OBJECTIVES: While 3-tier pharmacy copayment structure is the most common pharmacy benefit design in 2002, limited published studies examine the value of such benefit design. This study evaluated the impact of changing from a 2-tier to 3-tier pharmacy benefit on drug costs, utilization and generic utilization rates of top 10 therapeutic classes. METHODS: An employer group that has changed from a 2-tier ($5/$10) to 3-tier pharmacy benefit ($5/$15/$25) in 6/2000 and a managed health plan that has similar 2-tier pharmacy benefit and membership base were chosen respectively as the case and control for this study. Pharmacy claims data 12 months pre- and 15 months post 3-tier benefit implementation was evaluated. Top 10 therapeutic classes (TC ranked by total drug ingredient costs spent) of the case were identified at baseline. For each TC, net changes in drug ingredient costs per member per month (PMPM), drug utilization per member per year (PMPY) and generic utilization rates from baseline were calculated and adjusted for inherent TC trends using the control data. RESULTS: During the 15-month follow-up period, reduction in PMPM costs occurred in 9 out of the 10 TC, with an average PMPM reduction of $0.36 per TC. Dramatic reductions in PMPM costs were observed on all TCs within 3 months post-implementation of 3-tier benefit; however, all TCs (except for acne medications) showed increase in PMPM costs toward baseline values during the rest of the study period. Only modest reduction (0.07 PMPY) in prescription utilization was observed. Four TCs demonstrated marked improvement in average generic utilization rates (cephalosporins 8.7%, calcium channel blockers 6.2%, ACE inhibitors 5.0%, acne products 4.1%). CONCLUSIONS: A 3-tier pharmacy benefit can reduce pharmacy expenditures and improve generic utilization rates of common drug classes. Further research to evaluate its impact on medical costs is warranted.