Tom: Hello, Stephen. Today I heard a term called “formulary limitation”. What does it mean?

Stephen: It depends on the context. In the U.S. a hospital formulary for patients in the hospital is a limited set of drugs that the hospital carries. For instance the hospital may carry only one type of ACE Inhibitor instead of carry the 7 or so different ones on the market. This allows the hospital to save on cost of stocking all of the drugs and make managing the dispensing of drugs to patients in the hospital more manageable. If a patient is taking a particular drug before being admitted to the hospital, the pharmacist will work with the admitting prescriber to find a drug in the same class at an equipotent dose if the original drug is not on the formulary.

For outpatients, pharmacy benefit managers create formularies on behalf of insurance companies. There are several tiers. Tier 1 represents the most effective and often least expensive drugs including generics. Tier 2 may be name-brand only drugs. The co-pay the patient pays for Tier 1 drugs is less than Tier 2 so it is a way for the insurance companies to encourage the use of less expensive alternatives.