Pharma 101

Balance Billing

Balance billing refers to the pharmacy charging or collecting from a member an amount in excess of the eligible amount or the insured reimbursement rate for a covered service or product provided by their insurance plan.


Medications made from living organisms to treat conditions such as psoriasis and rheumatoid arthritis. Biologic drugs work by targeting the harmful attacks from the immune system that cause symptoms. Biologic drugs include: Amevive, Enbrel, Humira, and Remicade.

Brand drug

A medication sold by a pharmaceutical company under a trademark-protected name. Brand name medications can only be produced and sold by the company that holds the patent for the drug. For that reason brand name drugs are commonly more costly.

Evidence-based formulary

This represents a multi-tiered approach to drug management. Drugs identified as being clinically effective for treatment are placed in the benefit plan in one of three “tiers” with different co-insurance levels. The drugs that will provide the best value for the plan sponsor are placed in the tier that provides plan members with the highest level of reimbursement.


A list of drugs that are covered as benefits. Coverage can be either through a provincial, group (usually employer-sponsored), or individual health plan. Each drug plan determines its own list of covered drugs.

Frozen Formulary

A frozen formulary is a plan that does not automatically allow for the inclusion of new products. The benefit list will remain constant as of a specific date. Any new product introduced after this date will be evaluated on an individual basis for inclusion to the plan.

Generic drug

Generic drugs contain the same active medicinal ingredients as the corresponding brand name, and are therefore considered therapeutic equivalents. However, substances combining the active ingredients may be different. Generic products cost less and can reduce drug plan costs.

Generic substitution

Helps control ingredient costs by limiting coverage of brand name drugs to the lowest-cost equivalent. All claims for drugs with a generic version are cut back to the lowest-cost equivalent.


Grandfathering maintains the same level of coverage for select members and drugs after an amendment to their benefits.

Hospital use drug

Medications that require hospital services in order to administer the drug to the patient. Not funded by most private plans unless administered outside of a government funded facility.

Ingredient cost

Published price associated with the drug itself. It does not include professional costs associated with dispensing the drug or a markup on the drug.

Maintenance Program

Encourages members to purchase a larger quantity of eligible drugs at one time. For example purchasing a 100-day supply versus a 30-day supply.

Managed formulary

A plan with a limited list of eligible drugs. These plans are reviewed periodically and selective changes may occur.

(aka Traditional aka open)

Often referred to as an Open formulary. Normally this covers all drugs prescribed by a doctor.

Off-label use

The practice of prescribing pharmaceuticals for an unapproved indication or in an unapproved age group, unapproved dose or unapproved form of administration. May affect eligibility for coverage for certain drugs under certain plans.

Prior Authorization

Designed to manage the use of certain prescription drugs by requiring pre-approval based on medical criteria. An example would be biologic response modifiers (Enbrel, Humira etc.).

Provincial Integration

An enhanced claims management process to ensure that, where appropriate, eligible plan members have applied to the available government programs for coverage. Directing drug claims to these programs helps manage the increases in the overall drug claims. It also enables plan members and their dependents to maximize their drug coverage.

Single source drug

Drugs containing a unique chemical, strength, dosage form and route of administration, sold by one manufacturer. Once a generic drug comes onto the market, these drugs become referred to as “brand name” drugs.

Step Therapy

An approach to prescription drug management where the member is initially prescribed a lower cost alternative which is effective for most people. If the first line therapy is ineffective, more potent/costly medications will be covered. This is a common process for plans that have prior authorization conditions for drug coverage of expensive drugs.

Trial Program

Encourages the dispensing of a “trial-size” supply when a new drug therapy is prescribed.