Cost management tools familiar to many physicians include prior authorizations, therapeutic interchange, quantity limits, and step therapy programs. Of course, the most widely used tool is the incentivized drug formulary, which classifies drugs into tiers with varying patient cost-sharing obligations. Generally, plans traditionally offer patients a multi-tiered structure. In a three-tiered structure, there is a low copayment (eg, $5-$10) for generic drugs; a medium copayment (eg, $20-$30) for “preferred” brand drugs; and the highest copayment (eg, $50 or more) for nonpreferred brand drugs.4

Trends: Cost-Sharing on the Rise

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In recent years, however, plans have been adding another pricing tier, often referred to as “specialty tier”, reserved for “specialty drugs”. This tier is added to formularies to offset rising health care expenses, as it shifts a larger portion of drug costs over to patients. Not too long ago, specialty tiers were mostly designated for expensive drugs with unique manufacturing, storage, or administration needs. Today, the specialty tier is where virtually all Medicare Part D plans are placing oral cancer drugs; Part D rules allow specialty tier placement for any drug that costs more than $600/month. Specialty tiers typically require patients to pay coinsurance. In this payment model, the patient pays a percentage of the entire treatment cost, from 25% to as much as 33% in Part D plans and up to 50% in commercial plans.5  For the innovative oral cancer drugs, it’s easy to see how the out-of-pocket monthly expenses can become a major cost burden to patients. 

Adding to the cost burden, patients are also tasked with understanding the confusing and complex nature of the Medicare Part D program. Physicians should be aware of which drugs will be covered and the scope of that coverage, as wide variations that may affect the amount a patient is responsible for paying are seen across plans. Patient costs can be based on a number of scenarios, including tier placement, payment type (copayment vs. coinsurance), or when an individual falls into the Medicare coverage gap (or donut hole).6 Practically all Part D plans have added a specialty tier and use coinsurance models to control for costs. In fact, based on Part D rules, plans are actually incentivized to create one, as doing so exempts plans from granting a physician’s request for exceptions that would provide patients access to higher-tier drugs at a lower cost. While the commercial market still has a limited use of specialty tiers, they are catching up. According to one source, in 2008, just 8% of all plans offered by employers used a specialty tier. In 2011, one-quarter (25%) of employer plans were using specialty tiers.7  

Policy Considerations: What Can be Done?

The cost burden on cancer patients receiving IV chemotherapy is generally much less than those receiving an oral formulation. This disparity has been brought to the attention of lawmakers across the country.  As a result, IV/oral parity laws have been introduced and even passed in a number of states, requiring coverage of oral oncolytic drugs be “no less favorable’ than IV drugs”.8) However, these state laws do not affect Medicare Part D plans because Medicare is a federally-funded program.

While the addition of specialty tiers is gaining popularity among health insurers, there is a growing coalition of stakeholder opposition to their use—enough so that legislative action to eliminate them has been introduced in a variety of states. In fact, New York passed such a law in 2010, prohibiting specialty tier use among commercial health plans.5) Despite this effort, a majority of patients remain unaffected because federal law that governs the Medicare Part D program preempts state law.