Why Pharmaceutical Formularies Exist.
Here in the US, pretty much every health insurance company and even government healthcare, like Medicare, use forumularies to deal with pharmaceutical products. Even in government-run single-payer healthcare systems, formularies are also in place. In each of those formularies, pharmaceuticals are listed in multiple groups.
Formularies are basically lists of medications and other pharmaceutical products. These are divided up into groups:
In one group are commonly-used, generic medications and other more or less inexpensive prescription medications. These are typically old standards that have proven themselves over time and are made available to consumers with zero or very low co-pays.
In a second group are prescription medications with no generic equivalent and some name-brand pharmaceuticals that have generic equivalents but that are still frequently prescribed by doctors who want their patients to have the brand-name drug instead of a generic for a number of very good reasons. The pharmaceuticals in this group have a higher retail price. Co-pays for this group of medications are higher than for the first group, but are still generally moderate and affordable.
In a third group are recently released and very expensive pharmaceuticals. Some are in low volume production and others have limited applications. In many cases, they treat illnesses that can often be treated successfully by lower-cost medications in the first two groups, but not always. Many chemotherapy drugs are in this list, as are newly-developed drugs that act differently than previous drugs in particular cases. Pharmaceuticals in this group are heavily advertised by pharmaceutical companies, both to the public and to the medical community as well. They're also heavily promoted to doctors by pharmaceutical companies. Many are not really better than previously-prescribed drugs for most patients, but both doctors and patients alike often want to try a new medication, one with perhaps fewer or different side effects or for some other reason. Entire classes of new medications often end up in this group, such as the latest medications for immune disorders like rheumatoid arthritis or psoriasis. Despite dangerous side effects, they are often the only medications that produce results for some patients.
Expensive to develop and in high demand for various reasons, the pharmaceuticals in this third group have very high prices per dose. Insurance company formularies often exclude these drugs from coverage, as does Medicare, as a matter of course. Patients must pay the entire cost if they use these products. Other times very high co-pays are required if they are prescribed. Insurance companies and Medicare do that, in part, to attempt to keep their pharmaceutical costs low. There's also another reason. In many cases, these new medications do not work better than older, less expensive ones for most patients. In some ways, putting these costly new medications in this third group is an attempt to control the number of prescriptions for them and to push doctors to prescribe less expensive medications to patients for whom they work just fine. There's always a push from the pharmaceutical companies to maximize their profits by selling as much of a new, high-priced product as possible. Formularies tend to reduce those sales.
In that third group, there is often a way around non-coverage of these medications or very high co-pays. There is a process by which doctors can document the need for these third-group, expensive new pharmaceuticals for particular patients. It's a clumsy process, but those medications can be covered if doctors make their case properly in most cases. The appeals process doesn't always work, and requires a lot of effort on the part of physicians and patients, at times. The burden of proof that that exact medication is essential falls on the patient and healthcare provider. Patients don't know, often, and healthcare providers are often not willing to go through the complex process. It's a very difficult process to get insurance companies and healthcare systems to pay for medications on this list.
There is a fourth group, too. This group is for experimental medications, off-label uses of medications, and other unproven uses. Generally insurance companies and single-payer systems offer no coverage for this group. A very good example is the use of Oxygen to treat cluster headaches. Medicare doesn't cover this, even though it's a relatively low-cost treatment. Their argument is that it hasn't been proven to work in clinical trials, despite a wealth of anecdotal evidence that it does. So, there are currently clinical trials that are ongoing. If they demonstrate that it does work, then Medicare will add that use of oxygen to its coverage. That's a typical situation. Medications and treatments in the fourth group can, eventually, be upgraded to other groups. In the meantime, if you use these, you're probably going to have to pay for them out-of-pocket, and the cost is often prohibitive. In the case of experimental medications, patients may be able to participate in a clinical trial for that medication, although that isn't always possible. Participants in clinical trials do not pay for the medication, but double-blind trials may also mean that you're in the group that doesn't get it.
Every health insurance company, government healthcare system, and government-run single-payer healthcare system has formularies. There really aren't any exceptions to that. They're necessary, because everyone wants the latest whiz-bang medication, and no system can afford to pay for costly medication for everyone. The pharmaceutical companies are responsible, in large part, for the existence of these formularies. They want to sell as much of their latest products as possible, even if an older, cheaper, medication is equally effective. I's capitalism at work. And, in most cases, a less expensive, proven medication which is now an inexpensive generic will work as well as the new medication.
That's why there are formularies. That's also why there is usually a way around those formularies through an appeals process, if you really need the really expensive medications because they're the only ones that work in your particular case. In a perfect world, pharmaceutical companies would operate as non-profits with the goal of providing medications to help sick people, always at affordable pricing. That is not the case, however, so formularies are the means healthcare systems use to try to control costs.
If we want affordable pharmaceuticals, the place to start is with the pharmaceutical companies. They should not be profit-driven. Perhaps they should be government-owned and controlled. That might limit the number of new medications and research into finding medications to meet unusual needs. That might be the trade-off. I don't know. But, as long as pharmaceutical companies can set the prices of new medications at any level they wish, healthcare systems will use formularies to control costs. They have to, or costs would skyrocket, making healthcare far more costly than it already is.
= new reply since forum marked as read
the underlying out-rage.
Those that wish to be informed, will read it; those that wish to be out-raged, will ignore it. 
K&R not too long at all, very readable.
If you read the NIH link I provided, you'll find that the article is largely about concerns over people's misconceptions about why hospital formularies exist.
Abuse of the terminology has probably contributed to, if not caused, the confusion.
But that's ok. I'll clarify it myself elsewhere. I'm not you, so likely won't get the high read counts, but at least some people will see it.
you'll see that I clearly defined what formularies I was discussing.
Without confirming the source of the formularies they are using, you are leaving it open for them to be confused with hospital formularies.
And since your title is re: "pharmaceutical formularies," which are the hospital's pharmaceutical depts., the implication is that insurance companies and medicare use the pharmaceutical formularies, not their own formularies.
Again, it doesn't take a novel. Aasingle word change in the title would make it clear. Since you aren't willing to make a single word change, even though you have devoted now multiple replies to my posts, your intent continues to appear to be to obfuscate and confuse.
... if you want your rec numbers to really POP!
Other than that, great post.
Good job!
There's always high value in your posts, this one particularly.
Happy to R&