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The Impact of a Three‐Tier Formulary on Demand Response for Prescription Drugs

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  • Haiden A. Huskamp
  • Richard G. Frank
  • Kimberly A. McGuigan
  • Yuting Zhang

Abstract

A large number of health plans and employers have adopted three‐tier prescription drug formularies in an effort to control rising prescription drug costs. We assessed the behavioral response to three‐tier adoption by estimating econometric models of the probability of selecting drugs assigned to the third tier with the highest co‐payment requirement and changes in expected out‐of‐pocket (OOP) spending. We concluded that implementation of the three‐tier formulary resulted in some shifting of costs from the plan to enrollees and some bargaining power gained for the payer, with plan savings from manufacturer rebates a likely result.

Suggested Citation

  • Haiden A. Huskamp & Richard G. Frank & Kimberly A. McGuigan & Yuting Zhang, 2005. "The Impact of a Three‐Tier Formulary on Demand Response for Prescription Drugs," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 14(3), pages 729-753, September.
    • Handle: RePEc:bla:jemstr:v:14:y:2005:i:3:p:729-753
    DOI: 10.1111/j.1530-9134.2005.00080.x
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    Cited by:

    1. Herr, A. & Suppliet, M., 2011. "Co-Payment Exemptions and Reference Prices: an Empirical Study of Pharmaceutical Prices in Germany," Health, Econometrics and Data Group (HEDG) Working Papers 11/18, HEDG, c/o Department of Economics, University of York.
    2. David Ridley & Kirsten Axelsen, 2006. "Impact of Medicaid Preferred Drug Lists on Therapeutic Adherence," PharmacoEconomics, Springer, vol. 24(3), pages 65-78, December.
    3. Allon Zuker & Tsipi Heart & Yisrael Parmet & Nava Pliskin & Joseph S. Pliskin, 2011. "Electronic Notifications about Drug Substitutes Can Change Physician Prescription Habits," Medical Decision Making, , vol. 31(3), pages 395-404, May.
    4. Trudeau, Christian & Wang, Zheng, 2019. "Should the more efficient firm expand? A bargaining perspective," Economics Letters, Elsevier, vol. 180(C), pages 25-27.
    5. Glazer Jacob & Huskamp Haiden A. & McGuire Thomas G., 2012. "A Prescription for Drug Formulary Evaluation: An Application of Price Indexes," Forum for Health Economics & Policy, De Gruyter, vol. 15(2), pages 1-26, March.
    6. Suppliet, Moritz & Herr, Annika, 2016. "Cost-Sharing and Drug Pricing Strategies : Introducing Tiered Co-Payments in Reference Price Markets," Discussion Paper 2016-040, Tilburg University, Center for Economic Research.
    7. Christian Trudeau & Zheng Wang, 2017. "Should the most efficient firm invest in its capacity? A value capture approach," Working Papers 1706, University of Windsor, Department of Economics.
    8. Florian Heiss & Daniel McFadden & Joachim Winter, 2010. "Mind the Gap! Consumer Perceptions and Choices of Medicare Part D Prescription Drug Plans," NBER Chapters, in: Research Findings in the Economics of Aging, pages 413-481, National Bureau of Economic Research, Inc.

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