Medicare Part D plans have the flexibility to design drug formularies and structure tiers provided they meet the formulary design requirements of the Centers for Medicare & Medicaid Services (CMS). Since 2017, plans have had the option to include a greater number of generic drugs on the non-preferred tier (Tier 4) if they replace the”non-preferred brand” tier with a “non-preferred drug” tier. Generally, generic drugs placed on higher formulary tiers have higher cost-sharing requirements than those placed on lower formulary tiers.

To assess the results of this policy change, Avalere has conducted an annual analysis of the distribution of generic prescription drugs on tiers in Medicare Part D utilizing the same methodology deployed since 2016. The most recent update of this analysis examines tier placement from 2016 to 2022, finding that Part D plans sponsors are increasingly placing generic drugs on higher tiers over time (Figure 1). The analysis found that a greater proportion of generics are placed on Tier 4 (Non-Preferred) and Tier 5 (Specialty) in 2022 than in prior years. At the same time, the percentage of generic drugs on Tier 1 (Preferred Generic) and Tier 3 (Preferred Brand) has remained relatively stable since 2020.

Overall, the proportion of generic products placed on non-generic tiers (i.e., any tier not designated exclusively for generics) has increased over time (Figure 2). For plan year (PY) 2022, 57% of covered generic products will be placed on non-generic tiers. This is a 21-percentage-point increase from 2016 and a 2-percentage-point increase from 2021. A 2019 Medicare Payment Advisory Commission analysis found that the average cost of prescription generic drugs decreased 13.7% from 2006 to 2018 and decreased an additional 11% from 2018 to 2019.  A decrease in average generic drug cost over time suggests that tier placement for generic drugs is not directly correlated with increases in prices.

Methodology

To conduct this analysis, Avalere used the PY 2022 formulary and benefit design information contained in the Medicare Part D public use file released in October 2021. Using this data source, Avalere assessed the distribution of generic products by aggregating them across 5 different Part D tier categories: preferred generic, generic, preferred brand, non-preferred, and specialty.

For plans that offer a preferred specialty tier in PY 2022, Avalere grouped the non-preferred and preferred specialty tier into the specialty tier categorization. This grouping has a nominal effect given that only 9 plans out of 2,159 Part D plans have a preferred specialty tier for 2022.

Funding for this research was provided by the Association for Accessible Medicines. Avalere Health retained full editorial control.

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