Impact of Drug Benefits on Medical Usage and Pharmaceutical Expenditure

1. How Drug Benefits Affect Pharmaceutical and Medical UseGeoffrey Joyce

2. Rising Expenditures on Prescription Drugs • Drug spending increasing rapidly • New drugs and higher prices • Increased insurance coverage • Aging population • Earlier diagnosis • Increased marketing and advertising • Drug spending about 10% of total expenditures • Higher percentage for non-elderly

3. Health Plans Face Largest Increasesin Pharmaceutical Spending % Annual Increase 1990–98 Private health plans 18% Patients 4% Source: C. Copeland, EBRI Notes (September, 2000)

4. Study Questions • How does benefit design affect Rx use and costs? • Do the effects of higher cost-sharing vary by drug class and patient group? • Do pharmacy benefits affect use of medical services? • What will pharmacy benefits look like over the next 3-5 years?

5. Study Sample • Linked health care claims to health plan benefits of 30 large employers (1997-2000) • 52 health plans • 529,000 primary beneficiaries age 18-64 (960,000 person-years) • Adding data for 2001-2003

6. Analytic Approach • Outcomes • Pharmacy spending and use (days supplied) • Inpatient and ER use • Other factors controlled for • Rx drug benefits • Medical benefits; plan type • Patient demographics • Health status (26 chronic conditions) • Area characteristics and year

7. 1-tier $5 for all drugs 22% $165 2-tier $5 generic, $10 brand 33% $220 3-tier $5 generic, $10 preferred, $15 non-preferred brand 35% $237 Doubling Co-payments Reduces Rx Spending • $ Savings to plan • Typeof plan • % Reductionin total Rx spending • Co-payment •  $10 •  $10/20 •  $10/20/30

8. Adding Tiers Reduces Rx Spending

9. Drugs for Treating Chronic Conditions • Drug class Top drugs in 2000 • Antihistamines Claritin, Allegra, Zyrtec • Antiinflammatories Celebrex, Relafen, Vioxx • Antidiabetics Glucophage, Rezulin, Avandia • Antiasthmatics Singulair, Flovent • Antiulcerants Prilosec, Prevacid, Propulsid • Antihyperlipidemics Zocor, Lipitor, Pravachol • Antihypertensives Norvasc, Vasotec, Cardizem CD • Antidepressants Zoloft, Paxil, Prozac

10. Higher Co-Pays Reduce Use; Effects Differ Across Drug Classes Chronically- ill only All members

11. Disease-Specific Medications Decline Less Therapeutic class

12. Impact on Medical Use For diabetes, asthma and gastric acid disorder… • Doubling co-payments led to a : • 10% increase in hospital days • 17% increase in ER visits • No significant effects for other 5 conditions Preliminary evidence • Limited information on full extent of medical plan choice

13. Effect of Moving Prilosec (omeprazole) to 3rd Tier 1 0.9 Plan A 0.8 0.7 0.6 Proportion 0.5 of GI prescriptions 0.4 Plan B 0.3 0.2 Plan C 0.1 0 1 3 5 7 9 11 13 15 17 19 21 23 Month

14. Assessing the Effects of Spending Caps • The tradeoff: • Lower caps decrease cost of Rx benefit, making drug coverage available to more patients • Exceeding the cap increases risk that patients will reduce medication use • Study sample: • About 1300 Medicare+Choice enrollees in one state • Exceeded annual Rx benefit cap of $750 or $1,200 in 2001 • Had resulting coverage gaps of 75-180 days

15. Exceeding Caps Significantly Affected Medication Use Switched Used less often Used free samples % of beneficiaries using strategy

16. Shifting More Costs to Patients Will Continue… • Survey of health plans and insurers indicate: • Continued growth in 3-tier and 4-tier benefits • Promote generics and generic-only plans • Larger co-pay differences between 1st & 3rd tiers • Tiered coinsurance • Concern over injectibles and biotech agents

17. Summary of Findings • Cost-sharing matters (across plans, patient groups) • Doubling co-payments reduced use by 1/3rd • Largest reductions for drugs that treat symptoms • Smaller reductions in use by chronically ill • But price sensitivity raises health concerns • Spending caps affect adherence and use • 18% exceeding cap took less medication • 15% switched medications