Formulary Coverage

While patients might assume that payers are responsible for determining which drugs their health plans cover, that’s not necessarily the case. At MMIT, we label the entity that controls the formulary decision as the controller. The controller may be a payer, a pharmacy benefits manager (PBM), a managed care organization (MCO), or a government entity.

For example, for a managed Medicaid plan with a state-mandated formulary, the state itself is the controller. In addition to deciding which drugs to cover and which drugs will require utilization management restrictions, a controller is also responsible for reviewing any formulary exceptions or appeals.

A formulary exception asks a health plan to override coverage rules for a drug that is on the formulary, while a formulary exclusion means the drug is not covered at all unless an exception is approved.

The decision that a controller makes to cover or exclude a drug, and even to impose access restrictions, is always a strategic one. Contrary to popular belief, controllers do not necessarily review a drug as soon as it is approved by the FDA. Their timelines vary depending on several factors.

After the FDA accepts a manufacturer’s application for approval, the company may begin outreach to payers and PBMs to discuss the new therapy. Each pharmacy and therapeutics (P&T) committee will meet several times to evaluate the drug’s clinical use and efficacy, the applicability of regulatory mandates, and whether the drug provides sufficient benefits or clinical differentiation to justify its cost.

Once the drug is FDA approved, each controller’s P&T committee will meet—typically within the first 90 days—to determine whether to place the drug on formulary, with or without access restrictions.