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Consumers Face Higher Costs as Health Plans Move to Control Drug Spending
Multi-Tiered Pharmacy Benefit Structure Give Consumers More Choice but at a Higher Cost
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ASHINGTON, D.C.—Insured consumers used to paying $5 or $10 for prescription drugs increasingly may face sticker shock at pharmacy counters as health plans take more aggressive steps to control rapidly rising drug costs, according to a study released today by the Center for Studying Health System Change (HSC).
The most common health-plan strategy to shift prescription costs to consumers and steer them to less expensive drugs is a three-tier pharmacy benefit. Under a three-tier design, consumers typically incur the lowest out-of-pocket costs for generic drugs, higher costs for preferred brand-name drugs and the highest costs for nonpreferred brand drugs. The use of a tiered-benefit structure means consumers often have a broader choice of drugs but must pay more if they choose nonpreferred drugs.
"The rapid adoption of three-tier copayments has allowed health plans to maintain the broad choice of prescription drugs that consumers have come to expect—but at a higher out-of-pocket cost," said Paul. B. Ginsburg, Ph.D., president of HSC, a nonpartisan policy research organization funded solely by The Robert Wood Johnson Foundation.
"The three-tier design gives consumers a financial stake in deciding whether the nonpreferred drug is worth the additional cost rather than the health plan denying coverage altogether," Ginsburg said.
Millions of Americans are currently in the middle of choosing their health coverage for next year as employers across the country hold open enrollment for 2002. Some consumers will face higher out-of-pocket costs for prescription drugs as health plans reconfigure drug coverage to shift more costs to consumers, Ginsburg said.
The move to three-tier pharmacy benefits appears to have helped slow drug-spending growth—at least in the short term—but raises questions about the cost and quality of pharmaceutical care for consumers, according to the HSC study, which was based on interviews with health plan executives in 12 nationally representative communities. The studys findings are detailed in an HSC Issue Brief, Consumers Face Higher Costs as Health Plans Seek to Control Drug Spending.
Since 1990, prescription drug spending has more than doubled, far surpassing the growth rate for other types of health care. At the same time, more generous insurance coverage for prescriptions and direct-to-consumer advertising have fueled large increases in prescription drug use. In 2000, the rate of prescription drug spending growth declined for the first time in seven years but still remained high at 14.5 percent—more than twice the 7.2 percent overall increase in health care spending in 2000.
"Prescription drug spending is one area where health plans are having some limited success in controlling costs, but health plan executives generally dont believe drug use and cost trends will slow much," said lead author Glen Mays, Ph.D., a health researcher at Mathematica Policy Research Inc. and a core member of the HSC site visit research team. "If costs continue to escalate, the end result could be reduced pharmacy benefits that restrict consumer access to appropriate drug therapy—especially for low-income and chronically ill people."
Health plans have tried to control drug costs through a mix of four basic approaches: benefit design, drug selection, utilization management and drug purchasing.
Benefit Design. By far, the most pronounced and widespread change in pharmaceutical management in the last two years has been the adoption of three-tier pharmacy benefits, which shift costs to consumers, while steering patients to less expensive drugs and creating incentives for drug manufacturers to offer deeper discounts in exchange for having their drugs placed on preferred tiers.
So far, most plans using the three-tier design have retained the fixed copayment structure such as the $5-$10-$25 design used in Boston. Plans in some markets, however, have increased consumer cost sharing even more by replacing fixed copayments with coinsurance rates tied to the price of the drug, such as the 10 percent-20 percent-30-percent design common in Orange County, Calif., and Seattle.
Some plans are adding tiers for costly injectable drugs, and others are considering subdividing the generic tier to increase cost sharing for high-use and high-cost generics. Other benefit-design strategies to contain costs include annual caps on drug coverage and new or higher deductibles. Blue Cross of California is considering another approach to increased consumer cost sharing, known as reference pricing. Widely used in Europe, reference pricing establishes a fixed monthly benefit limit for certain drug classes—such as those used to treat diabetes or high blood pressure—based on the cost of a low-priced drug in the class. Consumers must pay the additional cost if they choose drugs priced above the cap.
Drug Selection. Most health plans have avoided or abandoned using closed drug formularies that restrict coverage to a narrow list of drugs, opting instead to use open formularies that cover all prescriptions except a small number of drugs targeted specifically for exclusion. However, some plans now are moving again to limit the number of drugs covered, particularly new drugs deemed not cost effective or medically necessary.
Utilization Management. Most plans are profiling physician prescribing patterns and encouraging high-cost physicians to use more generics and discounted, preferred-brand drugs, and many plans have expanded the number of drugs requiring prior authorization to reduce utilization of high-cost drugs that are frequently misused or offer little therapeutic benefit. Some plans also are stepping up physician education efforts by sending pharmacists to talk with high-cost physicians about using less expensive drugs. A few plans hope to combat the impact of direct-to-consumer advertising through campaigns to inform patients using high-cost drugs about lower-cost alternatives.
Drug Purchasing. The move to tiered-benefit designs has strengthened plans ability to negotiate lower drug prices from manufacturers, wholesalers and pharmacies. Many plans also have sought savings by encouraging consumers to fill prescriptions through mail-order programs offering bulk-purchasing discounts.
"Although plans have succeeded in slowing the rate of drug spending to some degree, health plans see few alternatives to more increases in consumer cost sharing if they are going to preserve consumer choice while holding down employer insurance premiums," Mays said.
HSC research focuses on 60 nationally representative communities across the country and includes household and physician surveys and site visits every two years. During site visits to 12 of these communities, researchers interview key local stakeholders and document changes in the health care market. The 12 communities are Boston; Cleveland; Greenville, S.C.; Indianapolis; Lansing, Mich.; Little Rock, Ark.; Miami; Northern New Jersey; Orange County, Calif.; Phoenix; Seattle; and Syracuse, N.Y.
Karen Ignagni, president, American Association of Health Plans
Gail Shearer, director, health policy analysis, Consumers Union
Helen Darling, president, Washington Business Group on Health