Formulary

Key facts

Developed by

Pharmacy and therapeutics (P&T) committees of plans and PBMs

Medicare Part D rule

42 CFR 423.120(b)

Part D minimum

Generally at least two drugs in each therapeutic category and class

Part D protected classes

Six classes where all or substantially all drugs must be covered

What is a formulary?

A formulary defines which drugs a plan pays for and on what terms. Plans build formularies to steer use toward drugs they consider clinically appropriate and cost-effective, and they use formulary placement as leverage when negotiating rebates with manufacturers.

Formularies can be open, covering most drugs with differences in cost sharing, or closed, covering only listed drugs except through an exception process. Large pharmacy benefit managers also publish exclusion lists naming drugs they will not cover when an alternative is available.

In state Medicaid programs, the term preferred drug list is common. Because of the Medicaid Drug Rebate Program, states generally must cover drugs from participating manufacturers but can require prior authorization for non-preferred drugs.

How formularies are built and regulated

Formulary rules vary by market:

• Pharmacy and therapeutics committees of physicians and pharmacists review clinical evidence, safety and cost before adding or removing drugs.
• Medicare Part D formularies must generally include at least two drugs in each therapeutic category and class, and CMS reviews them each year.
• Part D plans must cover all or substantially all drugs in six protected classes: antidepressants, antipsychotics, anticonvulsants, immunosuppressants for transplant rejection, antiretrovirals and antineoplastics.
• Individual and small group plans covering essential health benefits must cover at least the greater of one drug in each United States Pharmacopeia (USP) category and class or the number covered by the state benchmark plan.
• Enrollees can request coverage exceptions for non-formulary drugs, with timelines set by program rules.

Why formularies matter

Formulary status is one of the strongest influences on whether a drug is prescribed and filled. A preferred position can lift volume, while exclusion or heavy utilization management can block access even for approved drugs.

Market access teams track formulary coverage by plan and by covered lives, forecasters use it to model uptake, and field teams use it to decide where prescribers can realistically get a drug covered. Formulary files CMS publishes for Medicare Part D plans allow coverage, tier and restriction comparisons across plans and regions.