This examination of prescription drug expenditures and the usage of formularies in managing drug utilization is divided into two main sections. First, the prescription drug industry is studied for reasons why drug costs are increasingly so dramatically in recent years. Statistics are given to explain why there should be a concern in our society about this trend, and the therapeutic classes are identified to show where the most money is being spent. The following possible reasons for increasing drug expenditures are discussed: increasing prices, product shift, higher utilization, patents, research costs, decreasing out of pocket expenses, our aging society, and direct-to-consumer advertising.In the second section of this paper, a definition of what constitutes a formulary and the different types of formularies are explained. Incentives used in open formularies such as tiered copays are detailed. Ethical concerns about the usage of formularies are outlined, and the process of selecting drugs for a formulary is explained. Different pricing techniques for cash customers and third-party coverage (usually employer based) are demonstrated. The next part of this section addresses concerns about formulary usage, and different ways to respond to these concerns. At the end of this section, recent developments with Medicaid formularies are discussed.In the final section, a summary of major points is given along with personal commentary and recommendations for the future.