New Formulary Tiering Structure to Drive Future Medicare Trends

Some generic brand drugs will continue to dramatically rise, making management through strategic tier placement crucial for continued success.

The Centers for Medicare and Medicaid Services (CMS) will continue to change the strategies and requirements, continually shaping the Medicare prescription drug benefit, according to Express Scripts in their annual Drug Trend Report.

In 2015, about 2 million new members became eligible for Medicare, with this population expecting to grow over the next decade.

It was reported that 94% of members were satisfied with their Medicare prescription drug benefit, and the Medicare Part D Program saved beneficiaries more than $7 billion on medication.

Here are 3 future trend drivers that were introduced in 2015, according to Express Scripts:

  • New 2017/2018 Star Measures: If the proposed changes to Star Ratings are finalized, it will continue to affect Medicare trend, including Part C measures that focuses on depression and asthma, as well as a Part D measure that addresses the use of antipsychotic medications for elderly patients with dementia.
  • New 2017 Formulary Tiering Structure: Some generic brand drugs will continue to dramatically rise, making management through strategic tier placement crucial for continued success. The recommended introduction of the non-preferred drug tier can help influence trend by allowing plans to place their most expensive generic drugs alongside their non-preferred brand drugs within the same copayment tier.
  • Increased Competition: While Medicare enrollment continues to grow, the competition among plans continues to increase. In 2016, there will be 53 new Medicare plans that will enter the marketplace creating more competition. In order to stay ahead of the competition, many plans are beginning to utilize aggressive benefit designs, preferred pharmacy networks, and closed formularies.

Medicare continues to create new and innovative programs that use the risk (enforcement actions) and reward (quality bonus payments) concept.

Specialty, compounded drugs, and Star Ratings are responsible for driving Medicare trend:

Specialty Drugs

Specialty drug spend increased 27% in 2015, but the increase was smaller than the trend increase in 2014 of 45.9%, which was attributed to new hepatitis C drugs. Medicare will continue to be faced with challenges regarding the management of expensive drug classes, compared with commercial health plans. CMS needs to approve Medicare formulary placement and utilization management, and once approved this can only be implemented at specific times in the plan year.

Additionally, biosimilars that were approved in 2015 are expected to launch in 2016. Although this won’t radically mitigate the increases in specialty trend, discounts of 20% to 30% are anticipated when biosimilar costs are compared with their reference products. This has the potential to save the United States more than $250 billion over the next decade.

Compounded Drugs

The overall Medicare trend increased by 32.7% from 2014. Based on PMPY spend, compounded drugs moved from the 19th therapy class rank to 13. There was an increase in MAPDs compounded drug trend of 5.1% and EGWPs of 78.1%. However, the PDP trend decreased by 35.3% and the overall trend decline was found to have been influenced by the 31.5% drop in utilization among PDPs.

Medicare Star Ratings

Quality Star Ratings play a key role in determining which plans stay in the Medicare marketplace and which ones are given top reimbursements. Currently, Medicare plans have received higher Star Ratings than ever before with an average that increased from 4 stars in 2015 to 4.5 in 2016. At this time, 71% of Medicare enrollment is in 4 star or better plans.

Researchers examined 2015 Medicare trend by plan types MAPD, PDP, and EGWP. The overall impact of the benefit and formulary design drove significant trend differences among the 3 different plans.


A 4.3% decline in unit cost combined with a 1% increase in PMPY utilization contributed to a decrease in traditional spend for MAPDs by 3.2%, and a PMPY spend of $1,479.10. This decrease could be because MAPDs have a higher generic fill rate (87.5%) in comparison to PDP and EGWP.

Components of MAPD trend by brand generic classification showed a significant decrease in unit costs of -11.1% that offset a 2.2% increase in utilization. This resulted in a trend of -9% for generics. The decrease found in generic unit costs is because of formulary tiering and putting high cost generics on a higher tier, allowing for an increase in utilization of lower cost generics. The 10.1% brand trend for MAPD came from the 16.4% increase in unit cost, which outweighed the 6.3% decrease in utilization for brand medications.


A 5.2% increase in unit cost and a 4.6% increase in PMPY utilization drove a 9.8% increase in Medicare traditional drug spend to $2,236.77 for PDP plans. Additionally, PDP plans have a higher specialty spend increase of 36.3% than MAPD and EGWP. Researchers speculate that the benefits associated with PDPS could be driving the higher PMPY spend.

Components of PDP trend by brand generic classification showed a nearly unchanged generic unit cost between 2014 and 2015. However, a 25.9% increase in brand drug unit cost caused a 12.9% overall increase in unit costs for PDPs. PMPY utilization also increased at 4.7%, and was primarily a result of the 6% increase in utilization of generic medications.


This plan consists of plan sponsors that continue to offer benefits to their retirees. EGWPs typically have broader formularies, lower copayments, and fewer member restrictions and in 2015 had the highest PMPY spend of $2,452.31 for traditional drugs compared with the other 2 plans. EGWP plans have a slightly lower increase in utilization for traditional drugs compared with PDP plans, but have a 27.2% increase ($925.94 PMPY spend) for specialty drugs.

Components of EGWP trend by brand generic classification showed a minimal 0.6% change in unit costs for generic drugs, while the cost of brand name drugs increased by 25.8%. The utilization for brand medications decreased by 10.3%, but the utilization was mostly from generics that increased the overall PMPY utilization by 1.5%.