How Prescription Drug Lists Impact Medication Costs

Prescription Drug Lists, also known as formularies, are an important part of health plans in the United States, helping to manage medication costs as well as availability. Understanding what a prescription drug list is, how it works, and how it directly influences medication costs can help you make more informed decisions regarding health care and choosing the right health plans. Let’s dive in!   

What is a Prescription Drug List?

A prescription drug list, or formulary, refers to a list of medications that your health insurance plan covers, and can include brand name, generic drugs, and biosimilars that have been approved by the FDA. These lists play a crucial role in deciding which medications are covered by insurance and at what price. To better understand prescription drug lists we will take a closer look at drug tiers and how they work.

Understanding Drug Tiers

A drug tier structure is a classification system used by Pharmacy Benefit Managers (PBMs) and insurance providers to categorize medications based on cost, safety, and efficacy. This is done to ensure treatments meet clinical and accessibility standards. Special committees, composed of medical professionals and pharmacy experts regularly review medications to determine their appropriate tier placement as well as whether to include them on the prescription drug lists or not. Drug tiers are designed to encourage the use of more affordable medications, typically favoring biosimilars and generic drugs over brand-name alternatives.

Here is a general breakdown of the tiers:

• Tier 1: Preferred, low-cost generics or biosimilars. These prescription drugs have the lowest out-of-pocket costs, high availability, and are the most affordable option for patients.
• Tier 2: Preferred brand-name drugs as well as higher-price generics. Drugs in this tier are selected based on their quality and competitive pricing.
• Tier 3: Non-perferred brand-name drugs. These drugs are typically more expensive and less favored due to the availability of more cost-effective alternatives.
• Tier 4: Specialty drugs that are often biologics or high-cost treatments used for complex or chronic conditions or may require special handling. Because of their high price or complexity, these prescription drugs often carry the highest copay.

It is important to note that each formulary will have a different number of tiers. Some formularies may have only 3 tiers while some may have up to 6.

Understanding how drug tiers work can make it easier to navigate your health insurance and make more informed decisions about your medication and how much you might have to pay.

Prescription Drug Lists & Medication Costs

Prescription Drug Lists serve as an important tool for health insurers to manage prescription costs while ensuring patients have access to a wide range of treatments. Since these lists are designed to guide insurance coverage and keep your plan’s overall drug spend low, they directly influence how much a patient pays for their prescriptions, along with other factors such as treatment options, and how quickly you are able to receive necessary medications.

Here are some examples of how prescription drug lists can affect medication costs:

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1. Preferred Medications are Less Expensive: As mentioned before, having a tiered system helps manage medication costs by promoting the use of less expensive alternatives, such as generics or biosimilars, while limiting access to their more expensive counterparts. If your medication is placed on the lower tiers, you will pay significantly lower co-pays or out-of-pocket costs.
2. Non-Perferred Medications Can Cost More: Similarly, when a drug is listed on the formulary as non-preferred or placed on a higher tier, patients can be expected to pay higher costs. Additionally, if a drug is placed on a high tier, insurers may have additional criteria such as a step therapy or a prior authorization.
3. Out-of-Pocket Costs: Prescription drug lists can directly affect how much an individual pays for their medication each month based on the medication’s tier. In some cases, patients might save money if they are given access to low-cost alternatives.
4. Negotiated Drug Prices: Insurance providers and PBMs often negotiate directly with pharmaceutical manufacturers to secure lower prices for drugs that are included in their prescription drug lists. In many cases, if a drug is placed on a formulary as a preferred medication, a common reason is because the PBM has successfully negotiated a discount or rebate with the drug manufacturer. These Rebates can cover a significant portion of medication costs, and help reduce the cost to both the insurer as well as the patient.
5. Tier Movement: Some insurance providers and PBMs may move drugs between tiers for a number of reasons. For example, a medication that was once in a higher tier could be moved to a lower tier if the manufacturer offers a better discount or if the generic or biosimilar become available.
6. Cost-Sharing: Cost sharing refers to the portion of the medication cost that the patient is responsible for paying, which can vary depending on the medication’s tier placement. This is determined by your plan sponsor.

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Prescription drug lists are designed to balance patient needs with the financial realities of healthcare and the pharmaceutical companies. While they encourage the use of cost-effective drugs, such as generics or biosimilars, they also aim to provide access to necessary treatments.

While prescription drug lists can lower your out-of-pocket costs, it can also limit your options if your preferred drug is excluded from the list or placed in a higher, more costly tier. If your prescribed medication isn’t covered and you have tried the covered alternatives, there are steps you can take to request coverage.

What Happens if My Medication is Not on the Prescription Drug List?

When a prescribed medication is not included on the prescription drug list, patients may face significant challenges. Since these non-formulary drugs are excluded from coverage, patients will need to pay the full price unless they take specific steps to request that the drug be covered. Excluded drugs often include brand-name medications, ones that are not FDA approved, but can also include over-the-counter drugs, new or experimental treatments, and some lifestyle medications that aren’t considered medically necessary - depending on your plan’s coverage.

Here are a several reasons why some medications are left off the prescription drug list:

• A Generic or Biosimilar Version Exists: If a generic or biosimilar version of the medication is available, its brand-name counterpart might be excluded to encourage the use of more affordable alternatives.
• Effectiveness: If a drug has been shown to be less effective than similar medications on the formulary, it may be excluded.
• Experimental or New Drugs: Medications that are still undergoing clinical trials and have not yet been approved and reviewed by a clinical committee may not be included.
• Cost: Drugs that are significantly more expensive than other equally effective options may be excluded.

Requesting a Formulary Exception

If a non-formulary drug is prescribed, patients can request a formulary exception. This involves asking the insurance provider to cover the drug and typically requires the prescribing doctor to submit documentation to justify the exception. Common reasons for making a formulary exception include medical necessity - when a patient requires a drug that is not on the prescription drug list, intolerance to available alternatives, or when the prescribed non-formulary drug is the most effective treatment for a specific condition. In some cases, a patient may be required by their health plan to try a less expensive alternative before approving a more costly drug - this is known as step therapy. If the request for a formulary exception is denied, patients have the option to appeal the decision.

Save on Prescription Drug Costs with SmithRx

Prescription drug lists, or formularies, play an important role in managing healthcare costs. They determine which medications are covered by your health plan and at what price, playing a significant role in determining medication costs. By categorizing medications into tiers, prescription drug lists aim to control costs while maintaining access to necessary treatments. Factors such as efficacy, safety, and cost can determine which tier a specific medication falls under and while these lists encourage the use of cheaper drugs, such as generics and biosimilars, they can also limit access to more expensive options.

If your medication is not covered by your insurance plan, you can explore alternative options or request a formulary exception through your healthcare provider. Having a transparent PBM, like SmithRx makes it easier to understand exactly how much your medication costs and can also save you money. Whether you are dealing with high out-of-pocket costs or want to learn more about how prescription drug lists can affect medication costs, understanding the role of prescription drug lists in healthcare can empower you to make informed decisions. 

‍Speak with a SmithRx representative to learn more about prescription drug lists, medication costs, and how we can help you access the low-cost prescriptions and save money.