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`Understanding Your Health Plan
`Drug Formulary
`
`Drug Formulary: What You Need to Know
`
`By Michael Bihari, MD
`Updated October 08, 2016
`
`What Is a Drug Formulary?
`
`A drug formulary is a list of prescription drugs, both generic and brand name, that are
`preferred by your health plan. Your health plan may only pay for medications that are
`on this "preferred" list. Additionally, health plans will only pay for medications that have
`been approved for sale by the U.S. Food and Drug Administration (FDA).
`
`The purpose of your health plan's formulary is to steer you to the least costly
`medications that are sufficiently effective for treating your health condition.
`
`You will pay more if you and your doctor choose a medication that is not covered on
`your health plan's formulary.
`
`Health plans frequently ask doctors to prescribe medications included in the formulary
`whenever possible. Many health plans review whether or not a doctor is using the
`health plan formulary. If not, the health plan may communicate with the doctor and
`encourage her to use medications on the formulary.
`A Dr. Mike tip: If you don't understand your plan's drug benefits, you may be
`surprised when you have to pay the full retail cost for your prescription.
`
`Who Chooses the Drugs on the Formulary?
`
`https://www.verywell.com/understanding-your-health-plan-drug-formulary-1738897?print
`
`MYLAN - EXHIBIT 1113
`Mylan Pharmaceuticals Inc. et al. v. Allergan, Inc.
`IPR2016-01127, -01128, -01129, -01130, -01131, & -01132
`
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`In most health plans, the formulary is developed by a pharmacy and therapeutics
`committee composed of pharmacists and physicians from various medical specialties.
`
`The committee reviews new and existing medications and selects drugs to be included
`in the health plan's formulary based on safety and how well they work.
`
`The committee then selects the most cost-effective drugs in each therapeutic class. A
`therapeutic class is a group of medications that treat a specific health condition or that
`work in a certain way. For example, antibiotics are used for the treatment of infections.
`
`Under reforms brought about by the Affordable Care Act, individual and small group
`plans must include at least one drug from every U.S. Pharmacopeia (USP) category
`and class, OR the same number of drugs in each USP category and class as the
`state's benchmark plan, whichever is greater.
`
`Usually, the formulary is updated yearly, although it is subject to change throughout
`the year. Some changes depend on the availability of new drugs, and others occur if
`the FDA deems a drug to be unsafe.
`
`What Is a Co-payment?
`The co-payment is your share of the cost of a prescription, when it's designated as a
`flat-dollar amount. For example, if your plan covers Tier 1 drugs with a $20 copayment
`and Tier 2 drugs with a $40 copayment, those are the amounts you'll pay when you fill
`a prescription, and the remaining cost is paid by your health plan.
`
`What is Coinsurance?
`If your health plan uses coinsurance for prescription coverage (very common for drugs
`in Tier 4 and above), it means you'll pay a percentage of the cost of the drug, rather
`than a set copay amount. So if a Tier 4 drug costs $1,000 and your plan has 30
`percent coinsurance for Tier 4, that means you'd be responsible for $300 of the cost
`when you fill the prescription.
`
`For some conditions—like MS, for example—all of the available drugs are considered
`specialty drugs, which means they are typically in Tier 4 or above, and coinsurance
`often applies. The result can be very high cost-sharing for the insured, but the total out-
`of-pocket limits imposed by the ACA result in the health plan eventually picking up 100
`percent of the cost, once the member has met her cost-sharing limit for the year.
`
`https://www.verywell.com/understanding-your-health-plan-drug-formulary-1738897?print
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`Page 3 of 5
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`What Is a Formulary Tier?
`Drugs on a formulary are usually grouped into tiers, and your co-payment or
`coinsurance is determined by the tier that your medication is on. A typical drug
`formulary includes four or five tiers. The lowest tier will have the lowest cost-sharing,
`while drugs on the highest tier will have the highest cost-sharing.
`Tier 1 has the lowest co-payment and usually includes generic medications.
`Tier 2 has a higher co-payment than tier 1 and can include non-preferred generics
`and/or preferred brand name medications.
`Tier 3 has an even higher co-payment and can include preferred or non-preferred
`brand name medications.
`Tier 4 and 5 Depending on the plan, your highest-cost drugs will typically be in Tier 4
`or 5. Your health plan may place a medication in the top tier because it is new and not
`yet proven to be safe or effective. Or, the medication may be in the top tier because
`there is a similar drug on a lower tier of the formulary that may provide you with the
`same benefit at a lower cost. Specialty drugs are included in the highest tier. Drugs in
`the top tier are typically covered with coinsurance rather than a copay, so your out-of-
`pocket costs at this level could be quite high.
`
`For some of these drugs, your health plan may have negotiated with a pharmaceutical
`company to obtain a lower price. In return, your health plan designates the medication
`as a "preferred drug" and hence makes it available in a lower tier, resulting in lower
`cost-sharing for you.
`
`Your health plan may also provide you with list of medications that are not covered and
`for which you have to pay the full retail price. This list may include experimental
`medications, over-the-counter medications, and so-called lifestyle drugs, such as those
`used to treat erectile dysfunction or weight loss.
`
`Do Formularies Have Any Restrictions?
`Most health plan formularies have procedures to limit or restrict certain medications.
`This is done to encourage your doctor to use certain medications appropriately, as well
`as to save money by preventing medication overuse. Some common restrictions
`include:
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`https://www.verywell.com/understanding-your-health-plan-drug-formulary-1738897?print
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`Page 4 of 5
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`Prior Authorization: a process by which your doctor must obtain approval from your
`health plan for you to obtain coverage for a medication on the formulary. Most often,
`these are medications that may have a safety issue, have a high potential for
`inappropriate use, or have lower-priced alternatives on the formulary.
`
`Quality Care Dosing: a process in which your health plan checks prescription
`medications before they are filled to ensure that the quantity and dosage is consistent
`with the recommendations of the FDA
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`Step Therapy: a process in which your health plan requires you to first try a certain
`medication to treat your health condition before using another medication for that
`condition. Usually, the first medication is less expensive.
`
`Are There Exceptions to These Rules?
`Your health plan may be open to making an exception for several situations:
`
`• You ask the plan to cover a medication that is not on the formulary.
`• You ask the plan to waive coverage restrictions or limits on your medication.
`• You ask the plan to provide the medication with a more affordable co-payment.
`
`In general, your health plan will consider these exceptions if their lack of coverage of
`your medication would cause you to use a less effective drug or cause you to have
`harmful medical event.
`
`If your request for an exception is turned down, you have the right to appeal that
`decision. All health plans have an appeal process, which may include impartial people
`who are not employed by the plan. Moreover, if your appeal is denied you can still
`choose to have your doctor prescribe the medication, but you will be responsible for
`the full charge of the drug.
`
`Some Advice from Dr. Mike
`Know Your Health Plan's Formulary
`All health plans have different formularies, and it is important for you to understand
`your plan's formulary. When you enrolled, you should have received a booklet that
`describes the formulary and lists all of the approved medications, along with an
`explanation of the tier co-payments and/or coinsurance. You can also access your
`plan's formulary online. If you have not received a formulary, call the customer service
`number on your drug card to request one.
`
`https://www.verywell.com/understanding-your-health-plan-drug-formulary-1738897?print
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`Page 5 of 5
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`Talk With Your Doctor
`If you need a prescription, talk with your healthcare provider about prescribing a
`generic drug or a preferred brand name drug if it is appropriate for your heath
`condition.
`Choose Your Health Plan Wisely
`If you have a choice of health plans and require medications for a chronic illness, you
`should look at the different formularies and choose a plan that covers your
`medications.
`
`Updated by Louise Norris.
`
`Sources:
`
`Center for Consumer Information and Insurance Oversight, Information on Essential Health Benefits
`(EHB) Benchmark Plans,
`
`Center for Medicare and Medicaid Services, Final Notice of Benefit and Payment Parameters for 2016
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`https://www.verywell.com/understanding-your-health-plan-drug-formulary-1738897?print
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