The Effect of Consumer Driven Health Plans on Pharmaceutical Cost & Use: Do 3-Tier Plans Have a...

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

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?

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

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

Definity Health as CDHP Model

Definity Definity HealthHealthCareCare

AdvantageAdvantage

Web- and Web- and Phone-Phone-Based Based ToolsTools

Health ToolsHealth Toolsand Resourcesand Resources

Health Tools and Resources• Care management

program• Internet enables

Health Coverage• Preventive care covered

100%• Annual deductible• Expenses beyond the

PCA

Personal Care Account (PCA)• Employer allocates PCA1

• Member directs PCA• Roll over at year-end • Apply toward deductible2

Annual Annual DeductibleDeductible


Pre

ven

tive

Care

10

0%

Pre

ven

tive

Care

10

0%

Health Health CoverageCoverage

An

nu

al

Ded

uct

ible

1 Employer selects which expense apply toward the Health Coverage annual deductible.2 Paid out of employer’s general assets.

PCAPCAPCAPCA

$$

CDHP Pharmacy Expenditure Model:Chuck’s Story

ONE 1/1/05 to 4/17/05: Chuck’s Rx $800 expenditures are ‘debited’ from his family’s PCA. For example, his Clarinex prescription with price of $85 for a month supply is charged to the account. His copayment is $0.

TWO 4/18/05:Chuck’s son breaks his leg playing Bocce Ball. Son’s bills total $1,700. Total expenditure for 2004 are now $2,500. Rx now paid out of pocket.

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. Annual Annual

DeductibleDeductible$1,500$1,500


$1,500$1,500

Pre

ven

tive

Care

10

0%

Pre

ven

tive

Care

10

0%

Health Health CoverageCoverage

An

nu

al

Ded

uct

ible

PCAPCA

$1,500$1,500

PCAPCA

$1,500$1,500

$3,000

Drug prices negotiated used a PBM, but no tiered prices are in play.

Conceptual Model of CDHP versus 3-Tier Pharmaceutical Budget & Demand

Money

Medical CareSpending

HRA deductible

d

a b

Co-pay Budget

cCDHP Budget

A to B: Care AccountB to C: DeductibleC to D: Catastrophic insurance w/no coinsurance

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

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: Employer’s experience can be quite

different due to: Alternatives offered Plan design Communications with employees Sponsor’s objectives for the plan

Presentation of Results Results are limited to three groups of employees who

worked for the firm continuously for four years (2000-2003) where:

1. Employee chose the CDHP in 2001, 2002 and 20032. 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

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.

2000 Model 2001 2002Health Plan Cohorts Mean Stage Plan Effects Plan Effects Plan Effects

CDHP Cohort N=429Hospital Expenditure 1,332$ Probit -0.109 0.069 -0.050

GLM 60.8% 119.7% 75.5%

Physician Expenditure 1,891$ Probit -0.089 0.311 -0.007

GLM 10.7% 20.2% 25.1%Pharmacy Expenditure 814$ Probit -0.086 -0.061 0.256

GLM -14.7% -5.1% -3.9%

PPO Cohort N=1,025Hospital Expenditure 1,669$ Probit 0.109 0.106 -0.091

GLM 23.8% 24.4% 29.0%

Physician Expenditure 1,958$ Probit -0.105 -0.055 -0.174

GLM 5.9% 10.2% 6.7%Pharmacy Expenditure 1,034$ Probit -0.029 -0.096 0.047

GLM 8.3% 22.7% 9.9%

Notes:

Regressions adjusted by annual trends, health plan choice, health plan choice interactedwith annual trends, age gender, income, number of covered lives in contract, use of an healthcare flexible spending account.

Estimates are based on a two part model.

2003

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.


CDHP Cohort N=429Physician Visits 5.84 Probit -0.565 -0.389 0.167

GLM -15.3% -17.9% 17.3%

Hospital Admission Rate 0.11 Probit 0.410 0.206 0.457

GLM 8.8% -0.2% 6.2%Prescriptions Filled 17.19 Probit -0.114 0.051 0.099

GLM 0.7% -18.5% 18.7%

PPO Cohort N=1,025Physician Visits 5.95 Probit -0.087 0.049 0.047

GLM 0.7% 4.1% -6.2%

Hospital Admission Rate 0.16 Probit 0.068 0.066 -0.023

GLM -8.5% -4.3% -8.2%Prescriptions Filled 21.98 Probit -0.009 -0.009 -0.009

GLM -0.9% -24.9% -0.7%

Notes:

Regressions adjusted by annual trends, health plan choice, health plan choice interactedwith annual trends, age gender, income, number of covered lives in contract, use of an healthcare flexible spending account.Estimates are based on a two part model.

2003

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.

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 don’t drive up use of unnecessary scripts.

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.


CDHP Cohort N=429Brand Name Drug Use 7.45 Probit -0.129 0.249 0.381

GLM 0.141 0.147 0.138

Generic Drug Use 9.65 Probit -0.105 0.276 0.275

GLM -0.063 -0.183 0.170Proportion of Brand 0.34 Probit n/a n/a n/a

GLM 0.013 0.079 0.049

PPO Cohort N=1,025Brand Name Drug Use 10.66 Probit -0.103 -0.199 -0.158

GLM 0.087 -0.035 0.022

Generic Drug Use 11.66 Probit -0.003 -0.158 -0.103

GLM -0.065 -0.299 -0.110Proportion of Brand 0.40 Probit n/a n/a n/a

GLM -0.005 0.026 0.004

Notes:


2003

Is there a difference in pharmacy use for CDHP patients with chronic conditions?


2001 Model 2001 2002 2003Health Plan Cohorts Mean Stage Plan Effects Plan Effects Plan Effects

CDHP Cohort N=429Chronic Medical Rx Use 9.68 Probit -0.037 0.294 0.176 68.00

GLM -0.052 -0.179 0.171Chronic Psych Rx Use 6.90 Probit -0.037 0.294 0.176 88.00

GLM -0.052 -0.179 0.171Non-Chronic Rx Use 7.41 Probit 0.015 -0.063 0.031 108.00

GLM 0.065 0.010 0.222

PPO Cohort N=1,025Chronic Medical Rx Use 14.51 Probit 0.020 0.060 -0.087 71.00

GLM -0.013 -0.274 -0.138

Chronic Psych Rx Use 10.00 Probit -0.066 0.052 -0.023 91.00

GLM -0.032 -0.312 -0.170Non-Chronic Rx Use 7.81 Probit -0.070 -0.121 0.005 111.00

GLM -0.021 -0.237 -0.035

Notes:


The Health Economics Punch line: Did the CDHP Group Act Differently at the BC Kinks?

Variable Probit CoefIntercept 0.813

Year 2001=1, 0=else 0.115Year 2002=1, 0=else 0.119Year 2003=1, 0=else 0.159 Reference=2000

CDHP=1, 0=else -0.534PPO=1, 0=else -0.182 Reference=POS

2000 Case-mix 0.073Employee age 0.002Male=1, 0=else -0.330Employee wages 0.000Family Size 0.251FSA Contribution -0.001Health status shock 0.160Spent within Account -1.015Spent above Deductible 0.325 Reference=Spent within Donut

CDHP within Account 0.465PPO within Account 0.162CDHP above Deductible 0.392PPO above Deductible 0.271


Variable Probit CoefIntercept -0.202 0.0428Year 2001=1, 0=else 0.115 0.0379Year 2002=1, 0=else 0.119 0.0357Year 2003=1, 0=else 0.159 0.0068 Reference=2000CDHP=1, 0=else -0.069 0.2947PPO=1, 0=else -0.021 0.6988 Reference=POS2000 Case-mix 0.073 <.0001Employee age 0.002 0.3185Male=1, 0=else -0.330 <.0001Employee wages 0.000 0.4624Family Size 0.251 <.0001FSA Contribution -0.001 0.9909Health status shock 0.160 0.0019Spent within Donut 1.340 <.0001Spent above Deductible 1.015 <.0001 Reference=Spent within Account

CDHP within Donut -0.074 0.6409

PPO within Donut 0.109 0.3948

CDHP above Deductible -0.465 0.0101

PPO above Deductible -0.162 0.2851

YES…and YES

LHS: Any Rx Service, 0 or 1

Is pharmacy use different by the ‘Top 5’ therapeutic drug groups?


Health Plan Cohorts 2000 Model 2001 2002 2003By Therapeutic Class Mean Stage Plan Effects Plan Effects Plan Effects

CDHP Cohort N=429Central Nervous System 2.71 Probit 0.125 0.371 0.306

Hormones & Syn. Substitutes 2.57 Probit 0.081 0.220 0.201

Cardiovascular Agents 1.27 Probit 0.137 0.305 0.382

Lipitor 1.77 Probit 0.171 0.291 0.168

Anti-infective Agents 0.98 Probit 0.240 0.351 0.335

Antihistimines 0.26 Probit -0.023 0.016 0.186

PPO Cohort N=1025Central Nervous System 3.24 Probit -0.061 0.049 0.054

Hormones & Syn. Substitutes 3.09 Probit -0.093 -0.102 -0.144

Cardiovascular Agents 2.35 Probit 0.026 -0.001 0.019

Lipitor 1.61 Probit 0.081 0.029 -0.029

Anti-infective Agents 1.14 Probit -0.068 -0.097 -0.024

Antihistimines 0.51 Probit 0.014 -0.067 -0.048

Notes:


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.

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.

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 Healthcare’s iPlan).

Examine specific chronic illnesses where drug consumption is critical to treatment (e.g., depression, heart disease, epilepsy).

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