If(SEARCH(....... statement with dropdown list....

raineb,

Welcome to the forum!
Unfortunately, what you're asking for cannot be done with a formula. It would require VBA (macro).
However, because your formula was making my eyes bleed, here's a cleaned up version:

=IF(SUM(COUNTIF(H3,"*"&{"QB1","QB2","QB3","QB4","CB6","SR7","SR8"}&"*"))>0,"Billing",IF(SUM(COUNTIF(H3,"*"&{"CC1","VP5","PP12","PC8","PC9","RE1"}&"*"))>0,"Payment",IF(SUM(COUNTIF(H3,"*"&{"CB7","IU6","IU7","SI3","VC10"}&"*"))>0,"Insurance",IF(SUM(COUNTIF(H3,"*AT"&{3,4,5}&"*"))>0,"Legal Request",IF(COUNTIF(H3,"*AB2*")>0,"Balance Inquiry",IF(COUNTIF(H3,"*RI1*")>0,"Open To-DO/ff-up",IF(COUNTIF(H3,"*MI1*")>0,"Drop down list","")))))))

Note the formula could be even shorter if you had a reference table with what to look for and what the result should be.
If you are interested in a VBA solution for the drop-down list, let me know

raineb,

Attached is an example workbook based on the criteria described.
It has two worksheets, "Sheet1" and "Lists"

In sheet "Sheet1":
Row 2 is a header row so actual data starts on row 3
Column H is where you can enter the various items shown in the formula (QB1, CB7, VC10, RE1, MI1, etc)
Column I is the result based on what you chose/entered in the corresponding row in column H. Column I is governed by the macro code provided below.

In sheet "Lists":
Row 1 is a header row so actual data starts on row 2
Column A is the list of items that "Sheet1" column H can accept
Column B contains the various results for the entries available for "Sheet1" column H
Column A is defined by a dynamic named range with name "listHeaderH" whose formula is:

=Lists!$A$2:INDEX(Lists!$A:$A,MAX(2,COUNTA(Lists!$A:$A)))

Column D contains the drop down list that will be provided when a user selects "MI1" as the entry in "Sheet1" column H
The first line in the drop down list is "Select Item" so that the user will know that it is a drop-down list
This is further emphasized with conditional formatting on "Sheet1"
The drop-down list is also defined by a dynamic named range with name "listItems" whose formula is:

=Lists!$D$2:INDEX(Lists!$D:$D,MAX(2,COUNTA(Lists!$D:$D)))

(To view the named ranges, go to the Formulas tab and click Name Manager).

Lastly, in the "Sheet1" code module this worksheet_change event code:

Private Sub Worksheet_Change(ByVal Target As Range)
    
    Dim rngChg As Range
    Dim ChgCell As Range
    Dim rngFound As Range
    Dim rngDest As Range
    
    Set rngChg = Intersect(Target, Me.Range("H3:H" & Rows.Count))
    Application.EnableEvents = False
    
    If Not rngChg Is Nothing Then
        For Each ChgCell In rngChg.Cells
            Set rngDest = Me.Cells(ChgCell.Row, "I")
            rngDest.Clear
            If Len(ChgCell.Text) > 0 Then
                Set rngFound = Sheets("Lists").Columns("A").Find(ChgCell.Text, , xlValues, xlWhole)
                If Not rngFound Is Nothing Then
                    Select Case (rngFound.Offset(, 1).Text <> "<DropDown>")
                        Case True:  rngDest.Value = rngFound.Offset(, 1).Value
                        Case Else
                            With rngDest.Validation
                                .Delete
                                .Add xlValidateList, , , "=listItems"
                            End With
                            rngDest.Value = Sheets("Lists").Range("listItems").Cells(1).Text
                    End Select
                End If
            End If
        Next ChgCell
    End If
    
    Application.EnableEvents = True
    
End Sub

To view the code, press Alt+F11 to open the Visual Basic Editor (VBE) and then double click on Sheet1.