Preferred Drug Lists (PDLs)
Overview of Preferred Drug Lists (PDLs)
A Preferred Drugs List (PDL), sometimes called a formulary, is a list of medications covered by a health insurance plan in a way that gives patients easier access to these drugs compared to non-PDL drugs.
The cost of prescription drugs for members usually depends on whether the medication is included on the PDL and its assigned coverage level, known as a tier. A health plan formulary is usually developed in collaboration with healthcare providers and pharmacy benefit managers, to ensure that the list includes medications essential for quality treatment. Requirements to receive the coverage benefit of a PDL drug usually include: the prescription drug must be medically necessary, filled at a network pharmacy, and meet other plan requirements, such as quantity limits. Drugs not on the PDL may not be covered by the plan, thus requiring payment by the patient at full price. A PDL includes both brand-name and generic drugs approved by the FDA, categorized by therapeutic class, making it a valuable resource for understanding prescription coverage and costs.
Drug Tiers and Cost Sharing in PDLs
PDLs usually range from three to four tiers, but plans can have as few as one drug tier or as many as seven. A typical four-tiered formulary may contain the following tier categories:
- Generics
- Preferred brands
- Non-preferred brands
- Specialty drugs
Common sub-categorizations among formularies with a higher number of tiers include preferred vs non-preferred generics, preferred vs non-preferred specialty, vaccines, and insulin. Although there can be larger differences in structure from PDL to PDL, cost (either as a copayment or a coinsurance) will always increase with tier. These formularies are often updated yearly based on patient need as well as newly approved or discontinued drugs. Under certain circumstances mid-year changes may be made to the PDL. Annual updates to the PDL may include changes to a drug’s tier placement, patient cost-sharing type or amount, inclusion on the PDL, and/or overall coverage status.
Utilization Management Strategies in PDLs
Utilization management (UM) is a healthcare cost-control process used by insurance companies, pharmacy benefit managers (PBMs), and other payers to evaluate the necessity, appropriateness, and efficiency of medical services, procedures, and medications. The goal is to ensure that patients receive appropriate care while controlling costs and preventing unnecessary or excessive treatments. Common types of utilization management used on PDLs include:
- Prior Authorization (PA): Approval from a provider is required before prescribing certain medications to ensure they are medically necessary, especially if there is a lower-cost equivalent.
- Step Therapy (ST): Patients must try lower-cost or insurer-identified first-line treatments before approving more expensive options.
- Quantity Limits (QL): Restriction on the amount of medication that can be dispensed within a certain time frame to prevent overuse or to ensure clinical response or adherence.
Medicaid Preferred Drug Lists: State-by-State Variations
Medicaid programs across the United States manage prescription drug coverage through Preferred Drug Lists (PDLs), but the implementation of these lists can vary significantly by state. Some states maintain a single, statewide PDL that applies across fee-for-service (FFS) and managed care organizations (MCOs). For example, Pennsylvania has a Statewide PDL that ensures consistent drug coverage for all Medicaid beneficiaries, regardless of their enrollment in FFS or MCO plans.
In contrast, some states allow individual MCOs to manage their own PDLs, resulting in coverage and utilization management differences within the same state. Other states use hybrid models. Indiana, for example, enforces a Statewide Uniform Preferred Drug List (SUPDL) for select drug classes while permitting MCO flexibility elsewhere.
These differences highlight the need for providers and stakeholders to stay current on state-specific Medicaid PDL policies, as they directly impact patient access to medications.
How PDL Trend Analyses Can Inform Market Access Strategy
Preferred drug lists provide critical insights into market access trends, cost-sharing shifts, and competitive dynamics. Analyzing tier placement, utilization management policies, and coverage changes over time helps stakeholders understand affordability, prescribing patterns, and insurer strategies. Changes in formulary structures can reveal the impact of new competitors, internal and external policy shifts, and cost-management efforts on patient access. By leveraging PDL data, pharmaceutical companies, insurers, and policymakers can assess market trends and optimize pricing strategies.
If you would like to learn more about how Magnolia Market Access can use our open- and closed-claims databases to help clients identify limitations and barriers to patient access and develop strategies to improve PDL positioning, please contact us today!
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