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Pfizer Public Policy: Prescription Drug Formularies

Prescription drug formularies come in many different forms.

In one of the most typical arrangements known as a three-tiered formulary, a patient faces a low co-pay for generic drugs, a higher co-pay for "preferred" drugs (generally brand-name drugs with no generic substitutes), and the highest co-pay amount for "non-preferred drugs" (generally new drugs that may be more expensive than other therapies).

In 2004, nearly 7 of 10 persons had prescription drug coverage with formularies of three-tiers or more, according to a survey of employer health benefits conducted by the Kaiser Family Foundation and Health Research Education Trust.¹

Tiered formulary arrangements are meant to encourage physicians to prescribe and patients to use drugs with lower co-pays, but they may have unintended negative effects on patients' health and lead to an increase in overall health spending.

For example, a May 2004 study published in the Journal of the American Medical Association estimated that when copayments were doubled in patients' health plans, there were significant reductions in use of medicines for important conditions such as diabetes, high cholesterol, and hypertension.²The results of this study are shown in Chart 1. The same study highlighted how for a number of conditions, reductions in medication use were associated with increases in annual emergency department (ED) visits and hospital days.

Higher Co-Payments Reduce Medication Use

¹ Kaiser Family Foundation and Health Research Educational Trust. Employer Health Benefits: 2004 Annual Survey; 2004.

² Goldman D, Joyce GF, Escarce JJ, et al. Pharmacybenefits and the use of drugs by the chronically ill. JAMA. May 19, 2004; 291(19):2344-50.

Last Updated September 2007

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