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The devil in the tiers.

Robin Feldman1

  • 1Center for Innovation, UC Hastings Law, 200 McAllister Street, San Francisco, CA 94102, USA.

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Summary
This summary is machine-generated.

Prescription drug formulary tiering is distorted, with generics increasingly placed on expensive tiers. This misplacement costs billions and necessitates reform, such as basing tiering on list price.

Keywords:
drugsformularypharmaceuticalspricingregulationtier

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Area of Science:

  • Health Economics
  • Pharmaceutical Policy
  • Public Health

Background:

  • US prescription drug spending is rising due to increased drug prices.
  • Formulary tiering is a key mechanism intended to control drug costs by incentivizing lower-cost options.
  • Current formulary tiering practices appear to be misaligned with their intended purpose.

Purpose of the Study:

  • To analyze trends in formulary tiering of prescription drugs between 2010 and 2017.
  • To quantify the financial impact of distorted formulary tiering.
  • To propose a regulatory reform for drug formulary tiering.

Main Methods:

  • Analysis of Medicare claims data for approximately one million patients from 2010 to 2017.
  • Examination of shifts in generic drug placement across formulary tiers.
  • Calculation of societal costs associated with tier misplacement.

Main Results:

  • A significant decline in generics on the least-expensive tier (73% to 28%).
  • An increase in drugs placed on inappropriate tiers (47% to 74%).
  • An estimated cumulative societal cost of $13.25 billion due to tier misplacement.

Conclusions:

  • Distorted formulary tiering is a significant issue in the US, leading to substantial wasted costs.
  • The current system incentivizes practices that increase patient and government spending.
  • Basing formulary tiering on list price is proposed as a disruptive reform to mitigate perverse incentives and reduce costs.