An updated Avalere analysis of Medicare Part D plan tier placement of generic prescription drugs finds that for the third year in a row, fewer than half of all generic drugs are on generic formulary tiers, even as generic prices continue to decline.
In fact, the analysis showed that over time their percentage on generic tiers has declined from 65% in 2016 to 43% in 2022.
The analysis also found that Medicare Part D plans have the flexibility to design drug formularies and structure tiers provided they meet the formulary design requirements of the Centers for Medicare & Medicaid Services. Since 2017, plans have had the option to include a greater number of generic drugs on the non-preferred tier (Tier 4) if they replace the”non-preferred brand” tier with a “non-preferred drug” tier. Generally, generic drugs placed on higher formulary tiers have higher cost-sharing requirements than those placed on lower formulary tiers.
To assess the results of this policy change, Avalere has conducted an annual analysis of the distribution of generic prescription drugs on tiers in Medicare Part D utilizing the same methodology deployed since 2016. The most recent update of this analysis examines tier placement from 2016 to 2022, finding that Part D plans sponsors are increasingly placing generic drugs on higher tiers over time. The analysis found that a greater proportion of generics are placed on Tier 4 (non-Preferred) and Tier 5 (specialty) in 2022 than in prior years. At the same time, the percentage of generic drugs on Tier 1 (preferred generic) and Tier 3 (preferred brand) has remained relatively stable since 2020.
Overall, the proportion of generic products placed on non-generic tiers (i.e., any tier not designated exclusively for generics) has increased over time. For plan year (PY) 2022, 57% of covered generic products will be placed on non-generic tiers. This is a 21 percentage point increase from 2016 and a two percentage point increase from 2021. A 2019 Medicare Payment Advisory Commission analysis found that the average cost of prescription generic drugs decreased 13.7% from 2006 to 2018 and decreased an additional 11% from 2018 to 2019. A decrease in average generic drug cost over time suggests that tier placement for generic drugs is not directly correlated with increases in prices.
To conduct this analysis, Avalere used the PY 2022 formulary and benefit design information contained in the Medicare Part D public use file released in October 2021. Using this data source, Avalere assessed the distribution of generic products by aggregating them across five different Part D tier categories: preferred generic, generic, preferred brand, non-preferred and specialty.
For plans that offer a preferred specialty tier in PY 2022, Avalere grouped the non-preferred and preferred specialty tier into the specialty tier categorization. This grouping has a nominal effect given that only nine plans out of 2,159 Part D plans have a preferred specialty tier for 2022.
“Avalere's recent findings add to the growing body of evidence that Medicare Part D Plans are preventing patients from realizing the full value of low-cost generic drugs,” said Dan Leonard, president and CEO of the Association for Accessible Medicines, which funded this research. “For the third year in a row, fewer than half of all generic drugs are on generic formulary tiers, even as generic prices continue to decline. This forces America’s patients to unnecessarily pay more for their generic drugs. AAM encourages the Administration and Congress to ensure that Medicare beneficiaries receive the full value of low-cost generics.”