Impact of Multi-Tiered Copayments on Cost and Use of Prescription Drugsamong the Elderly

Presented at AcademyHealth Annual Research Meeting

Presented by Boyd Gilman, PhDJohn Kautter, PhD

June 28, 2005

411 Waverley Oaks Road, Suite 330 · Waltham, MA 02452-8414Phone: 781-788-8100 x187 · Fax: 781-788-8101, BGilman@rti.org

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Purpose of Study

To evaluate the impact of multi-tiered copayments on cost and use of prescription drugs among the elderly in employer-sponsored health plans

To assess the differential effects for enrollees who are taking drugs primarily for treatment of chronic conditions

To decompose overall impact into a ‘price’ effect (due to higher copay for all drugs) and a ‘substitution’ effect (due to wider differential between copay for similar drugs)

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Policy Motivation

Medicare will start offering a prescription drug benefit (Part D) on January 1, 2006

Part D will be administered through private health plans that are allowed to set their own enrollee cost sharing rules as long as they: Are actuarially equivalent to standard benefit Do not discriminate against beneficiaries by

increasing cost sharing of a drug used for a particular illness

Employers may drop retiree coverage, forcing retirees to purchase Part D

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Copayment Structures

Apply fixed enrollee payment amounts to different types of drugs depending on payee preferences Tier 1 for generic drugs Tier 2 for preferred brand name drugs Tier 3 for non-preferred brand name drugs

Tiered copayments are designed to: encourage generic substitution reduce use of drugs with low therapeutic value limit plan spending

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Use of Tiered Rx Copayments among Retiree Health Plans

According to KFF survey of employer-sponsored retiree health plans: 81% of firms use multi-tiered Rx copays Use of 3-tiered programs grew from 55% in

2003 to 58% in 2004 (2-tiered plans fell) Average Rx copays in 3-tiered plans are:

$10 for generic $20 for preferred brand name $35 for non-preferred brand name

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Current Literature

Studies suggest that tiered copays may lower use of drugs Motheral & Fairman (2001) Joyce, Goldman & Escarce (2002, 2004) Huskamp (2003) Briesacher & Kamal-Bahl (2004)

Study suggests that lower use may be caused by substitution of mail order prescriptions with longer days supply Thomas & Wallack (2003)

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Data

Medstat’s 2002 MarketScan databases: Medicare Supplemental and COB File

Enrollment info for over 1 million enrollees in retiree health plans

Rx claims for enrollees Medical claims for enrollees

Benefit Plan Design File Extracts information on Rx and

medical benefit features

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Important Sample Caveats

Benefit plan information extracted for only 27 health plans

27 health plans drawn from only 10 firms, with almost very little intra-firm variation in drug benefits

Less than ½ enrollees are linkable to benefit plan design file

Several important plan design features are reported as unknown

High degree of correlation between plan design features

Sample based on large, unionized, self-insured firms, and thus not representative of Medicare population

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Classification of Plans by Drug Copayments

Plan Category

No. of Plans

No. of Tiers Generic

BN - Pref.

BN - N/Pref. Generic BN

A 2 1 5 5 5 - -B 4 1 10 10 10 - -C 2 2 5 10 10 - -D 1 2 5 20 20 - -E 1 3 5 15 25 - -F 4 3 5 15 35 - -G 1 3 6 15 25 - -H 4 3 10 15 30 - -I 2 3 10 25 35 - -J 4 Coins. - - - 20 20K 2 Coins. - - - 30 30

Copay Amount ($) Coins. Rate (%)

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Enrollment and Drug Payments by Copayment Tier

No. of % ofTier Enrollees Claimants Total Enrollee % OOP

1 318,512 90.5 $2,531 $276 10.92 496 80.2 $2,473 $298 12.13 69,188 88.9 $2,028 $528 26.0

Mean Drug Payments

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Basic Model

Accessi = + 1 Demographicsi

+ 2 Health Statusi

+ 3 Plan Characteristicsi

+ 4 Medical Benefitsi

+ 5 Drug Benefitsi

+ εi

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Model Outcomes

Access outcomes Number of prescriptions filled –

normalized by 30-days supply to account for potential mail-order substitution

Total drug expenditures – measured as ingredient costs to account for differences in dispensing fees

Other outcomes Enrollee drug payments Percent of prescriptions filled by generic

drugs

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Model Covariates

Demographic Characteristics AgeGenderActively working

Health Status Long-term disabilityHCC Risk score

Plan Characteristics Managed care

Medical Benefits Physician copay

Drug Benefits Tier level(Copay amount)

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Estimation Procedure

Outcomes annualized to adjust for proportion of year enrolled

Generalized linear model weighted by proportion of year enrolled

Standard errors adjusted for within-firm correlation of error terms

Payments estimated over claimants only (roughly 90% of enrollees submitted claim)

Models run separately over claims for drugs used primarily to treat chronic conditions

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Impact of 3-Tiered Copayment Program on Use and Cost of Rx

Number of Rx Filled -7.2 *** -2.9 ***

Total Payments ($) -336 *** -121 ***

Enrollee Payments ($) 185 *** 136 ***

Percent Filled with Generics (%) 4.3 *** 6.0 ***

Results from regression analysis.

Omitted category = 1 & 2 tiered plans.

ConditionEnrollees

Enrollees withChronicAll

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What’s driving these results: copay amounts or copay tiers?

Copayment programs are designed to promote: Efficient use of drugs by raising the price of

all drug equivalents (i.e., increasing copay amounts)

Generic substitution by widening the price differential between drug equivalents (i.e., increasing copay differentials)

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Price and Substitution Effects

‘Price effect’ measures the change in drug use following a change in marginal copays of drug equivalents. Likely to lead to higher total spending and lower

drug use.

‘Substitution effect’ measures the change in drug use following a change in the copay differentials between drug equivalents. Likely to lead to lower total spending with little

change on total use.

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Decomposition Model

Accessi = + 1-4 Other Covariatesi

+ 5 Copay Leveli

+ 6 Copay Differentiali

+ εi

Copay level = lowest plan copay amount

Copay differential = difference between highest and lowest plan copay

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Decomposing the Price & Substitution Effects

Number of Rx Filled -8.8 ** -6.1 ***

Total Payments ($) -1.2 -5.4 ***

Enrollee Payments ($) 154.2 *** 18.5 ***

Percent Filled with Generics (%) -10.9 *** 3.3 ***

Price EffectSubstitution

EffectPercent change associated with:

$5 increase in lowest copay

amount

$5 increase in diff. betw. lowest

and highest copays

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Conclusions

More aggressive enrollee cost sharing is associated with:

Fewer prescriptions filled

Lower total payments and higher enrollee payments

Higher proportion of Rx filled by generics

Smaller reduction in drug use and greater generic substitution among those with chronic conditions

Increasing copay differentials through multi-tiered program associated with:

Greater generic substitution

Smaller reduction in use of drugs

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Policy Implications

More aggressive enrollee cost sharing may promote efficient use of Rx, but may also create barriers to access

Multi-tiered programs may be better than higher marginal copays for achieving efficiency without sacrificing access

Responsiveness to price incentives and, thus, impact on access, may vary depending on type of condition treated

Need to monitor impact of enrollee cost sharing programs on access and health outcomes in Part D plans