, Volume 37, Issue 10, pp 1287–1300 | Cite as

Adoption of Cost Effectiveness-Driven Value-Based Formularies in Private Health Insurance from 2010 to 2013

  • Elizabeth D. BrouwerEmail author
  • Anirban Basu
  • Kai Yeung
Original Research Article


Background and Objective

It is unclear whether private insurance benefit designs align with the most widely used ex-US definition of value, the incremental cost-effectiveness ratio (ICER). A large Pacific Northwest private insurance plan explicitly implemented a tiered formulary based on cost-effectiveness estimates of individual drugs in 2010, resulting in cost savings to the plan without negatively affecting patient health service utilization. Given the pressures of rising costs, we investigate whether employer-based private health insurance plans have adopted value-based cost-sharing approaches that are in line with cost-effectiveness estimates.


At the drug level, we identified five drug tier designations (0–4) that are tied to increasing ICER ranges in a large claims dataset from 2010 to 2013. We used a random effects model to evaluate whether out-of-pocket (OOP) cost levels and trends were associated with drug value designation, controlling for generic status and list price, and whether the associations varied by insurance plan type and insurance market concentration, as measured by the Herfindahl-Hirschman Index (HHI). We also estimated the weighted mean cost effectiveness of the drug claims in the sample by year and generic status using the formulary’s cost-effectiveness value ranges.


The 2010 volume weighted mean OOP cost for a 30-day supply of drugs in tiers 0 through 4 were $US6.87, $US22.62, $US62.22, $US57.36, and $US59.85, respectively (2013 US dollars). OOP costs for cost-saving and preventive drugs (tier 0) decreased 5% annually from 2010 to 2013 (p < 0.01); OOP costs for drugs costing under $US10,000/quality-adjusted life-year (QALY) (tier 1) decreased 4.5% annually (p < 0.01) and OOP costs for drugs costing over $US50,000/QALY (tier 3) and $US150,000/QALY (tier 4) decreased by 2.4% and 2.2%, respectively (p < 0.01 and p = 0.046). OOP costs for drugs valued between $US10,000 and $US50,000/QALY did not change significantly (p = 0.31). Average ICER estimates increased for generic drugs and did not change for brand name drugs.


OOP costs for prescription drugs are decreasing across value levels, with OOP costs for higher-value drugs generally decreasing at a faster rate than lower-value drugs. The relationship between cost sharing and value remains tenuous, however, particularly at higher ICER levels, likely reflecting the persistence of traditional formulary structures and increasing use of generic drugs over brand name drugs.


Compliance with Ethical Standards

Conflict of interest

Elizabeth Brouwer, Kai Yeung, and Anirban Basu report no conflicts of interest.


The authors report no income related to this project.

Author contributions

Elizabeth Brouwer was the lead on developing the methods, as well as constructing the dataset from MarketScan® Database, running the analyses, and writing the manuscript. Kai Yeung initially developed the idea, provided the drug-specific value data, consulted on methods, and contributed to editing and writing the manuscript. Anirban Basu helped develop the methods and edit the manuscript.

Data Availability

The data that support the findings of this study are available from the IBM MarketScan® Database but restrictions apply to the availability of these data, which were used under the license for the current study and so are not publicly available. Data are available from the corresponding author upon reasonable request and with permission of Truvan Analytics.

Supplementary material

40273_2019_821_MOESM1_ESM.xlsx (126 kb)
Supplementary material 1 (XLSX 126 kb)


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Copyright information

© Springer Nature Switzerland AG 2019

Authors and Affiliations

  1. 1.University of Washington, Comparative Health Outcomes, Policy, and Economics (CHOICE) InstituteSeattleUSA
  2. 2.Kaiser Permanente Washington Health Research InstituteSeattleUSA

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