What Is a Formulary? Understanding Prescription Drug Lists

The cost of healthcare — and medication in particular — keeps getting higher. It’s estimated that the cost of medical care benefits in the US will increase by 8.9% in 2024 (compared to 8.2% in 2023). That makes it challenging for employers to provide their employees with the drugs they need at affordable prices. At the same time, employees often struggle to understand how to best utilize their insurance benefits.

That’s why SmithRx is working to create a better experience for pharmacies, employers, and patients. With a streamlined implementation, transparent savings, and a 100% pass-through model, SmithRx makes drug costs considerably more affordable. 

To help you better understand how beneficial SmithRx’s approach can be for both employers and employees, you’ll need to first understand the ins and outs of formularies and how they can impact the cost of prescription medications. Read on to learn more about what a formulary is and some common questions that arise around formularies. 

What Is a Formulary?

A formulary is basically a drug list. It’s a comprehensive directory of all the prescription drugs covered under a health insurance plan and can include both generic and brand-name drugs. Formularies are useful because they make it clear what drugs are available to employees, and these drugs have also been vetted for cost, safety, and effectiveness. 

The formulary is determined by a committee that’s commonly made up of a multi-disciplinary team of healthcare professionals, including primary care doctors, specialty doctors, and pharmacists. The goal of this committee is to offer a list of drugs that cover a broad spectrum of use cases and needs, while also taking cost into consideration.

What Is a Tier? 

Each formulary is typically divided into tiers, which represent the different levels of coverage for the available medications. For example, tier 1 drugs are often generic versions with a low copay, while tier 4 and tier 5 drugs will usually have a higher out-of-pocket cost and might include brand-name drugs.

Tiers of prescription drug lists are usually determined based on a combination of factors, including the cost, availability, and effectiveness of the drugs. Each plan is different, so you’ll want to check your health plan to see how the tiers in your formulary have been set.

Where Can I Find My Plan’s Formulary? 

If you’re looking for your formulary or prescription drug list, the good news is that it’s easy to access. You can find your formulary on your health insurance plan’s website, as well as in the summary of benefits and coverage from your employer. 

If you’re still unable to locate your formulary, you can also try calling the insurer to get a physical copy mailed to you or a digital copy via email. 

What if My Medication Isn’t Included in a Formulary?

Sometimes, you won’t be able to find certain medications in your plan’s formulary. This can be due to a variety of reasons — for example, the committee determining the formulary may favor a generic version of the drug that’s already available or a safer alternative. 

Additionally, drugs that aren’t primarily used for improving health (aka lifestyle drugs) may often be excluded as well. These can include drugs for: 

• Cosmetic purposes (such as hair growth)
• Losing weight
• Improving athletic performance
• Addressing common cold symptoms 
• Vitamins and supplements
• And more 

Options for Non-Formulary Drug Prescriptions

If a drug is not covered on your formulary or drug list, you can pay the full retail cost, but this route may be cost-prohibitive for many. Alternatively, your doctor could prescribe a non-formulary drug if they determine it’s necessary for your treatment. To help with your out-of-pocket costs, your doctor could request approval by filing a formulary exception. They’ll need to fill out specific paperwork establishing medical necessity and showing that other covered medications aren’t adequate for your needs. 

Be sure to check your formulary regularly — as they often get updated — to see if it’s necessary to speak with your doctor about non-formulary drugs. 

Formulary and Drug List FAQs 

What is a brand-name drug? 

A brand-name drug is a drug sold by a drug company under a specific name and is protected by a patent. These drugs are usually the first to market, and the patent protects the investment the drug company put into researching and developing the drug. 

What is a non-formulary drug? 

A non-formulary drug is any drug that isn’t included in your plan’s drug list. This could be because there’s a generic option available, there’s a more effective or safer alternative, or the drug isn’t primarily used for improving health.

What is a generic drug? 

Once a drug patent expires, other companies can request permission from the FDA to manufacture and sell their own version of the brand-name drug. The generic version must have the same active ingredient(s), as well as the same dosage, strength, and way it’s administered. Essentially, they have to meet the same standards of quality, efficacy, and safety of the brand-name drugs and undergo testing and FDA review before approval. What’s more, generic drugs are often cheaper than their brand-name counterparts. 

What is a specialty drug? 

Typically, most medications can be filled at any pharmacy (retail or mail order). However, there are some specialty drugs that are used for more complex health conditions or require special handling. These drugs often require prior authorization before they can be prescribed, and are usually more expensive as well and may have to be filled at specific specialty pharmacies.

What is considered a “medical necessity” when seeking approval for non-formulary drugs? 

There are numerous reasons why a doctor may determine you need a non-formulary drug and will have to submit a letter of “medical necessity.” You could be allergic to the drugs in the formulary, the available drugs that you need might not interact well with each other, or formulary drugs could worsen your existing health conditions.

Understand Formularies and Prescription Costs With SmithRx

In summary, a formulary is a list of drugs covered under your health insurance plan, all of which have been vetted for cost, safety, and effectiveness. The formulary is split into several tiers, usually based on drug availability and cost. And, while not every medication you want or need will be on your plan’s formulary, there are ways your provider can request a non-formulary drug to be covered on your plan. 

Ultimately, formularies help reduce healthcare spending because they promote the use of cost-effective and safe medications while lowering the use of overpriced or clinically unnecessary drugs. These lower drug costs can also improve adherence, which improves health outcomes and can reduce hospitalization. 

Of course, there’s a lot more going on behind the scenes to influence prescription drug costs. Learn more about how SmithRx is making pharmacy benefits more transparent and affordable.