If you have coverage for the drugs prescribed by your doctor, it’s important to get a better grasp of the insurer’s drug formulary and pricing tiers. The position of a prescription drug within the formulary could make a significant difference when it comes to the amount you’ll pay for your medication.
What’s a Drug Formulary?
A drug formulary is a list of prescription drugs (generic and brand name) used by medical practitioners to determine the drugs that offer the best value. A committee of professionals, including nurses, physicians, and pharmacists, is in charge of maintaining the formulary.
A team of experts identifies the safest and most effective drugs with input from clinical professionals. The formulary receives an update whenever new information becomes available. Your insurer (whether Medicare or a private company) oversees the listing and updating procedures.
The formulary consists of generic and brand name prescription drugs along with over-the-counter (OTC) drugs that were originally only available via prescription. Examples of such OTC drugs are Naproxen and Prilosec, which are still included in some formularies.
What Are the Drug Tiers?
Medicare uses a four-tier system, but some insurers may also have an extra tier that pertains to “Preferred Generics.” These are the most commonly prescribed generic drugs, and you may pay just $3 for medication from this tier. However, most formularies (including that of Medicare) have the following tiers:
Tier I – Generic
These are generic drugs, the cheapest medication in the formulary. In some instances, the cheapest brand name drugs may make an appearance in Tier I. Your co-pay will usually be in the $10-$25 range.
Tier II – Preferred Brand
This tier may contain expensive generics and lower priced brand name drugs preferred by your provider because of their low cost. These Preferred Brand drugs are likely to cost you in the $15-$50 co-pay range with most medications falling somewhere between $35-$45.
Tier III – Non-preferred Brand
Tier III drugs are among the most expensive brand name drugs available. Drugs in this tier typically cost in the $25-$75 range but could go as high as $100.
Tier IV – Specialty
This new designation appeared in 2009. Tier IV drugs are normally newly approved drugs and are extremely expensive. Instead of attaching a co-pay to Tier IV drugs, insurers may elect to assign a percentage. Specialty drugs used to treat complex conditions such as MS or cancer will be in Tier IV, and while most plans will make you pay 33 percent of the cost, it can be higher.
Why Tiers Are in Use
The tier listing of a drug depends on the insurer’s negotiated cost; if it costs the insurer a lot, the drug goes into a higher tier. Even drugs in the same class appear in different tiers. For example, the class of drugs used to treat gastro esophageal reflux disease (GERD) is PPIs (protein pump inhibitors). Omeprazole is one of the least expensive PPIs, so it is normally in Tier I of the drug formulary. Nexium and Aciphex are among the most costly PPIs, so they are often found in Tier III.
If your insurer is able to negotiate a good price with the manufacturer for an expensive drug, you may benefit. For example, if your insurer gets a lower price for Aciphex, it will end up in Tier II instead of Tier III. As a result, insurers don’t use the same tier pricing.
It’s common practice for generic versions of older drugs to come into the marketplace. Negotiation for new pricing for these drugs occurs regularly, and it could lead to a certain drug moving to a different tier or facing removal from the formulary entirely. As this happens frequently, the formulary and its tiers can change from month to month. Your plan must inform you in advance if a particular drug faces removal or a move to a new tier.
How Can I Save Money?
You should be able to find your plan’s formulary on the insurer’s website, but if you can’t, simply get in touch with the insurer to get the information you need. Before you enroll in a new Medicare Advantage or Part D plan, check the tiers of the prescription drugs you currently take. This data enables you to calculate your coinsurance and co-payments.
If your physician suggests a drug in a higher tier, you can look for a similar and cheaper drug in a lower tier. Just be sure to discuss the matter with your doctor to make sure the inexpensive alternative is likely to be just as effective.