The effect of incentive-based formularies on prescription-drug utilization and spending

N Engl J Med. 2003 Dec 4;349(23):2224-32. doi: 10.1056/NEJMsa030954.


Background: Many employers and health plans have adopted incentive-based formularies in an attempt to control prescription-drug costs.

Methods: We used claims data to compare the utilization of and spending on drugs in two employer-sponsored health plans that implemented changes in formulary administration with those in comparison groups of enrollees covered by the same insurers. One plan simultaneously switched from a one-tier to a three-tier formulary and increased all enrollee copayments for medications. The second switched from a two-tier to a three-tier formulary, changing only the copayments for tier-3 drugs. We examined the utilization of angiotensin-converting-enzyme (ACE) inhibitors, proton-pump inhibitors, and 3-hydroxy-3-methylglutaryl coenzyme A reductase inhibitors (statins).

Results: Enrollees covered by the employer that implemented more dramatic changes experienced slower growth than the comparison group in the probability of the use of a drug and a major shift in spending from the plan to the enrollee. Among the enrollees who were initially taking tier-3 statins, more enrollees in the intervention group than in the comparison group switched to tier-1 or tier-2 medications (49 percent vs. 17 percent, P<0.001) or stopped taking statins entirely (21 percent vs. 11 percent, P=0.04). Patterns were similar for ACE inhibitors and proton-pump inhibitors. The enrollees covered by the employer that implemented more moderate changes were more likely than the comparison enrollees to switch to tier-1 or tier-2 medications but not to stop taking a given class of medications altogether.

Conclusions: Different changes in formulary administration may have dramatically different effects on utilization and spending and may in some instances lead enrollees to discontinue therapy. The associated changes in copayments can substantially alter out-of-pocket spending by enrollees, the continuation of the use of medications, and possibly the quality of care.

Publication types

  • Comparative Study
  • Research Support, Non-U.S. Gov't
  • Research Support, U.S. Gov't, P.H.S.

MeSH terms

  • Angiotensin-Converting Enzyme Inhibitors / economics
  • Cost Sharing*
  • Drug Costs
  • Drug Utilization Review
  • Drugs, Generic / economics
  • Formularies as Topic*
  • Health Benefit Plans, Employee / economics*
  • Health Benefit Plans, Employee / statistics & numerical data
  • Humans
  • Hydroxymethylglutaryl-CoA Reductase Inhibitors / economics
  • Insurance Benefits / economics
  • Insurance, Pharmaceutical Services / economics
  • Insurance, Pharmaceutical Services / statistics & numerical data*
  • Multivariate Analysis
  • Prescription Fees*
  • Proton Pump Inhibitors
  • United States


  • Angiotensin-Converting Enzyme Inhibitors
  • Drugs, Generic
  • Hydroxymethylglutaryl-CoA Reductase Inhibitors
  • Proton Pump Inhibitors