Standard Formulary Tier Structure
| Tier | Drug Type | Typical Cost-Sharing | Goal |
|---|---|---|---|
| Tier 1 | Generic drugs | $5–$15 copay | Drive generic utilization |
| Tier 2 | Preferred brand drugs | $30–$50 copay | Drive preferred brand utilization |
| Tier 3 | Non-preferred brand drugs | $60–$100 copay | Discourage non-preferred brand use |
| Tier 4 | Specialty drugs | 20–30% coinsurance | Manage specialty drug costs |
| Tier 5 | Excluded drugs | Not covered | Eliminate low-value drugs |
Clinical Criteria
Clinical criteria manage utilization of high-cost drugs: (1) prior authorization — requires clinical review before dispensing; (2) step therapy — requires trial of lower-cost alternatives before approving higher-cost drugs; (3) quantity limits — limits the quantity dispensed per prescription; and (4) age/gender restrictions — limits coverage to appropriate populations.
Formulary as Cost Management Tool
IQ Insight
Formulary design is the most powerful tool for managing pharmacy costs. A well-designed formulary drives generic utilization (saving 80–90% vs. brand drugs), promotes preferred brand utilization (saving 20–40% vs. non-preferred brands), and manages specialty drug costs through clinical criteria. Formulary design decisions have a direct and immediate impact on pharmacy costs.