Formulary Management: What It Is And Why It Matters For Modern Healthcare

Prescription drug spending in the United States reached $805.9 billion in 2024, a 10.2% jump from the previous year. With specialty medications, GLP-1 drugs, and biologics driving costs skyward, healthcare organizations face mounting pressure to balance clinical quality with financial sustainability.

This is where formulary management becomes indispensable and why forward-thinking organizations are partnering with pharmacy service providers like DosePacker to streamline operations and stay ahead of rising costs.

What Is Formulary Management?

A formulary is a curated list of prescription medications that a health plan, hospital, or pharmacy benefit manager (PBM) has approved for coverage. Think of it as a carefully vetted menu, one that’s continuously updated based on clinical evidence, safety data, and cost-effectiveness.

Formulary management, then, is the ongoing process of developing, maintaining, and optimizing that list. It ensures patients have access to medications that work while preventing unnecessary spending on therapies that offer a slight advantage over cheaper alternatives.

According to the Academy of Managed Care Pharmacy, formularies serve as tools for managing costs, optimizing patient access, and improving overall health outcomes.

The P&T Committee: Where Decisions Get Made

At the heart of formulary management sits the Pharmacy and Therapeutics (P&T) committee. This multidisciplinary group, typically composed of physicians, pharmacists, nurses, and administrators, reviews clinical evidence to determine which drugs make the cut.

The committee evaluates new medications as they hit the market, monitors safety signals from existing drugs, and periodically reassesses the entire formulary to ensure it reflects current best practices. At organizations like the Cleveland Clinic, a unified P&T committee oversees formulary decisions in the whole system, ensuring consistency for clinicians and patients.

The typical drug review process takes three to six months and weighs factors including:

• Clinical efficacy compared to existing options
• Safety profile and adverse event data
• Cost-effectiveness and budget impact
• Alignment with treatment guidelines

Open vs. Closed Formularies: Finding The Right Fit

Not all formularies operate the same way. Open formularies cover a wide range of medications with minimal restrictions, giving providers flexibility but often at higher costs. Closed formularies limit coverage to a specific list of approved drugs, offering tighter cost control but requiring exception processes for non-formulary medications.

Most healthcare organizations land somewhere in between, using tiered formularies that assign medications to different cost-sharing levels. Generic drugs typically sit in the lowest tier (lowest patient copay), while brand-name and specialty medications occupy higher tiers.

This structure incentivizes cost-effective prescribing without eliminating access to necessary treatments.

Utilization Management: The Guardrails

Formulary management doesn’t stop at deciding which drugs to cover. Utilization management strategies add another layer of oversight:

• Prior authorization requires approval before dispensing certain medications
• Step therapy mandates trying lower-cost options before advancing to expensive alternatives
• Quantity limits prevent excessive fills

These controls aren’t about denying care; they’re about ensuring medications are used appropriately and that alternatives have been considered.

Why Technology Changes the Game

Managing a formulary manually is a logistical nightmare. Drug prices shift constantly, new FDA approvals roll in monthly, and patient needs vary widely. Modern healthcare demands smarter tools.

Pharmacy management platforms automate formulary updates, flag potential drug interactions, and streamline prior authorization workflows. For organizations struggling with fragmented processes, solutions like DosePacker’s pharmacy services can centralize operations, reduce administrative burden, and free pharmacists to focus on clinical care rather than paperwork.

The Bottom Line For Healthcare Leaders

Effective formulary management isn’t optional anymore. With drug spending projected to rise another 9-11% in 2025, organizations that fail to optimize their medication management processes will hemorrhage money.

The good news? A well-run formulary system benefits everyone. Patients get access to evidence-based therapies. Providers have clear guidance on preferred treatments. And payers avoid the financial bleeding caused by unnecessary or overpriced prescriptions.

Whether you’re running a hospital pharmacy, managing a PBM, or overseeing benefits for a health plan, investing in formulary management infrastructure pays dividends.

Ready to optimize your pharmacy operations? DosePacker’s pharmacy services help healthcare organizations streamline medication management, reduce administrative overhead, and build formulary systems that actually work.