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Formulary

A list of prescription drugs covered by an insurance plan, organized into tiers that determine how much the patient pays for each drug.

How It Works

Formularies are the central utilization-management tool of U.S. drug coverage. Medicare Part D formularies must cover at least two drugs per therapeutic class and all or substantially all drugs in six protected classes (antidepressants, antipsychotics, anticonvulsants, immunosuppressants for transplant, antiretrovirals, antineoplastics). Commercial formularies are not bound by the protected-class rule and can be narrower. PBM formulary decisions, which drug goes on Tier 2 vs. Tier 3, which requires prior authorization, which is excluded, are negotiated against manufacturer rebate commitments: larger rebates buy preferred placement. CVS Caremark publishes a "formulary exclusion list" annually that now excludes roughly 500 products across the three major PBMs combined (CVS Caremark, Express Scripts, OptumRx). Formulary changes happen mid-year: in January 2024, CVS Caremark notoriously removed Eliquis from its preferred list despite the drug being on the IRA's first negotiation list (later reversed under pressure). Part D plan formularies are filed annually with CMS and must give beneficiaries 60 days' notice for negative formulary changes. Patients denied their prescribed drug can request a coverage exception with prescriber documentation; Part D plans must respond to standard exception requests within 72 hours and expedited requests within 24 hours. The Formulary Reference File on CMS.gov allows plan-by-plan formulary comparison and is the data source behind Medicare.gov's Plan Finder.

Related Terms

  • Pharmacy Benefit Manager (PBM), A company that acts as a middleman between drug manufacturers, insurers, and pharmacies, negotiating drug prices, managing formularies, and processing claims.
  • Manufacturer Rebate, A post-sale discount paid by a drug manufacturer to a PBM or insurer in exchange for favorable formulary placement, reducing the effective net price below the list price.
  • Prior Authorization, A requirement by an insurer that a patient's doctor must get approval before the plan will cover a specific drug, used to control costs and ensure appropriate use.
  • Formulary Tier, A category within an insurance formulary that determines how much a patient pays out of pocket for a drug, lower tiers mean lower costs.
  • Step Therapy (Fail First), An insurance requirement that a patient must try and fail on one or more lower-cost drugs before the plan will cover a more expensive medication.

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About This Definition

This definition is part of the DrugPrice Drug Pricing Glossary, 49 terms explaining how prescription drug pricing works in the United States. All definitions are written in plain language for patients, caregivers, journalists, and healthcare professionals.

this entity is one of the U.S. Medicare prescription-drug pricing concepts that recurs across this site. The definition above is the technical answer; the paragraphs below add the practical context for how the concept connects to the CMS Medicare Part D Drug Spending data data behind every per-entity page on the site.

In the CMS Medicare Part D Drug Spending data data, this concept shapes one or more of the fields that drive the per-entity grades and rankings on this site. The methodology page describes which fields feed into which output; this glossary entry documents the underlying term.

Source: CMS Medicare Part D Spending, 2026.