Pharmaceutical Research

Three-tier formularies increase cost sharing for retirees in generous plans, with little effect on continued drug use

When retirees enrolled in employer-sponsored health plans with relatively generous drug coverage were switched from a two-tier to a three-tier drug formulary, more costs shifted from the plan to the retirees, according to a new study. However, the switch had relatively small effects on whether the retirees continued their medication.

Drug formularies offer the lowest copayments for patients who choose first-tier (generic) drugs, over second-tier drugs (preferred brand-name drugs for which plans generally get discounts or rebates from drug companies) and third-tier drugs (non-preferred brand-name drugs with the highest copayments).

The researchers used 1999-2002 pharmacy claims data to compare retiree drug use and spending in four health plans that switched to a three-tier formulary with two plans that maintained a two-tier formulary during this period. They focused on seven drug classes used to treat common elderly conditions such as cardiovascular disease, arthritis, and depression. The switch from the two- to three-tier formularies resulted in copayment changes such as from $5/$10 to $5/$15/$30 or $15/$20 to $15/$20/$35.

Retirees who were switched to a three-tier plan were more likely to change from a tier three to lower-tier drug than non-switched retirees. For example, 47 percent of tier three statin users in one switched plan changed to a lower-tier drug compared with 27 percent of those who remained in two-tier plans. However, fewer than half of users of tier three drugs changed to a lower-tier drug, thus shifting drug costs from the plan to the patient for almost all drug classes and plans studied. For example, monthly angiotensin converting enzyme (ACE) inhibitor spending by enrollees increased by $1.01 (in Plan D) and by $6.28 (in Plan A), while monthly ACE inhibitor spending by plans decreased by $1.67 (in Plan D) and by $7.72 (in Plan A) compared with two-tier plans.

The study was supported in part by the Agency for Healthcare Research and Quality (HS10803).

See "The effect of three-tier formulary adoption on medication continuation and spending among elderly retirees," by Haiden A. Huskamp, Ph.D., Patricia A. Deverka, M.D., M.S., Mary Beth Landrum, Ph.D., and others, in the October 2007 HSR: Health Services Research 42(5), pp. 1926-1942.

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