Use of Multiple-Tier Plan Designs Continues to Increase

In the not too distant past, most benefit plans had only two copayments: a lower copayment for generic drugs and a higher copayment for brand-name drugs. The intent was to provide patients with financial incentives to use generic drugs and require consumers of higher priced brand drugs to pay a higher copayment. Over time, this cost sharing concept has evolved into a variety of 3-tier copayment models.

According to PBMI's most recent benefit design survey (currently in production), nearly half (42%) of the respondents reported the use of 3-tier copayment models. See Figure 1. Eighty-three percent of these respondents (35% of the 42%) stated that they base the copayment amount on the formulary status of the drug. For example, non-preferred or non-formulary drugs require the highest copayment amount; preferred or formulary drugs require a lower copayment amount; and generic drugs require the lowest copayment. The other most common 3-tier design is related to drug type classification; single source, multiple source brand, or generic.

The formulary manager, in most cases a PBM, determines which drugs are classified as formulary or non-formulary based upon their evaluation of the effectiveness and cost of the drugs.

Recently, some organizations announced 4-tier models and one even discussed implementation of a 5-tier model. Commonly,

4-tier models are based on one of the 3-tier models identified above with the fourth tier consisting of some other classification. For example, life-enhancing drugs, or lifestyle drugs, are often identified as fourth-tier drugs. This fourth tier has a higher copayment amount than the other tiers. In some cases, the copayment is equal to the discounted cost of the drug.

As it relates to assigning life-style and other drugs to a fourth copayment tier, PBMI views these decisions as a use of discretion and/or judgment regarding either the appropriateness of covering these drugs or the value they offer a plan's membership. PBMI believes this is a natural extension of the formulary/nonformulary decision process. The fourth tier designation adds a qualitative aspect to the decision incorporating a number of elements such as corporate benefit philosophy, medical necessity, and health care budgeting, among others. To date, only a small number (approximately, 2%) of employers have placed life-style drugs in a fourth tier, charging either a higher or 100% copayment.

Humana recently announced a 4-tier copayment model that is based primarily on cost, the more expensive the drug, the higher the copayment. To some degree, this model is independent of formulary status, generic/non-generic status, and lifestyle status. In some regard, this model mimics the impact of a percentage cost sharing design.

One PBM has described a cost-sharing benefit that could result in five different copayment levels. This model combines the concepts of providing incentives to plan members to encourage the use of lower cost drugs, in addition to passing judgments on the types of treatments (e.g., lifestyle drugs). For example, copayments for life-sustaining drugs (e.g., antihypertensive agents) would be less expensive than treatments for life-enhancing drugs (e.g., oral contraceptives). Within these two classifications, copayments for preferred drugs would be less than non-preferred drugs.

Because of a variety of internal issues, many plan sponsors may not be able to implement 3 or 4-tier copayment models. However, for those who can, these types of plan designs offer the potential for significant cost savings. Although some of the savings may come in the form of cost shifting, some will come from changes or reductions in utilization.

These models reflect an increased willingness by plan sponsors to use discretion in benefit design. Rather than accepting the utilization that occurs as inevitable, plan sponsors are looking for ways to manage utilization. Examples of areas in which plan sponsors are using judgment to manage utilization include step therapy, therapeutic substitution, and utilization management review.

There are many issues that must be considered when making decisions regarding prescription drug coverage. A variety of financial, business, governmental, legal, ethical, and philosophical issues must be considered. Guidelines used by an employer or its PBM to classify drugs according to tiers is an important issue. Although it is not necessary for a plan sponsor to evaluate all of its PBM's decisions regarding individual drug coverage; it is important to be aware of the options available for patients and the processes required to ensure patient access to the highest quality, lowest cost prescription drug therapy possible.