Which statement best describes step therapy, prior authorization, and formulary in drug benefit management?

• A. Step therapy requires trying cheaper options first; prior authorization requires payer approval; formulary is the covered drug list guiding coverage and cost-sharing.
• B. Formulary is a list of all drugs regardless of cost; step therapy requires trying expensive options first; prior authorization is optional.
• C. Prior authorization guarantees coverage; step therapy is rarely used; formulary creates provider networks.
• D. Step therapy requires expensive options first; formulary is a list of clinicians; prior authorization is only for hospitals.

Answer: (D)

In drug benefit management, three mechanisms shape how medications are accessed and paid for: formulary, step therapy, and prior authorization. A formulary is the plan’s published list of medications that are preferred for coverage, with tiers that influence copayments and which drugs are favored or restricted. Step therapy orders clinicians to try a lower-cost or preferred option first before moving to more expensive or second-line therapies. Prior authorization requires the payer to approve coverage for a medication before it will be covered at the intended level; without this approval, the medication may be denied or limited.

The best description among the statements is that step therapy requires trying cheaper options first; prior authorization requires payer approval; formulary is the covered drug list guiding coverage and cost-sharing. This reflects how formulary structures access and cost, how step therapy steers initial treatment choices toward lower-cost options, and how prior authorization acts as a gatekeeper for certain drugs.

Statements that misstate these concepts—for example, claiming formulary lists all drugs regardless of cost, or that step therapy enforces expensive options first, or that prior authorization is optional or hospital-only—don’t align with how these tools are used to manage costs and ensure appropriate use.