The Impact of a Three-Tier Formulary on Demand Response for Prescription Drugs

A large number of health plans and employers have adopted three-tier prescription drug formularies in an effort to control rising prescription drug costs. We assessed the behavioral response to three-tier adoption by estimating econometric models of the probability of selecting drugs assigned to the third tier with the highest co-payment requirement and changes in expected out-of-pocket (OOP) spending. We concluded that implementation of the three-tier formulary resulted in some shifting of costs from the plan to enrollees and some bargaining power gained for the payer, with plan savings from manufacturer rebates a likely result. (September 2005)