Prescription Drug Cost Sharing A Powerful Policy Lever to Use with Care

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drug.However, they also found considerable evidence that increased cost sharing has detrimental eff ects on patient health.

How Does Increased Cost Sharing Affect Overall Drug Spending?
An initial study explored how various drug benefi t designs aff ected overall spending on drugs.Th e analysts found that increasing a patient's co-payment, whatever the benefi t design, signifi cantly reduced annual drug spending (see Figure 1).For example, increasing the co-payment for all drugs from $5 to $10 reduced annual average drug spending from $725 to $563 per member, about 22 percent.Doubling co-payments in plans with two or three tiers reduced average annual spending by about one-third.
Th e cost savings accrued primarily to health plans, not patients.Even though co-payments increased, patients' overall costs remained about the same because patients used fewer prescription drugs.But the share of drug spending borne by patients versus health insurance plans changed dramatically.For example, doubling co-payments in two-tier plans increased the fraction of drug costs that members paid from 18 to 26 percent.

Does Cost Sharing Have Similar Effects on All Types of Drugs?
How sensitive consumers are to increased cost sharing may depend on the kind of drug involved.Th e RAND analysts examined how doubling co-payments aff ected use of the most common therapeutic classes of drugs.Th ey found that doubling co-payments reduced drug use by 25 to 45 percent across eight common drug classes (see Figure 2).
But patient response to cost sharing depended on the type of drug.Th e largest reductions were for drugs such as nonsteroidal antiinfl ammatory drugs (NSAIDs) and antihistamines that have over-the-counter substitutes and treat symptoms rather than the disease itself.Th e patients most sensitive to price changes were those who were taking longterm medications but were not receiving regular care for their conditions.But even patients receiving routine care for a chronic condition cut their drug use by 8 to 23 percent in response to a doubling of co-payments.

Do Across-the-Board Increases in Co-Payments Make Clinical Sense?
Cost sharing does reduce drug use and overall drug spending.But does it make clinical sense to increase cost sharing across all drugs and all patient groups equally?In several analyses, the RAND team examined the link between co-payments and a drug's therapeutic benefi t for a specifi c group of patients.
One study focused on how patient cost sharing aff ected use of cholesterol-lowering drugs, one of the most commonly prescribed classes of medication in the United States, and a drug that has a proven track record for reducing cardiac events and mortality.Th e study found that for every $10 increase in co-payments, average compliance fell by 5 percentage points (see Figure 3); lower compliance resulted in greater use of expensive medical services, such as hospitalizations and emergency departments.Use of these services could be signifi cantly reduced by giving high-risk patients a fi nancial incentive to comply with the recommended drug therapy.For example, reducing the co-payment for these drugs to zero would lower hospitalizations by about 80,000 to 90,000 per year and emergency department visits by 30,000 to 35,000; the reductions would generate estimated aggregate savings of more than $1 billion annually.
A second study assessed how the level of cost sharing aff ects drug use among newly diagnosed chronically ill individuals.Th e team examined data on more than 17,000 retirees with employer-provided drug coverage from 31 diff erent health plans over 1997-2002; they focused on individuals newly diagnosed with hypertension, high cholesterol, and diabetes-common chronic illnesses that, if left untreated, increase the risk for heart attack and stroke.Th e analysts found that, for all three health conditions, doubling co-payments from $5 to $10 caused greater delays in starting treatment (see Figure 4).Patients without prior experience using prescription drugs were the most likely to delay the start of their drug therapy and were much more price-sensitive.
Results from an analysis of specialty drug use also suggest the desirability of a more targeted approach to cost sharing.Th e analysts examined spending in 50 diff erent health plans by privately insured patients who had cancer, kidney disease, rheumatoid arthritis, and multiple sclerosisconditions often treated with specialty drugs, such as injectables and biologic agents.Only a few individuals have these conditions, but the overall cost of these specialty drugs is expected to increase sharply as new drugs with a larger target population enter the market.
Consistent with their earlier work, the RAND team found that the response to cost sharing for drugs depends on the drug.In contrast to overall use reductions of 25 to 45 percent for common drugs, and reductions of 8 to 23 percent for drugs used by chronically ill patients, individuals who use specialty drugs responded to increased cost sharing much less, ranging from about 1 to 21 percent.
Th e researchers concluded that it would make more sense for insurers to manage which patients get specialty drugs, ensuring that only patients who will benefi t from them get access.Increasing co-payments for all patients, regardless of their clinical need, won't do much to reduce use of specialty drugs-it will just transfer more of the cost burden to patients.

Do Benefi t Caps Affect Drug Use?
RAND analyses of the eff ects of co-payments provide clear evidence that patients-even the chronically ill-adjust their drug use in response to cost sharing.But altering the level of co-payment is only one type of cost-sharing arrangement.Another type is a cap on benefi ts, in which the amount of coverage for prescription drugs is capped at a specifi c amount per year.Th e RAND team assessed how benefi t caps aff ected drug use among the chronically ill.For this analysis, the team used data on medical and pharmacy claims from 2003 to 2005 for more than 60,000 retirees, age 65 and older; the retirees had employer-sponsored drug coverage under a number of diff erent plans with diff erent cap levels.
Th e researchers found that patients who reach their benefi t caps are more likely to stop taking their medications.And only a minority of patients who stopped taking their drugs resumed use in the fi rst three months after their coverage returned.Th e adverse eff ects of this disruption in drug therapy are likely to be greater among low-income patients, who have high rates of chronic health problems.tations in its fi rst two years, extending pharmacy coverage to most seniors while reducing their overall spending on drugs.
Coverage under the program is comparable to other, non-Medicare drug plans in terms of access to drugs and out-of-pocket costs.Th e team estimated that, during its fi rst year, Medicare Part D resulted in a 16 percent drop in outof-pocket spending among seniors for prescription medication and a 7 percent increase in the number of prescriptions fi lled.Th e poor and disabled have especially benefi ted from the program.
Despite this success, Medicare Part D has some remaining issues.Total drug expenditures in Part D programs are capped-in 2009, the cap is $2,700.Seniors who reach that point must pay 100 percent of subsequent drug costs until they reach $4,350, when the program's catastrophic coverage kicks in.Th e gap between the expenditure cap and the threshold for catastrophic coverage is known as the "donut hole."About 3 million seniors reached the so-called "donut hole" during 2007.About 20 percent of them stopped taking their medications, skipped doses, or switched to a diff erent medication, a response consistent with the studies summarized above.

How Can Prescription Drug Cost Sharing Be Improved?
Th e research summarized above demonstrates that prescription drug prices are one of the most powerful policy levers available for improving compliance and managing treatment of chronic illness.But historical trends that have increased co-payments in lockstep with rising prices do many patients a disservice, and in some cases they increase overall health care costs.Th e challenge for the health care system is to develop better plan designs that recognize the importance of co-payments to population health.■ -4 -Abstracts of all RAND Health publications and full text of many research documents can be found on the RAND Health Web site at www.rand.org/health.This research highlight was written by Mary Vaiana.The RAND Corporation is a nonprofi t research organization providing objective analysis and effective solutions that address the challenges facing the public and private sectors around the world.RAND's publications do not necessarily refl ect the opinions of its research clients and sponsors.R ® is a registered trademark.

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Figure 3 As Co-Payments Rise, Compliance with Drug Therapy Falls