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For the First Time, a Majority of Generic Drugs Are on Non-Generic Tiers in Part D

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According to a new analysis from Avalere, Medicare Part D plans place generic prescription drugs on non-generic tiers 53% of the time in 2020.

Since the creation of Medicare Part D, plans have had flexibility to design drug formularies and structure tiers, as long as they meet CMS’ formulary design requirements. Before 2017, plans were required to (1) correspond tier labels (i.e., brand or generic) to the predominant type of drugs placed on that tier (i.e., the majority of drugs on that tier), and (2) limit cost-sharing for each tier to maximum standards, which correspond to both a coinsurance percentage and a copay dollar amount.

In 2017, however, CMS eliminated the requirement that brand drugs comprise the majority of drugs on the non-preferred tier (Tier 4). Instead, CMS gave plans the option to call the tier “non-preferred drug” or “non-preferred brand.” If plans choose to have a “non-preferred brand” tier, the majority of drugs on it must be branded products. Avalere data shows that by 2020, however, no Part D plans offered a non-preferred brand tier and Part D plans all utilized the “non-preferred drug” tier, suggesting this policy change has impacted where plans place generic drugs within their formularies (Figure 1).

Figure 1. Distribution of Generic Drugs on Part D Formulary Tiers, 2016–2020
Figure 1. Distribution of Generic Drugs on Part D Formulary Tiers, 2016–2020

In addition, the analysis found that plans placed generic drugs on Tier 1 (preferred generic), the lowest tier available, only 10% of the time in 2020. This finding continues a decrease in placement of generic drugs on generic tiers over the previous 4 years. Moreover, plans placed covered generic drugs on the non-preferred tier (Tier 4) 28% of the time in 2020—a 10 percentage point increase since 2016.

At the same time, the proportion of generics placed on a generic tier has decreased, steadily falling from 64% in 2016 to 47% in 2020—a 17 percentage point decline.

When analyzing the results by grouping the 5-tier structure into generic tiers compared to non-generic tiers (i.e., any tier not designated specifically for generics), the data show a 17 percentage point increase in the share of covered generics on non-generic tiers (Figure 2). In 2016, plans covered generic drugs on generic tiers 64% of the time. In 2020, that percentage dropped to 47%. Based on these results, 2020 is the first year since the launch of the Part D program that generics have been placed on non-generic tiers more often than on generic tiers.

Figure 2. Distribution of Generic Drugs on Generic and Non-Generic Tiers, 2016–2020
Figure 2. Distribution of Generic Drugs on Generic and Non-Generic Tiers, 2016–2020

Under the benefit design requirements in Medicare Part D, beneficiaries generally pay more cost-sharing for drugs on higher tiers (i.e., Tiers 3 and 4) than those on lower tiers (i.e., Tiers 1 and 2). Therefore, when generic products are placed on higher tiers, they may have higher cost-sharing and, as a result, their utilization may decrease.

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

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Avalere analyzed CMS PUFs with Medicare Part D formulary and benefit design information for 2016–2020. The study used the brand/generic indicator assigned to drugs in the formulary data. Part D plans name and define their tiers in a variety of ways. For consistency, this analysis aggregated different names into six tier categories: Generic, Preferred Generic, Preferred Brand, Non-Preferred Brand, Non-Preferred Drug, and Specialty. For all years of the analysis, Avalere used actual plan formulary design and tiering information for generic drugs from CMS’ PUFs.

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