To determine which plan best meets their needs, beneficiaries need to assess how HMOs' use of formularies can affect their drug benefit. Comparing plans can be difficult because the types of formularies HMOs use and the way in which they are managed differ considerably. Plans vary widely in the drugs they cover on their formularies, the copayments they require beneficiaries to make, and the annual limits they set on beneficiaries' coverage. Further, beneficiaries in some plans may not learn about formulary changes until they are at the pharmacy counter. Some plans also make it difficult for physicians to obtain an exception to allow patients to remain on their existing medication at no additional cost if it is dropped from the formulary.
Formularies can be open, incentive-based, or closed.
Incentive-based formularies generally offer beneficiaries lower copayments for preferred formulary or generic drugs. A closed formulary limits coverage to formulary drugs only and requires enrollees to pay the full cost of nonformulary drugs prescribed by their physician. HMOs develop and manage formularies in conjunction with decisions they make concerning the design of their drug benefit. Two of the HMOs examined have open formularies in which beneficiaries pay the same copayment amount for formulary and nonformulary drugs, and the remaining three HMOs use incentive-based formularies that require a higher copayment for nonformulary drugs than for formulary drugs. The HMOs we studied also manage their prescription drug expenditures by using formulary controls, such as generic substitution and variable copayments.