Formulary Tier Structures
Formulary tiers are the mechanism through which PBMs and plan sponsors create financial incentives that steer patients toward preferred medications. The number of tiers, the cost-sharing at each level, and the criteria for tier placement collectively determine patient access and plan cost.
Common Tier Configurations
| Tier | Typical Contents | Cost Sharing |
|---|---|---|
| Tier 1 | Preferred generics | $5-$15 copay |
| Tier 2 | Non-preferred generics, preferred brands | $25-$50 copay |
| Tier 3 | Non-preferred brands | $50-$100 copay or 25-30% coinsurance |
| Tier 4 | Specialty drugs | 25-33% coinsurance, often with a maximum |
| Tier 5 | Specialty with requirements | Higher coinsurance + prior authorization |
The design of tier structures directly influences member behavior. Research consistently shows that higher copays reduce utilization. The challenge is distinguishing between appropriate cost sensitivity (choosing a generic over a brand) and harmful cost barriers (skipping necessary medications due to cost).
Coinsurance vs. Copays
Higher tiers increasingly use coinsurance (a percentage of the drug's cost) rather than flat copays. Coinsurance exposes members to the full impact of drug price increases and is particularly consequential for specialty drugs where 25% coinsurance on a $10,000 drug means $2,500 per fill. Many plans implement out-of-pocket maximums to cap member exposure, but these limits may not prevent adherence issues for patients facing high upfront costs.
Tier Placement Decisions
PBM pharmacy and therapeutics committees determine tier placement based on clinical evidence, cost-effectiveness, and manufacturer rebate offers. The influence of rebates on tier placement is a persistent concern. A drug placed on a preferred tier due to a large rebate may not be the lowest-net-cost option for the plan, particularly if the rebate is partially retained by the PBM.