Manipulating drug copays affects health, costs

Studies conducted by the RAND Corporation and Express Scripts show how reducing drug copayments can keep some patients healthier, and increasing copayments leads to reduced drug costs and more use of generics.

The RAND study, published in the January 2006 American Journal of Managed Care, found that reducing copayments for patients taking cholesterol-lowering medication can keep the patients healthier and cut U.S. medical costs by more than $1 billion annually. Express Scripts found that a pharmacy plan benefit design that increases the differential between brand and generic copayments by $10 can expect to achieve a three to four percentage point increase in the generic fill rate, which can translate to a three to four percentage point decrease in drug costs.

RAND’s researchers based their findings on estimates of 6.3 million American adults with private insurance or Medicare coverage who take cholesterol-lowering medication. They said reducing copayments for the sickest patients would avert nearly 80,000 hospitalizations and more than 31,000 emergency room visits each year, to account for the estimated $1 billion savings.

“There are obstacles to these policies, but our research suggests they should receive wider consideration,” said study lead author Dana Goldman, RAND Health director of health economics.

The study was issued as Congress considered allowing states to charge higher copayments to Medicaid beneficiaries. Opponents have said that increasing copayments for Medicaid beneficiaries may discourage them from receiving medical care that could help avoid costly medical complications later.

RAND found that patients who had $10 per month copayments for their cholesterol-lowering medication were 6% to 10% more likely to fully comply with doctors’ orders to take the drug than patients who had $20 per-month copayments. The researchers also found that high-risk patients were less likely to be influenced by higher costs. In looking for a link between patients’ drug compliance and their use of medical services for up to four years after starting cholesterol-lowering therapy, researchers found that patients who took their medication regularly had lower hospitalization rates and emergency department visits, particularly if they had a higher risk profile.

The analysts cautioned there are some potential problems not addressed by their study. Health plans with lower drug copayments for high- and medium-risk patients may attract higher numbers of sick patients, while discouraging healthier patients who may feel they are being penalized by being charged higher copayments, the analysts concluded.

Mr. Goldman said while benefit managers have been adopting policies intended to reduce drug use so as to save money, such plans can adversely affect plan enrollee health and a more promising approach links copayments to therapeutic benefit. The notion is that patients most likely to benefit from a drug or class of drugs, as determined by the best available clinical evidence, would have the lowest copayments, while those for whom the therapeutic benefit is modest, or the evidence is mixed, face higher copayments.

“By linking copayments with individual clinical need, plans can encourage cost-effective care without unpopular utilization controls such as prior authorization,” Mr. Goldman said.

He cautioned the benefit-based copayment plan in the study only looked at patients who already had started therapy. But changing copayments would affect the number of patients starting therapy, either increasing or decreasing the numbers depending on the type of copayment applied.

He also said those planning to consider such an approach need to refine the relevant risk groups. The researchers experimented with many different risk classifications and benefit designs and found that in all cases, a benefit-based copayment could improve aggregate health outcomes without raising health plan pharmacy payments.

Another consideration, according to Mr. Goldman, is that charging more to patients in relatively better health can attract patients in worse health and discourage those in better health, although he said the reality is that such concerns are likely to be modest.

A final consideration is that not all drug classes are amenable to a benefit-based copayment design.

“Clearly, information is needed on how treatment efficacy differs across patients, and these data must be inexpensive to collect,” Mr. Goldman said. “Cholesterol-lowering therapy is a useful prototype because coronary heart disease risk and cholesterol levels are easily monitored and reported at low cost. However, if risk stratification required an expensive genetic test or medical procedure, the cost savings from a benefit-based copayment design might not justify collection of the clinical information, and would alienate patients if it were done solely for the purpose of determining copayments.”

Copay affects generic use

Meanwhile, pharmacy benefit manager Express Scripts’ study indicated that the difference between a plan’s generic copay and branded drug copay is a key driver in increasing use of generic drugs. Express Scripts director of benefit design and modeling Jake Cedergreen said the results are “another example of how benefit design can effectively reduce drug costs by aligning the interests of the member and the plan sponsor around the low-cost prescription alternative.”

When copayments for generic medications are slightly reduced and copayments for brand medications are increased by the same amount, the average plan can typically achieve “member fair share” and an appropriate brand/generic differential, without increasing the overall cost to members,” Mr. Cedergreen said.

He noted that more than $50 billion worth of branded drugs are expected to lose their patent exclusivity over the next five years. In the next year alone, $11 billion in drug sales are expected to lose patent, making generic alternatives available for at least 15 drugs. The largest-selling drug losing exclusivity this year is Zocor, the cholesterol-lowering blockbuster that had more than $3 billion in U.S. sales in 2004.

Mr. Cedergreen said his study found a steady increase in the generic fill rate as the copayment differential increases, and no significant decrease in overall utilization.

“The findings of this study indicate that the larger the copayment differential, the greater the impact on generic fill rate,” he said. “For every $10 incremental difference in generic and preferred-brand copayments, clients may expect an increase in generic fill rate of up to three to four percentage points. This supports the theory that, when designed appropriately, tiered copayment structures can induce members to choose lower-cost options. Also influencing generic fill rate was whether the plan had implemented step therapy. Clients implementing at least one step-therapy program had, on average, a 2.7 percentage point increase in their generic fill rate. Programs such as step therapy that encourage first-line use of equally effective, lower-cost generics before stepping up to higher-cost, branded products have been shown to be one of the most effective tools in pharmacy-trend management. Three-tier plan designs appear to have a greater impact on moving generic fill rate than nontiered coinsurance or two-tier plan designs. These latter two plan designs may not provide a clear indication to members of lower-cost options, and therefore are less effective at encouraging generic use.”