Publication

Article

The American Journal of Managed Care
September 2014
Volume 20
Issue 9

Is All "Skin in the Game" Fair Game? The Problem With "Non-Preferred" Generics

The authors comment on the growth of drug plans with tiers for "non-preferred" generics, and argue that most are inconsistent with established principles of formulary design.

Many patients are now encountering much higher co-pays for generic drugs that have

been designated “non-preferred” by their insurers, including those recommended as

first-line treatment in evidence-based guidelines. For some diseases, in fact, many insurers

have no “preferred” generic medicines, effectively rendering the diseases themselves

“non-preferred.” Designation of clinically important generic medicines as “non-preferred”

without ensuring that patients have access to therapeutically equivalent “preferred”

drugs runs counter to established principles of formulary design, may increase other

healthcare costs, and ultimately may undermine emerging payment reform initiatives.

The new blockbuster drug sofosbuvir (Sovaldi)

is offering hope to many patients with hepatitis

C, but treatment is expensive and many insurers

are demanding that patients shoulder a large portion

of the cost. The demand that patients pay a larger share

of their drug costs, however, is not limited to expensive

new medicines. In fact, many patients are now facing

substantially higher co-pays for various generic drugs

that their insurers have designated “non-preferred,” often

including those recommended as first-line treatment

in evidence-based guidelines for hypertension, diabetes,

epilepsy, schizophrenia, migraine headache, osteoporosis,

Parkinson’s disease, and human immunodeficiency

virus (HIV). We are concerned about this relatively recent

development.

For many years, most insurers had formularies that consisted

of only 3 tiers: Tier 1 was for generic drugs (lowest

co-pay), Tier 2 was for branded drugs that were designated

“preferred” (higher co- pay), and Tier 3 was for “nonpreferred”

branded drugs (highest co-pay). Generic drugs

were automatically placed in Tier 1, thereby ensuring that

patients had access to medically appropriate therapies at

the lowest possible cost. In these 3-tier plans, all generic

drugs were de facto “preferred.” Now, however, a number

of insurers have split their all-generics tier into a bottom

tier consisting of “preferred” generics, and a second

tier consisting of “non-preferred” generics, paralleling the

similar split that one typically finds with branded products.

Co-pays for generic drugs in the “non-preferred” tier are

characteristically much higher than those for drugs in the

first tier.

To better understand coverage policies in plans with 2

tiers for generic drugs, we identified several such offerings,

including both commercial plans and those under the

Medicare Part D program, via an informal search of the

Internet. For 6 such plans, we examined coverage policies

for 10 widely used drugs—all generically available—

that are recommended as first-line treatment in current

evidence-based guidelines (

).

Table

Click to enlarge

While 2 of the plans provide access on a “preferred”

basis to all of the medicines we considered, 1 or more

of the drugs are “non-preferred” in all of the remaining

plans. Metformin, for example, is a “non-preferred” drug

in 1 plan, despite being a first-line treatment for type 2

diabetes mellitus. Two plans have no “preferred” generic

anticonvulsant drugs; 3 plans have no “preferred” generic

antipsychotic medicines; levodopa is designated a

“non-preferred” agent in 3 plans; 4 plans have no “preferred”

generic triptans (for migraine headache); and all

generic antiretrovirals are Tier 2 agents in 4 plans. When

there are no “preferred” generics from which clinicians

and patients with particular diseases can choose, it may

be argued that the diseases themselves effectively are

“non-preferred.”

We think it is apparent that designation of these generic

drugs as “non-preferred” was based on cost considerations

alone; indeed, a number of insurers unabashedly

refer to their second tiers as consisting of “higher-cost

generic drugs.” It also is difficult to imagine what criteria

other than cost could have led to the exclusion of

highly effective and widely used generic drugs from the

“preferred” tier. If cost was indeed the reason for designating

these medications “non-preferred,” it would be

inconsistent with all accepted principles and standards

of formulary design and management, including guidelines

jointly endorsed in 2000 by 7 professional groups,

representing physicians, pharmacists, business, and other

constituencies.1

It is sometimes argued that patients should have “skin

in the game” to motivate them to become more prudent

consumers. One must ask, however, what sort of consumer

all

behavior is encouraged when generic medicines

for particular diseases are “non-preferred” and subject

to higher co-pays. The answer is informed, we believe,

by a 2007

JAMA

study of cost sharing by researchers at

RAND, which was based on a review of 132 published

studies. The authors report that “(i)ncreased cost sharing

is associated with lower rates of drug treatment,

worse adherence among existing users, and more frequent

discontinuation of therapy” and that “for certain

conditions, the evidence clearly indicates that more cost

sharing is associated with increased use of other medical

services, such as hospitalizations and emergency department

visits.”2

We believe this is the most likely scenario when patients

confront substantially higher co-pays for generic

medicines that have been designated “non-preferred”

and there are no therapeutically equivalent “preferred”

drugs from which to choose. Fortunately, such coverage

policies have not been universally adopted. In fact,

recognizing the impact that high co-pays can have on

adherence with therapy, some insurers

now offer drug coverage with

low—or even zero—co-pays for generic

medicines for diseases such as

diabetes, heart failure, high blood

pressure, and high cholesterol, consistent

with the principles of valuebased

insurance design.3

When insurers designate clinically

important generic medicines “nonpreferred”

and there are no therapeutically equivalent

“preferred” alternatives from which to choose, it cannot

be argued that patients are thereby motivated to become

more prudent consumers. The existence of clinically sound

therapeutic choices is a precondition for any meaningful

effort intended to make patients put “skin in the game.”

Without choice, such policies are simply punitive and

run counter to established principles of formulary design

and management. They also may increase utilization and

costs elsewhere in the healthcare system, and ultimately

may undermine emerging payment reform initiatives designed

to reward physicians for attaining disease-specific

performance metrics (eg, A1C, blood pressure).

The policy implications are clear—only when there

are therapeutically equivalent medicines on formulary

that are “preferred” should insurers designate first-line,

guideline-recommended therapies “non-preferred” and

therefore subject to higher co-pays. Not all “skin in the

game” is fair game.

Acknowledgments

We would like to express our sincere appreciation to Arnold Epstein,

MD, MA, and Sean Sullivan, BSc (Pharm), PhD, for their helpful

comments and suggestions on earlier drafts of our paper, and to Lewis

Lipstiz, M.D., Troy Brennan, MD, MPH, David Himmelstein, MD, and

Jerry Avorn, MD, for their guidance and insights at various stages of

our work. We also would like to thank Vinh Pham for his assistance

with our research, and Amanda Silvia and Shayna Camp for their editorial

assistance.

Author Affiliations: Policy Analysis Inc, Brookline, MA (GO); University

of Michigan Center for Value-Based Insurance Design, Ann

Arbor (AMF).

Address correspondence to: Gerry Oster, PhD, Policy Analysis Inc, 4

Davis Ct, Brookline, MA 02445. E-mail: goster@pai2.com.

1. Principles of a Sound Drug Formulary System. Formulary Management—

Endorsed Document. http://www.ashp.org/DocLibrary/Best-

Practices/FormEndPrinciples.aspx. Accessed July 24, 2014.

2. Goldman DP, Joyce GF, Zheng Y. Prescription drug cost sharing: associations

with medication and medical utilization and spending and

health.

JAMA

. 2007;298(1):61-69.

3. Chernew ME, Rosen AB, Fendrick AM. Value-based insurance design.

Health Aff (Millwood).

2007;26(2):w195-w203.

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