Formulary for Prescription Medication Explained

This video provides an in-depth exploration of medication formularies, a fundamental concept in healthcare finance that dictates which prescription drugs are covered by health insurance plans. Dr. Eric Bricker, the speaker, aims to demystify this complex topic for healthcare professionals and consumers alike, highlighting its critical impact on patient access to medications and the financial aspects of healthcare. The discussion begins by defining a formulary as a list of covered medications and immediately emphasizes that not all medications are included, setting the stage for understanding the intricacies of drug coverage.

The presentation then delves into the role of Pharmacy Benefits Managers (PBMs), explaining them as separate entities or departments within insurance companies responsible for determining pharmacy benefits and, consequently, the formulary. A crucial distinction is made regarding who possesses formulary information: doctors typically do not know individual patient formularies due to their vast patient base, while pharmacies have real-time access through their computer software. The video also identifies common categories of medications often excluded from formularies, such as over-the-counter (OTC) drugs (e.g., Tylenol, lower-dose ibuprofen), cosmetic treatments (e.g., wrinkle creams), and certain lifestyle medications (e.g., for erectile dysfunction), though coverage for the latter can vary.

Further complexity is introduced through the concept of formulary tiers, particularly within a PPO plan structure, which is common in the U.S. Dr. Bricker outlines a typical four-tier system: Tier 1 for generics with the lowest copay (e.g., $5), Tier 2 for preferred brand-name medications with a medium copay (e.g., $25), Tier 3 for non-preferred brand medications with a higher copay (e.g., $50), and Tier 4 for specialty medications, which often involve coinsurance (e.g., 20% of the total cost) rather than a fixed copay, citing Humira for rheumatoid arthritis as an example. The video concludes by detailing specific rules associated with formularies, which vary by employer and PBM. These include Prior Authorization (requiring insurer approval for expensive medications), Step Therapy (mandating trials of less expensive generics before brand-name alternatives, like gabapentin before Lyrica), Mandatory Generics (only covering the generic version even if a brand is prescribed, such as atorvastatin over Lipitor), and Mandatory Mail Order (requiring chronic medications to be filled through the PBM's mail-order program for cost savings).

Key Takeaways:

• Formulary Definition and Importance: A medication formulary is the definitive list of drugs covered by a health insurance plan, and understanding it is crucial because not all prescribed medications are covered, directly impacting patient access and out-of-pocket costs.
• Role of Pharmacy Benefits Managers (PBMs): PBMs are central to the pharmaceutical ecosystem, acting as the decision-makers for pharmacy benefits and formulary design, often as distinct entities from the health insurance carrier itself.
• Information Access Disparity: While doctors typically lack specific knowledge of individual patient formularies, pharmacies possess real-time access to this information via their computer systems, making them the primary point of contact for formulary inquiries.
• Common Formulary Exclusions: Formularies frequently exclude over-the-counter medications (e.g., Tylenol, 200mg ibuprofen), cosmetic treatments (e.g., wrinkle creams), and certain lifestyle drugs, though the latter can have variable coverage.
• Formulary Tiers and Cost Implications: Many plans, particularly PPOs, utilize a tiered formulary structure (e.g., Tier 1 for generics, Tier 2 for preferred brands, Tier 3 for non-preferred brands, Tier 4 for specialty drugs), with each tier corresponding to different patient cost-sharing levels (copays or coinsurance).
• Prior Authorization (PA): This rule requires healthcare providers to obtain explicit approval from the PBM or insurance company before certain medications, typically more expensive ones, will be covered, necessitating additional documentation and justification.
• Step Therapy: Patients are often required to try and fail on a less expensive, often generic, medication first before the plan will cover a more expensive brand-name alternative, exemplified by trying gabapentin before Lyrica for neuropathic pain.
• Mandatory Generics: If a brand-name medication has a direct generic equivalent, the formulary may only cover the generic version, even if the doctor prescribes the brand and indicates "do not substitute," as seen with atorvastatin for Lipitor.
• Mandatory Mail Order: For chronic medications taken over extended periods, some PBMs mandate that prescriptions be filled through their mail-order program, which aims to reduce costs by cutting out the retail pharmacy middleman and often provides a cost break to the patient.
• Dynamic and Personalized Rules: Formulary rules, including tiers and restrictions, are not universal; they are specific to each employer and PBM, requiring individuals to verify their particular plan details through HR or the PBM directly.
• Impact on Pharmaceutical Commercial Operations: Understanding formularies and their associated rules is critical for pharmaceutical companies in developing market access strategies, patient support programs, and commercial operations, as these rules directly influence drug uptake and patient adherence.

Key Concepts:

• Formulary: A list of prescription drugs covered by a health insurance plan.
• Pharmacy Benefits Manager (PBM): A third-party administrator of prescription drug programs for commercial health plans, self-insured employer plans, Medicare Part D plans, the Federal Employees Health Benefits Program, and state government employee plans.
• Prior Authorization (PA): A process requiring a healthcare provider to obtain approval from a health insurance plan before a prescribed medication is covered.
• Step Therapy: A type of prior authorization that requires a patient to try a less expensive medication first before progressing to a more costly alternative.
• Mandatory Generics: A formulary rule stating that only the generic version of a drug will be covered, even if a brand-name equivalent is prescribed.
• Mandatory Mail Order: A requirement by some PBMs for certain chronic medications to be filled and delivered through their mail-order pharmacy service.
• PPO Plan: Preferred Provider Organization, a common type of health insurance plan.
• Formulary Tiers: Categories of medications within a formulary, each associated with different cost-sharing levels (copays or coinsurance) for the patient.
• Copay: A fixed amount a patient pays for a covered healthcare service or prescription drug.
• Coinsurance: A percentage of the cost of a covered healthcare service or prescription drug that a patient pays after their deductible has been met.

Examples/Case Studies:

• Over-the-Counter (OTC) Medications: Tylenol, 200mg Ibuprofen (generic for Advil/Motrin) as examples of drugs typically not covered.
• Higher-Dose OTC Medications: 600mg and 800mg Ibuprofen as examples of higher-dose versions that might be covered.
• Specialty Medications: Humira for rheumatoid arthritis, often falling into Tier 4 with coinsurance.
• Step Therapy Example: Requiring gabapentin (generic) to be tried before Lyrica (brand) for neuropathic pain.
• Mandatory Generic Example: Atorvastatin (generic) being covered instead of Lipitor (brand) for high cholesterol.