Formularies and Higher Co-Pays Reduce Drug Outlays

Multi-tier formularies that set higher co-pays for the most expensive pharmaceuticals reduce beneficiaries' overall spending on prescriptions. According to a study by Rand researchers, published in the October 9 issue of the Journal of the American Medical Association (JAMA), boosting cost sharing for brand-name medicines prompts consumers to switch to generic drugs and over-the-counter products or to stop using a medication altogether.

The analysis of claims data for more than 400,000 beneficiaries determined that plan members with $5 co-pays for all prescriptions spend an average of $725 annually on drugs, while members with $10 co-pays spend only $563 per year. Setting co-pays at $10 for generics and $20 for brand-name products brings member spending down to $455. However, adding a third tier with a $30 co-pay for non-preferred brand medicines lowered overall drug spending by only an additional 4 percent. Mandatory generic substitution had a larger impact, reducing drug spending by 8 percent.

Most of the savings went to health plans and employers-not beneficiaries. Patient advocates consequently claim that higher consumer co-pays force consumers to forego filling needed prescriptions. Researchers say they found no evidence of such an effect but acknowledge the need for further research on how drug benefit designs affect patients and prescription use.