PBM formulary decisions are binary in their commercial impact: your drug is on the preferred tier with manageable patient cost-sharing, or it isn’t — and no amount of sales force activity fully compensates for an unfavorable formulary position. Understanding how PBMs actually make and maintain formulary decisions is not optional for brand teams. It’s foundational.
How Formulary Tiers Work
Most commercial formularies are structured in three to four tiers. Tier 1 is typically generic drugs with the lowest patient cost-sharing. Tier 2 is preferred branded drugs. Tier 3 is non-preferred branded drugs — where the patient pays significantly more. Tier 4 and above is specialty, where cost-sharing structures vary widely but are almost always high without manufacturer assistance.
Tier placement drives patient cost-sharing, which drives fill rates, which drives adherence, which drives outcomes — and in value-based contracting environments, outcomes feed back into the next formulary review cycle. The commercial stakes of a tier preference or exclusion are large enough that formulary strategy deserves the same rigor as launch readiness planning.
The Rebate Negotiation Dynamic
PBMs negotiate rebates from manufacturers in exchange for formulary placement. In competitive therapeutic categories, this process resembles an auction: multiple manufacturers bid for preferred status, and the PBM awards tier position based on a combination of rebate level, clinical differentiation, and member access considerations. The winning bid effectively sets the manufacturer’s net price for that book of business.
The leverage dynamic shifts based on category competitiveness. In a market with one approved branded therapy and no near-term competition, the manufacturer holds more leverage. In a crowded space — GLP-1s, PCSK9 inhibitors, IL-17 inhibitors — PBM leverage is near-absolute, and rebate demands can be extraordinary. Teams entering competitive categories need to model formulary economics before setting WAC, not after.
Exclusionary Formularies
Exclusionary formularies — where competing products in the same class are excluded entirely rather than placed at a non-preferred tier — have become the dominant strategy for the largest PBMs. A drug excluded from a formulary covering 40 million lives isn’t just disadvantaged; it’s essentially unavailable to those patients without prior authorization or exception processes that few patients successfully navigate.
The Humira biosimilar launch is the most instructive recent case. Despite significant WAC discounts, multiple biosimilars failed to achieve meaningful formulary access because Humira’s rebate offers to defend its position were, in many cases, more attractive to PBMs than the biosimilar’s lower list price. This inverted logic — where a more expensive drug wins formulary access because of larger rebates — illustrates the disconnect between list price competition and real-world market access.
What Brand Teams Can Actually Do
The realistic options for influencing formulary placement are limited but not zero. Clinical differentiation — a truly distinct efficacy or safety profile — gives market access teams something to negotiate with beyond rebate. HEOR data demonstrating total cost-of-care advantages can shift the conversation from unit price to population economics. Patient services infrastructure — hub programs, copay support, specialty pharmacy partnerships — can partially offset the friction of unfavorable tier placement for patients who have a clinical reason to be on your drug specifically.
The harder truth is that in competitive categories, formulary access is primarily a function of rebate, and rebate is a function of net price economics. Brand teams that accept this early — and build launch pricing and net price models accordingly — outperform those that hope clinical data will substitute for formulary strategy.
For the broader pricing context, see our Drug Pricing & Market Access Hub.
