Since the 1980s, health care insurers have established tiered pricing systems, commonly known as formularies, that determine what Americans will pay for their drug prescriptions. The formularies are designed to help patients access less expensive medicines that are just as effective as pricier ones, ideally creating a virtuous pricing cycle that fosters a healthy market with systemic incentives.
In the article “Devil in the Tiers,” Robin C. Feldman of UC Hastings Law presents new evidence from an analysis of Medicare claims from one million patients over six years showing widespread formulary manipulations in today’s system. Instead of working as intended, formulary system abuses conservatively cost patients and the government over $4.2 billion in 2015 alone, a figure that has climbed sharply since 2010.
The average cost per beneficiary of abnormal tier placement grew from $11 in 2010 to $72 in 2015. Across the six years of Feldman’s analysis, from 2010 to 2015, the number of medications placed on inappropriate tiers increased from 43 to 65 percent, and the percentage of generics on the most preferred tier dropped from 73 to 31 percent.
Professor Feldman’s findings will be published in a forthcoming issue of the peer-reviewed Oxford Journal of Law and the Biosciences.
View the article on SSRN here.