The Effect of Consumer Driven Health Plans on Pharmaceutical Cost

1
The Effect of Consumer Driven Health Plans on
Pharmaceutical Cost Use Do 3-Tier Plans Have
a Competitor?

• Stephen T Parente
• Jon B ChristiansonRoger Feldman
• July, 2005

2
Questions to be Addressed

• What is the impact of CDHP on total cost?
• What is the impact of CDHP on pharmacy cost?
• Is there a general pharmacy utilization effect?
• Is there a specific pharmacy utilization effect?
• Therapeutic groups
• Brand vs. generic
• Chronic patients
• Is there a CDHP pharmacy consumer price effect?

3
Why Focus on Pharmacy

• Fastest rising cost sector of health economy
• Recent innovations in both CDHP and non-CDHP
  marketplace
• Non-CDHP 3-tier consumer payment
• CDHP Consumer prices vary by employee/patient
  total expenditure level
• CDHP shopping tools are most advanced for
  pharmacy market

4
3-Tier Overview

• Three tiers jointly determined and priced by
  employer/insurer/pharmaceutical benefits
  management firms (PBMs)
• Common in most health plans
• Example of structure (price 500mg of X)
• Tier 1 (20) Generic
• Tier 2 (40) Brand-preferred pricing
• Tier 3 (60) Brand-no preferred pricing

5
Definity Health as CDHP Model

• Personal Care Account (PCA)
• Employer allocates PCA1
• Member directs PCA
• Roll over at year-end
• Apply toward deductible2

• Health Coverage
• Preventive care covered 100
• Annual deductible
• Expenses beyond the PCA

PCA

• Health Tools and Resources
• Care management program
• Internet enables

1 Employer selects which expense apply toward the
Health Coverage annual deductible. 2 Paid out of
employers general assets.
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CDHP Pharmacy Expenditure ModelChucks Story
THREE 7/5/05 After Chuck Jr.s fall and 500 of
Rx and medical care, Rx is now paid with a 10
co-insurance until 1/1/2006.
TWO 4/18/05 Chucks son breaks his leg playing
Bocce Ball. Sons bills total 1,700. Total
expenditure for 2004 are now 2,500. Rx now paid
out of pocket.
PCA 1,500
ONE 1/1/05 to 4/17/05 Chucks Rx 800
expenditures are debited from his familys PCA.
For example, his Clarinex prescription with
price of 85 for a month supply is charged to the
account. His copayment is 0.
Drug prices negotiated used a PBM, but no tiered
prices are in play.
7
Conceptual Model of CDHP versus 3-Tier
Pharmaceutical Budget Demand
A to B Care Account B to C Deductible C to D
Catastrophic insurance
w/no coinsurance
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Study Hypotheses

• Greater price sensitivity in a CDHP than
  3-tier plan
• Incentive to conserve if healthy
• Incentive to seek best price for Rx if
  chronically ill to use all PCA
  cost-effectively
• More proportionate use of generics in the 3-tier
  than the CDHP
• No change in price elasticity for specific drugs
  between CDHP and 3-tier

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Study Setting

• 3-Tier Designs offered by a large employer in
  their Point of Service (POS) and Preferred
  Provider Organization (PPO) in 2000-2003
• Employer and introduced CDHP in 2001
• Variation in cost sharing by contract
• Take-up of CDHP approximately 15
• General caveat Employers experience can be
  quite different due to
• Alternatives offered
• Plan design
• Communications with employees
• Sponsors objectives for the plan

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Presentation of Results

• Results are limited to three groups of employees
  who worked for the firm continuously for four
  years (2000-2003) where
• Employee chose the CDHP in 2001, 2002 and 2003
• Employee chose another health plan in 2001, 2002
  and 2003.
• This limitation removed 70 of all employees
  from the analysis
• We want to see both adoption and maturing impact
  of CDHP while controlling for prior spending
• 2000 Pre-CDHP experience controls for prior
  spending
• 2001 CDHP adoption year
• 2002-3 CDHP maturation years

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Econometric Specification

• Used difference-in-difference approach
• Generate unadjusted (year 2000 means) and
  regression-adjusted comparisons.
• Regression adjustment based on two-part model
• Regressors included age, gender, illness burden,
  number of dependents, FSA election and income.
• Subsequent tests for regression to the mean in
  overall expenditures and use found the problem to
  be present, but not to a degree that would
  influence our results.

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Impact of CDHP on pharmacy cost
NOTE These are results from a restricted
continuously enrolled sample of 27 of the total
employee population and are not a reflection of
the plans expenditures.
13
Is CDHP general pharmacy use different?
NOTE These are results from a restricted
continuously enrolled sample of 27 of the total
employee population and are not a reflection of
the plans full experience.
14
Is CDHP general pharmacy use different?

• CDHP cohort has initial lower probability of
  pharmacy use as well as volume of use compared to
  a POS. The trends turns positive in 2003.
• CDHP cohort has lowest initial pharmaceutical
  expenditure, but increases by 25 in 2003.
• Consumer-driven component might work for pharmacy
  if long term effects dont drive up use of
  unnecessary scripts.

15
Is brand name pharmacy use different for CDHP
enrollees?
NOTE These are results from a restricted
continuously enrolled sample of 27 of the total
employee population and are not a reflection of
the plans full prescription drug experience.
16
Is there a difference in pharmacy use for CDHP
patients with chronic conditions?
NOTE These are results from a restricted
continuously enrolled sample of 27 of the total
employee population and are not a reflection of
the plans full prescription drug experience.
17
The Health Economics Punch line Did the CDHP
Group Act Differently at the BC Kinks?
LHS Any Rx Service, 0 or 1
and YES
YES
NOTE These are results from a restricted
continuously enrolled sample of 27 of the total
employee population and are not a reflection of
the plans full prescription drug experience.
18
Is pharmacy use different by the Top 5
therapeutic drug groups?
NOTE These are results from a restricted
continuously enrolled sample of 27 of the total
employee population and are not a reflection of
the plans full prescription drug experience.
19
Are there more specific differences in CDHP
pharmacy use?

• CDHP population has general and significant trend
  toward higher use across major therapeutic
  classes.
• The CDHP population made the most use of brand
  name drugs by 2002 and 2003.
• The proportion of brand name drugs to all drugs
  increases over time in the CDHP.
• The PPO is associated with decreased use of drugs
  among patients with chronic illnesses, but with a
  general increasing cost trend.

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Summary

• Early evidence suggests overall costs in CDHP are
  less than 3-tier pharmacy plans by the second
  year, but increase thereafter.
• Significant differences exist in pharmacy
  expenditure between PPO and POS.
• CDHP pharmacy expenditures are initially less
  than 3-tier pharmacy plans.
• CDHP probability of use in three of the top 5 Rx
  therapeutic classes is higher than 3-tier plans.
  
• CDHP chronic condition cohort drug use is
  generally higher than 3-tier population.
• Brand name drug use higher in CDHP, but overall
  cost is lower. Suggests 3-tier model may not be
  very effective in comparison if pharmaceutical
  expenditures are less and brand consumption is
  higher.

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Next Steps

• Examine other employers data for comparison.
• Examine employers willing to provide more than
  two years of data to see longer-term CDHP
  effects.
• Get other CDHPs for comparison data (e.g.,
  Lumenos, Aetna, United Healthcares iPlan).
• Examine specific chronic illnesses where drug
  consumption is critical to treatment (e.g.,
  depression, heart disease, epilepsy).