What Is a Hospital Formulary?
A hospital formulary is a living list of medications approved for use inside a healthcare facility. It’s not just a catalog-it’s a decision engine. Every drug on that list has passed through a strict review process led by a Pharmacy and Therapeutics (P&T) committeea multidisciplinary group of pharmacists, physicians, and economists who evaluate drugs for safety, effectiveness, and cost. These committees don’t pick drugs based on brand names or sales pitches. They pick based on evidence: clinical trials, real-world outcomes, and financial impact.
Most U.S. hospitals use what’s called a closed formulary. That means only the approved drugs are routinely stocked and prescribed. If a doctor wants something off-formulary, they usually need to jump through hoops-like filling out prior authorization forms. This system isn’t about restriction for restriction’s sake. It’s about control. Hospitals spend over $650 billion annually on medications in the U.S., and generic drugsmedications with the same active ingredient as brand-name drugs, approved by the FDA as therapeutically equivalent make up 90% of prescriptions but only 26% of the total cost. That’s where the savings come from.
How Generic Drugs Get Approved for the Formulary
Getting a generic drug onto a hospital formulary isn’t as simple as showing an FDA approval letter. The FDA’s Orange Bookofficial FDA publication listing drugs with therapeutic equivalence ratings is the starting point. It tells you if a generic is bioequivalent-meaning it delivers the same amount of active ingredient into the bloodstream at the same rate as the brand. But hospitals go further.
P&T committees look at:
- Clinical efficacy: At least 15-20 peer-reviewed studies per drug class, focusing on outcomes like blood pressure control, infection clearance, or seizure reduction.
- Safety profile: Data from the FDA’s Adverse Event Reporting System (FAERS) to spot patterns of side effects-like higher rates of dizziness or kidney stress with certain generic versions.
- Cost-effectiveness: Not just the price per pill, but the total cost of care. A cheaper generic that causes more readmissions or longer hospital stays isn’t actually cheaper.
- Formulation differences: A generic pill might have different fillers or coatings. These can affect how well a patient swallows it, how fast it absorbs, or whether it causes stomach upset. One study found patients on a certain generic antihypertensive had 17% more complaints of nausea than on the brand-enough to trigger a formulary review.
It’s not just about whether the drug works. It’s about whether it works reliably, safely, and consistently across hundreds of patients.
Who Decides? The P&T Committee in Action
The P&T committee is the gatekeeper. It usually has 12-15 members: pharmacists with board certification (BCPP), physicians from key departments like cardiology or infectious disease, a hospital administrator, and sometimes a healthcare economist. They meet monthly or quarterly to review new drug requests.
Here’s how it works in practice:
- A clinician or pharmacist submits a formulary request with a dossier: clinical data, cost comparisons, and a rationale.
- The committee’s pharmacy staff runs a deep dive: they check the FDA’s Orange Book, scan the literature, and pull real-world data from the hospital’s own electronic records.
- If multiple generics exist for the same drug, they compare them head-to-head. One might be cheaper but have more reported supply issues.
- They vote. Approval requires a majority. If approved, the drug moves to Tier 1-lowest cost to the patient.
Urgent requests-for example, during a drug shortage-can be fast-tracked in 14-21 days. But the average review takes 45-60 days. That’s because they’re not just choosing a drug. They’re choosing a pattern of care.
Why Hospitals Prefer Generics-And When They Don’t
Hospitals push generics because the math is undeniable. Take ACE inhibitorsa class of blood pressure medications, 92% of which are prescribed as generics in hospitals. The brand version might cost $120 for a 30-day supply. The generic? $4. That’s a 97% drop in cost per patient. Multiply that across thousands of patients, and you’re talking millions saved annually.
Johns Hopkins saved $1.2 million in one year just by switching to formulary-preferred generic anticoagulants-with no rise in bleeding events or readmissions. That’s the gold standard.
But there are limits. Generics aren’t always interchangeable. In complex cases-like epilepsy, thyroid disorders, or psychiatric conditions-small differences in absorption can matter. A patient stable on one generic might have a seizure if switched to another, even if both are FDA-approved. That’s why some hospitals keep two or three generic options on formulary, letting pharmacists choose based on patient history.
And then there’s the issue of supply. In 2022, over 268 generic drugs faced shortages in the U.S. When that happens, hospitals have to scramble. Some temporarily remove a generic from formulary if its manufacturer can’t reliably supply it. Others activate backup plans-like switching to another generic in the same class.
The Hidden Costs of Formulary Decisions
Formularies save money-but they also create friction.
Physicians report that 41% of the time, formulary restrictions delay care. A patient with a rare infection might need a non-formulary antibiotic. Getting approval can take days. In emergencies, that’s life or death.
Nurses see the chaos too. When a hospital switches from one generic to another, they have to retrain staff. One nurse on AllNurses.com described a case where a new generic insulin pen looked identical to the old one-but had a different dial mechanism. Two patients got the wrong dose. No one died, but it was close.
And then there’s the influence of drug reps. Even with strict conflict-of-interest policies, pharmaceutical companies still send reps to hospitals. A 2021 JAMA study found that 38% of P&T committee members had received meals, travel, or educational materials from drugmakers in the past year. That doesn’t mean decisions are corrupted-but it does mean vigilance is critical.
What’s Changing in 2026?
The rules are evolving. In 2023, the American Society of Health-System Pharmacists (ASHP) and the American Managed Care Pharmacy (AMCP) updated their formulary guidelines to emphasize two big shifts:
- Total cost of care: No longer just the sticker price. Now hospitals use predictive analytics to model how a drug affects readmission rates, ER visits, and length of stay. A cheaper drug that leads to more hospitalizations? It’s not a bargain.
- Health equity: Are certain patient groups-like low-income or non-English speakers-being left out because the generic they’re assigned is harder to use? Formularies now have to ask: Is this drug truly accessible?
Also, biosimilarsbiologic drugs that are highly similar to an already-approved reference product, but not identical are starting to enter formularies. These are complex, expensive drugs used for cancer, arthritis, and autoimmune diseases. Only 37% of hospitals have formal protocols for evaluating them. That’s changing fast.
And don’t forget the Inflation Reduction Act. By 2025, Medicare Part D will be redesigned to cap insulin costs and eliminate out-of-pocket spending for vaccines. That’s forcing hospitals to align their formularies with Medicare rules-or risk losing reimbursement.
What Works Best in Real Hospitals
The most successful formulary systems don’t just pick drugs. They build trust.
At Mayo Clinic, they created a Therapeutic Alternatives Committeea subgroup that proactively identifies backup drugs before shortages happen. When a generic ran out, they already had a pre-approved substitute ready. Success rate? 98%.
At Massachusetts General Hospital, pharmacists started co-signing prescriptions with doctors for formulary drugs. That simple step cut prior authorization requests by 60%.
The best formularies don’t just control costs. They improve care. When a patient leaves the hospital, they should get a medication they can afford, understand, and take consistently. That’s the real goal.
What’s Next for Formularies?
The future is personalized. Some academic hospitals are now using pharmacogenomicstesting a patient’s genes to predict how they’ll respond to certain drugs to guide formulary choices. If a patient has a gene variant that makes them metabolize a drug too slowly, the formulary might automatically exclude certain generics and favor ones with better safety profiles for that genotype.
By 2028, the Agency for Healthcare Research and Quality predicts all Medicare-certified hospitals will be required to have formal formularies. That’s not a threat-it’s an opportunity. The system works. It saves money. It saves lives. But only if it’s done right.
How do hospital formularies differ from Medicare Part D formularies?
Hospital formularies are closed lists managed by internal P&T committees focused on clinical outcomes and total cost of care. Medicare Part D formularies are designed for outpatient use and rely heavily on patient cost-sharing tiers (like copays) to steer prescribing. Hospitals can substitute generics at the point of dispensing; Medicare plans often require prior authorization or higher patient payments for non-formulary drugs.
Why do some doctors resist generic drugs?
Some doctors have seen patients have adverse reactions or reduced effectiveness after switching to a different generic formulation-even if both are FDA-approved. Others feel formulary restrictions limit their clinical freedom. In specialties like neurology or psychiatry, where small differences in drug absorption matter, trust in a specific brand or generic can be hard to replace.
Are all generic drugs the same?
No. While all generics must meet FDA bioequivalence standards (80-125% of the brand’s absorption rate), they can differ in inactive ingredients, pill shape, coating, or release mechanism. These differences can affect how a patient tolerates the drug-especially those with allergies, digestive issues, or swallowing difficulties. That’s why hospitals often keep multiple generics on formulary and choose based on patient history.
How often are hospital formularies updated?
Most academic hospitals review their formularies quarterly. Community hospitals do it twice a year. Urgent changes-like drug shortages or new safety alerts-are handled immediately. The process is continuous, not annual. A drug can be added or removed at any time if new evidence emerges.
Can patients request a drug not on the formulary?
Yes. If a patient’s doctor believes a non-formulary drug is medically necessary, they can submit a prior authorization request. The P&T committee reviews it based on clinical evidence. Approval isn’t guaranteed, but if the evidence is strong-like a documented allergy to all formulary options-it’s often granted.
Final Thoughts
Hospital formularies aren’t about cutting corners. They’re about cutting waste-without cutting care. The system works because it’s grounded in data, not dollars. It’s not perfect. There are delays, frustrations, and occasional errors. But when done right, it ensures that every patient gets the right drug, at the right price, at the right time. And that’s what matters.