Open vs. closed formularies: What's best for your business?

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With the 10.2 percent rise in pharmaceutical spending in the United States, prescription drugs make up a large portion of your health care investment. While you don’t have control over rising drug prices, you do have some control over your formulary, or drug list. The way you tailor your formulary can have a significant impact on your pharmacy spend.

The basics of drug formularies

A drug formulary is a list of prescription drugs that a health plan will cover. The list likely includes generic and brand-name drugs. Most formularies list a few tiers of prescription drugs that correspond with how much they cost — for example, a tier-one drug may have a small dollar copayment, and a higher-tier drug may require a percentage of the total cost.

Comparing open and closed formularies

Open formulary

In an open formulary, all drugs on an approved drug list are covered for your employees.

This formulary design gives your employees the broadest access when it comes to filling their prescriptions. Most drug classes have generic options that are just as safe and effective as brand‑name medications — often at a lower cost. Since doctors frequently prescribe brand‑name drugs, your employees may not be aware of these alternatives.

When brand-name drugs and their generic equivalents are available on the same tier — for the same copay — you're paying the cost difference with every refill.

Closed formulary

With a closed formulary, only certain drugs on an approved drug list are covered.

This formulary design gives your employees access to only the prescription drugs you specify. You can tailor access based on the needs of your employees and control costs by restricting access to certain brand-name or higher-tier drugs.

Some closed formulary designs only cover generics, while others offer limited access to the most expensive drugs. Preventive drugs are typically on the lowest tier, which means they have the highest value at the lowest cost. If there are multiple drugs, including specialty drugs, that treat a specific condition, like diabetes, each is evaluated and assigned to a tier based on its true value.

You can also design your formulary to allow access to preferred drugs over non-preferred drugs, regardless of tier.

If your employee needs coverage for a prescription drug that is not included on the closed formulary, they must work with the prescribing provider to make a formulary exception request. A formulary exception takes into account the drug's safety, effectiveness and employee/individual needs.

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An infographic titled “Comparing your formulary options” compares two prescription drug plan approaches: Open formulary and Closed formulary. The chart is organized into four columns: What it covers, What you get, Relative cost to you, and Drug access for your employees.

For the Open formulary option:

• Covers all drugs on an approved drug list.
• Provides convenience for employees.
• Displays four dark dollar-sign icons, indicating the highest relative cost.
• Shows four dark prescription bottle icons, indicating the broadest access to medications.

For the Closed formulary option:

• Covers some drugs on an approved drug list, with the employer selecting which drugs are available.
• Includes two scenarios:
  • Primarily generic medications: Maximum amount of cost savings. One dark dollar-sign icon and three faded icons indicate the lowest relative cost. One dark prescription bottle and three faded bottles indicate more limited drug access.
  • Access to select brand-name drugs: Less disruption for employees. Three dark dollar-sign icons and one faded icon indicate a moderate relative cost. Three dark prescription bottles and one faded bottle indicate broader access than a generic-only approach.
• The rows are separated by a horizontal line to distinguish the two closed formulary options.

The design uses a dark blue header, light blue and white background sections, dark blue headings, gray text, and iconography to visually represent cost and access tradeoffs.

Make regular adjustments to your drug formulary

If you haven't reviewed your pharmacy benefits in a while, it might be a good time to meet with a Wellmark representative. The more managed your pharmacy plan is, the more you'll save. Learn about the formulary designs and get advice on the best options for your benefits goals. Contact a Wellmark Clinical Account Consultant to get started.