Part D Plans Put More Generics On Non-Preferred Tiers

2 min
January 28, 2022

By John Wilkerson

January 27, 2022

Medicare Part D plans are putting an increasing proportion of generics on non-preferred tiers, according to a new analysis by Avalere, but the report does not identify the proportion of brands that plans are preferring over generics, so it’s impossible to determine the extent to which plans are giving favorable formulary placement to brands facing generic competition.

Since 2016, the percentage of generics on preferred and generic formulary tiers has dropped from 65% to 43%, Avalere reports. Beneficiaries pay less for drugs on preferred and generic tiers.

Yet generic drug prices have been dropping quickly for several years. Prices for generics dropped 13.7% from 2006 to 2018, 11% from 2018 to 2019 and 9.3% from 2019 through 2020, according to the Medicare Payment Advisory Commission.

“A decrease in average generic drug cost over time suggests that tier placement for generic drugs is not directly correlated with increases in prices,” the Avalere report states.

However, Avalere looked at tier placement of generics in aggregate and did not compare tier placement of brands to generics of like molecules.

Sean Dickson, director of health policy for West Health, said the report doesn’t say how often brands are preferred over direct generic competitors (generics of the same molecule) so it’s not clear what proportion of generics are in non-generic tiers due to competition from other generics in the same class and not competition from brands.

“The distribution of generics themselves says nothing about whether a brand version of the same molecule is being preferred over a generic,” Dickson said.

In 2017, a Part D policy took effect that makes it easier for insurers to favor brand drugs over generics on formularies. Prior to that, nonpreferred drug tiers had to include more generics than brands. The new policy made it easier for brand drug makers to buy favorable formulary placement with large rebates that make the net cost to plans lower than generics. Insurers and pharmacy benefit managers profit from those rebates, but beneficiaries pay more because brand tiers have higher copays than generic tiers.

Starting this year, Medicare Advantage and Part D plans may establish a second specialty tier with lower beneficiary cost sharing. The addition of a second specialty tier is meant to give plans more leverage in price negotiations with drug makers.

A Republican and a Democrat on the House Energy & Commerce Committee want CMS to create a preferred formulary tier exclusively for generics and biosimilars. The policy, requested by Reps. Annie Kuster (D-NH) and David McKinley (R-WV), mirrors a generic drug industry recommendation.

Kuster and McKinley want CMS to make the new specialty tier off-limits for brand drugs. They also want CMS to set a co-insurance percentage for the preferred specialty tier that is significantly lower than the co-insurance for the non-preferred specialty tier. 


Sean Dickson
Director, Health Policy