What Is Prescription Drug Step Therapy?

Have you ever been prescribed a medication only to find out that your insurance company wants to you try a less expensive drug first to see if it works? That's known as step therapy, and it's one of the ways that health plans keep costs down.

The idea is to ensure that patients are using the least expensive—but still effective—medications available, rather than going straight to a higher-cost medication. Step therapy is sometimes referred to as a "fail first" protocol, in that the lower-cost medication has to fail to treat a patient's condition before the insurer will pay for higher-cost drug therapy.

Although step therapy most commonly applies to specialty drugs, a Health Affairs analysis conducted in 2018 found significant variation from one plan to another in terms of how frequently step therapy is applied to coverage determinations.

When step therapy is required, the rules vary in terms of how many steps are required. Sometimes the patient is required to only "fail first" with one lower-cost medication, whereas other coverage decisions require the patient to "fail first" with a series of increasingly expensive medications.

Step therapy can only be used when there are realistic lower-cost alternatives to the medication that the patient has been prescribed, and it's most likely to be used when there are multiple alternatives available.

Goal vs. Reality of Step Therapy

The primary purpose of step therapy is to bring down overall prescription prices by ensuring that patients are using the most cost-effective treatment for their condition. This is certainly a commendable goal.

If a generic medication will work just as well as a high-cost drug being marketed to a physician (or marketed directly to the patient as with TV advertising), our total health care spending is better off if step therapy results in the patient taking the lower-cost drug instead.

As with most things in health care, however, it's not always that simple. Patients with serious, chronic conditions can find themselves caught up in a web of complicated bureaucracy, hoping that their doctor has time to help them sort out the details, and hoping that they'll eventually land on a medication that will work for them—which may well be the drug that their doctor wanted to prescribe in the first place. To call this a frustrating experience would be an understatement.

In some cases, patients face significant delays in obtaining medication that will work well, simply because they have to "fail first" with less-expensive medications in order to meet their insurer's step therapy guidelines, and it can take months to know that the lower-cost options haven't worked.

The process of working through a step therapy regimen also adds administrative complexity to the doctor's work.

Step Therapy and Opioids

Step therapy makes sense from a cost-control perspective. Step therapy could also be an important tool for combating the opioid addiction crisis by requiring doctors to prescribe non-opioid alternatives before moving to opioids as a last resort.

But researchers at Johns Hopkins Bloomberg School of Public Health analyzed a wide range of health insurance plans in 2017 (including Medicaid, Medicare, and commercial plans) and found that very few of them utilized step therapy for opioids.

This may be because step therapy has traditionally been used to curtail prescription costs, so insurers have most likely used it when very high-cost medications are prescribed. By 2018, however, America's Health Insurance Plans (AHIP) was recommending step therapy as a means of averting opioid addiction.

Step Therapy and Mental Health Parity

Mental health parity rules prevent insurers from using more restrictive coverage standards for mental health and substance abuse treatment than they use for medical/surgical treatment.

This includes step therapy rules, which means insurers cannot have stricter step therapy requirements for mental health treatment (including medications) than they have for medical/surgical treatments.

State Actions to Limit Step Therapy

Step therapy is a controversial approach, and at least 33 states have taken action to limit step therapy requirements or implement an exception process that medical providers can use. Massachusetts is the most recent addition to that list, with legislation enacted in November 2022.

No states have banned step therapy altogether, reflecting the consensus that step therapy does serve a useful purpose in some cases.

Most of the state laws that have been implemented with regards to step therapy are designed to either limit the duration of the step therapy process and/or allow doctors to request an exception—with an expedited review process—to an insurer's step therapy rules if the doctor feels that it's in the patient's best interest to receive immediate access to a specific drug.

For patients with chronic, complicated illnesses, avoiding a drawn-out step therapy process can be important for maintaining quality of life and preventing disease progression.

Although many states have taken action (or are considering taking action) to limit step therapy, state laws only apply to state-regulated plans, and that does not include self-insured plans. Nearly all very large employers self-insure, and according to a Kaiser Family Foundation analysis, 65% of all covered workers nationwide were in self-insured plans as of 2022.

Self-insured plans are regulated under federal law (ERISA, the Employee Retirement Income Security Act of 1974) rather than state law, so state rules regarding step therapy do not apply to the plans that cover nearly two-thirds of all Americans who have employer-sponsored health insurance.

ERISA does include a provision requiring health plans to allow members to appeal claim denials and authorization rejections, and the Affordable Care Act requires all non-grandfathered health plans (including self-insured plans) to give members access to both internal and external review processes when a claim or pre-authorization request is denied. However, federal legislation to amend ERISA with a specific exception process for step therapy rules has not been enacted.

Medicare and Prescription Step Therapy

Medicare Part D prescription drug plans can impose step therapy requirements on their covered medications. And in 2018, the federal government announced that starting in 2019, Medicare Advantage plans would be allowed to use step therapy for medications covered under Medicare Part B.

Most drugs prescribed to Medicare beneficiaries are covered under Part D, however, including the Part D coverage that is integrated with the majority of Medicare Advantage plans. But drugs administered in a doctor's office, such as injections and infusions, are covered under Medicare Part B.

(Medicare Advantage plans are required to cover all of the services that are covered under Medicare Part A and B. But Advantage plans can have different out-of-pocket costs and various utilization rules, such as step therapy and prior authorization.)

In rolling out the Medicare Advantage step therapy allowance for Medicare Part B-covered drugs, CMS clarified that Advantage plans would only be allowed to implement step therapy rules for new prescriptions—enrollees already receiving Part B-covered drugs would not be subject to retroactive step therapy (i.e., they wouldn't have to stop taking the drug and switch to a lower-cost version).

Health plans were generally receptive to the idea, while patient advocates worried that it would erect new barriers between the sickest Medicare patients and the medications they need.

Next Steps

Lawmakers at the state and federal levels are working to try to thread this needle, hoping to reach a solution that encourages patients and doctors to utilize the most cost-effective medications (and least harmful, in light of the opioid epidemic).

Simultaneously, they are also trying to avoid situations in which patients have to wait weeks or months to obtain the drugs that their doctors believe will be most likely to help them.

Summary

Step therapy is a process by which some health plans require members to try a lower-cost medication before the plan will approve coverage for a higher-cost medication. The goal is to find the medication that will effectively treat the patient's condition will also keeping costs as low as possible.

But step therapy is also controversial, since it can sometimes be a barrier that prevents patients from receiving the medication they need, and can add complicated administrative work for medical providers.

The majority of the states have taken action to limit step therapy or ensure that patients have access to an expedited review process (note that state rules do not apply to self-insured plans). But no states have banned step therapy altogether, because there is a general consensus that health plans do need to curtail prescription drug costs.

A Word From Verywell

If your health plan denies coverage for a new medication and clarifies that you'll first need to try a lower-cost version, your doctor can help you determine whether this is a viable option. If so, and if the lower-cost drug works, it will likely save you money (as well as saving your health plan money), since your out-of-pocket cost at the pharmacy will likely be lower for a lower-tier drug.

But if your doctor feels that the lower-cost drug won't work or is contraindicated for you, they can work with your health plan to file an appeal. Depending on where you live and the type of health coverage you have, there may be an expedited appeals process available.