The history of formularies dates back hundreds or even thousands of years in other parts of the world, and to the American Revolution in this country. Formularies began as simple lists of remedies and their formulas. In the United States, they developed along with changes in health care delivery and the science of pharmacology. Primarily used in hospitals, they gradually came to include purified and standardized drugs identified by generic nomenclature. More recently, they have focused on the cost-effectiveness as well as the quality of drugs that are included and controlled. Beginning in the 1950s, professional societies, government programs, and accreditation agencies began to define formularies and to require them in health facilities. The facilities and organizations using formularies evolved with changes in health care financing and delivery to include managed care plans, pharmacy benefit management organizations, all kinds of health care settings, and government programs such as Medicaid, the Department of Defense, and the Veterans Health Administration (VHA). Veterans health facilities have used formularies to control inventory and the cost-effectiveness and quality of drug treatment for veterans for the last 40 or 50 years.

Fundamentally, formularies are lists of drugs that may be more or less inclusive. They can be differentiated by the formulary system, that is, the restrictions, controls, or modifications that are employed in their management to achieve objectives for the pharmacy benefits of a health care system. At the simplest level, formularies may be open—that is, they list many drugs and place few limits on access or coverage; they may be closed, in which case, they list a limited number of drugs and place more limits on access or coverage; or they may be partially closed.

Aside from listing or not listing a drug in the formulary itself, the limits or controls that characterize a formulary and formulary system include generic prescribing, generic substitution, therapeutic interchange, use of step protocols, restrictions by certain specialties or clinical settings or conditions, nonformulary exceptions and prior approval or authorization processes, prescription copayments that vary in amounts and differ for generics and brands covered or not covered in the formulary, specific exclusions of drugs or drug classes, or closure of drug classes and designation of drugs or drug classes as preferred, among others. These are defined and discussed in the body of this report. Limits on prescription size, numbers, dollar values, or frequencies are restrictions or controls parallel to direct formulary management that are also discussed in this report, primarily in Chapter 2. Committees made up of practicing physicians, pharmacists, and some other professionals in a health system (pharmacy and therapeutics [P&T] committees), drug class reviews, and treatment guidelines are also important to decision making and management of formularies and formulary systems.

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