Pharmaceutical Formularies: The Right Formula for Cost and Utilization?

Vol. VII, No. 5
August 2004

Prescription drugs are consistently mentioned in discussions about rising health care costs as a primary factor driving expenditures. Plans, purchasers, and policymakers are perusing promising strategies to reduce pharmaceutical spending while maintaining quality. One such approach separates drugs into “tiers” based on price levels and creates a financial incentive—in the form of a lower co-payment—for individuals to make the lowest cost selections.

These tiered formularies1 also give health plans more leverage to negotiate lower prices for a higher volume with drug manufacturers. While there are no established standards for the number of tiers or the amount of co-payments that
a formulary should use, the three-tier structure is currently the most widespread model.