Benefits August 16, 2001

Three-Tier Systems Cut Prescription Costs

August 16, 2001 (PLANSPONSOR.com) ? In the face of rising prescription costs, many healthcare organizations are using three-tier systems as a way of containing costs, a new report finds.
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The study, Benefit Design: How It’s Changing Managed Care, shows that about 80% of managed care organizations use a three-tier system, where patients tend to pay the smallest co-pay for generic drugs, a higher co-pay for preferred or formulary brand drugs, and the highest co-pay for brand-name drugs not on the formulary.

The most common three-tier benefit design has dollar co-pays for all three tiers; however, some plans are beginning to use a percentage co-pay for the third tier while a fraction are experimenting with designs with percentage co-pays for all three tiers.

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Cost-Saving

Of the HMO Benefit Design panelists who use the three-tier system 71% said the technique had saved money, compared with 75% of pharmacy benefit management (PBM) firm panelists who reported cost savings with their three-tier benefit.

In addition, HMO executives said that their average saving was 12%, compared with PBM panelists who reported an average saving of 8%.

The same study, by Scott-Levin, found that managed care pharmacy costs will increase by an average of 15% in 2001, according to the HMO pharmacy executives polled.

While executives from pharmacy benefit management firms project a slightly higher increase, 16%. Both groups viewed increased utilization as the main driver of costs.

HMO panelists said pharmaceuticals account for 18% of HMO expenses, with three-quarters of their number saying that drug costs had increased over the past year and the remainder believing that they had stayed constant.

Shifting the Costs

PBM panelists in the study reported that the main techniques used to shift costs are:

  • differential co-pays,
  • percentage co-pays,
  • front-end deductibles,
  • benefit caps, and
  • benefit exclusions.


When asked what other cost-control measures they use, most HMO panelists mentioned quantity limits, followed by prior authorization and step-therapy programs, while PBM panelists said the most common measure for both their HMO and employer group clients was prior authorization.

The report is the first of three in Scott-Levin’s Managed Care Strategic Report Series.

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