication might work just as well for some people. The formulary may recommend doctors try the less expensive option first before recommending the more expensive version. That can take some time, so it’s good to understand what you’re facing if your doctor recommends something that requires jumping through a few hoops first.

Take charge

By design, a formulary should help keep costs down for consumers, but that doesn’t mean you shouldn’t do your homework. There are steps you can take to ensure you are getting the best deal, and many insurance companies will help you.

“It is always appropriate to ask your doctor what alternatives may be available to treat your condition,” Colvin said. “It’s possible some of them may be generic treatment options.”

Priority Health offers its members the Cost Estimator tool, which shows the price of a medication, whether they’re eligible for a 30- or 90-day supply and whether there are cheaper alternatives—all according to each person’s plan.

You can also spend some time looking at your plan’s formulary to familiarize yourself with the costs and requirements. Need an example? Priority Health posts its formulary online in a searchable, interactive format.

Not a Priority Health member? Check with your health insurance plan and their formulary, or approved drug list, process.

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