The University Record, July 23, 2001

Health care plan’s formulary establishes preferences for prescription medication

Editor’s note: Late in 2000, Provost Nancy Cantor and Robert Kasdin, executive vice president and chief financial officer, charged the Prescription Drug Work Group 2002 with examining prescription drug coverage in University health plans. The following article discusses formularies and preferred drugs.


By Kate Kellogg
Human Resources and Affirmative Action

Many consumers don’t understand why their health care plan prefers one brand-name prescription drug to another. Prescription drug preferences are established in a plan’s formulary. This is a list of preferred drugs that are suggested to a plan’s members and physicians.

Decisions about which prescription drugs to include in a plan’s formulary consider safety, efficacy and cost-effectiveness. The three main types of formularies are: open, which allows nearly all FDA-approved drugs; incentive-based, which offers financial incentives to patients and physicians that encourage the use of preferred drugs; and closed, which restricts coverage to a limited number of drugs.

A Pharmacy and Therapeutics (P&T) Committee develops, evaluates and designs the formulary. These committees typically consist of independent health professionals, such as physicians and pharmacists. Each plan’s pharmacy benefit manager (PBM)—a company that manages the plan’s prescription drug benefits—has its own P&T committee.

University Hospital has its own P&T. “We have further modified the PBM’s preferred drug list to include drugs that we think give the most value overall, in addition to what the PBM offers,” says John E. Billi, the Medical School’s associate dean for clinical affairs.

The University’s approach to formularies is to consider the clinical efficacy of the drug, review what else is available in the drug’s class and then consider cost, says Martha Eichstadt, Benefits Office director.

“As an institution, we don’t want drug company rebates to drive all formulary decisions,” Eichstadt says. “If we think a drug is good, we should be able to negotiate a good price for that drug.”

The University offers prescription drug coverage under several different plans, which do not use the same PBM or the same preferred drug list. “That is why we try to come up with a list of preferred drugs that are acceptable to many health plans,” Billi says.

M-CARE is borrowing the expertise of the hospital’s P&T committee to provide more consistency in formulary decisions, Eichstadt says.

Most U-M plans have open formularies, says James Stevenson, professor of pharmacy and director of pharmacy services for the Health System. How open are they? “U-M faculty and staff find that most drugs their doctors prescribe are covered,” Stevenson says.

The University encourages its health plans to inform and update providers about each plan’s formularies and preferred drug lists. M-CARE has been doing that since implementing a new preferred drug list in May.

In partnership with AdvancePCS, M-CARE’s pharmacy benefit manager, M-CARE has adopted a Performance Drug List to encourage the use of cost-effective medications from among those most frequently used by M-CARE members.

When M-CARE members receive a prescription for a medication that is not on the list, pharmacists may contact physicians, with M-CARE members’ permission, to inquire about switching to a drug on the Performance Drug List. If both physician and member agree, the pharmacist can make the change.

The program is voluntary, emphasizes Paula Hiller, manager of the M-CARE Pharmacy Department, and M-CARE still has an open formulary.

Many plans require members to pay more for nonpreferred drugs than for preferred. The University has a two-tiered copay system, while some drug benefit plans include three levels of copay: the lowest for generic drugs, the second level for preferred brand-name drugs and the third for nonpreferred drugs.

Whether or not members realize immediate savings, they benefit by keeping drug costs down. Savings for the benefit program will mean smaller copay increases and fewer restrictions in coverage for members, Billi says.