Tiered Prescription Drug Plans

• Abstract
• Purpose of health policy or idea
• Characteristics of this policy
• Political and economic background
• Purpose and process analysis
• Expected outcome
• References

Abstract

Between 1995-2006, spending on prescription drugs increased faster than spending on hospital and physician services. To reduce spending and utilization, health plans and employers have placed more responsibility on the consumer for making cost-conscious decisions. Tiered drug plans require consumers to pay different copayments for generic drugs, preferred and non-preferred brand-name drugs. In 2007, 91 percent of workers with employer sponsored insurance were enrolled in tiered drug plans.

Purpose of health policy or idea

Double-digit increases in drug costs have prompted health plans and employers to implement tiered drug plans that provide consumers with a financial incentive to select less expensive drugs and reduce unnecessary utilization. Consumers pay different co-payments or coinsurance to the health plan based primarily on the cost of the drug and the availability of subsitutes. Typically, two and three-tiered drug plans set a lower copayment for generic drugs than preferred or non-preferred brand medications. Four-tiered copayment plans place lifestyle and extremely expensive drugs in a higher tier. 

Tiered drug plans reduce drug spending

Considerable research has shown that tiered drug plans have controlled pharmaceutical spending to a limited extent. Total drug spending is reduced primarily by shifting consumers towards less expensive (either generic or preferred brand name) drugs and reducing the number of prescriptions filled. Health plans receive the largest reduction in spending because consumers assume a larger share through out-of-pocket payments (Landon, 2007; Goldman, 2007; Gibson T, 2005). The total amount of pharmaceutical spending depends on the size of the copayment and the price differential between drug tiers. A less significant source of cost savings results from increased bargaining power with drug manufacturers and price competition among drugs. With the ability to direct a large volume of consumers towards preferred drugs, plans are able to negotiate larger price discounts from manufacturers. Since a larger number of drugs are included in incentive-based formularies compared to closed formularies, there is more competition among drugs for a place in the preferred tier.  

But concern that plans reduce utilization of essential drugs

Despite their success in containing pharmaceutcal spending, a key concern is that these plans may reduce utilization of both essential and non-essential drugs. The evidence for this unintended effect, however, is mixed. Price senstivity of consumers may depend upon therapeutic class - there is a greater reduction in utilization for drugs used to relieve irregular symptoms (e.g., pain relievers) than those needed for regular maintenance of a chronic condition (e.g., diabetes drugs) (Goldman, 2007). However, other studies have found that both medication adherence and the initiation of drug therapy is reduced when consumers with chronic conditions move to a tiered copayments plan (Huskamp, 2003; Nair, 2003; Kamal-Bahl, 2004). Switching to generic or preferred drugs is also a concern since patients with chronic conditions have typically tried a number of drugs before finding the most effective. These effects could be heightened among low income populations who are likely to be more price sensitive than average, and therefore more likely to discontinue or reduce their use of essential drugs. However, studies of the effects of tiered copayments typically use claims data which do not include socio-economic characteristics such as income, wealth, and race. This concern therefore remains understudied (Goldman, 2007).

There is also concern that individuals cannot make informed choices about generic versus brand name drugs and between different types of brand name drugs. Finally, there is concern that underutilization of certain drugs could result in higher outpatient and inpatient spending. 

Main points

Main objectives

To lower prescription drug spending by purchasing less expensive drugs and reducing unnecessary utilization.

Type of incentives

Financial incentives through differential patient cost-sharing for drugs.

Groups affected

Consumers, especially those with chronic conditions, insurers, employers; providers; federal government

Innovationsgrad	traditionell		innovativ
Kontroversität	unumstritten		kontrovers
Strukturelle Wirkung	marginal		fundamental
Medienpräsenz	sehr gering		sehr hoch
Übertragbarkeit	sehr systemabhängig		systemneutral

The trend to increase patient cost-sharing for both drugs and other health services is likely to continue. Providing financial incentives to consumers to make cost-conscious decisions is becoming a common feature in both medical and drug benefits plans.

Political and economic background

Aside from 1993-1994, spending on prescription drugs grew at double-digit rates between 1990 and 2006. Although prescription drugs represent a small share of total national health care expenditures, between 1995 and 2006 it  was the fastest growing component of health spending. Pharmaceutical spending increased most rapidly in 2005 and 2006 with the introduction of the Medicare Prescription drug benefit.

Complies with

Double-digit increases in prescription drug spending heightened the need for cost costainment among health plans and purchasers, who had assumed a susbtantial share of the costs through the expansion of generous prescription drug coverage.

Purpose and process analysis

Current Process Stages

	Idee	Pilotprojekt	Strategiepapier	Gesetzgebung	Umsetzung	Evaluation	Veränderung/Richtungswechsel
Implemented in this survey?

Origins of health policy idea

The most significant contributing factors to increased drug spending during the last 20 years were overall increases in utilization, and the introduction of newer and costlier drugs (KFF, 2007). During the 1980s and early 1990s, health plans and employers substantially expanded prescription drug benefits; coverage was generous with minimal patient cost-sharing (Mays, 2001). Between 1990 and 2000, out-of-pocket spending for prescription drugs by consumers decreased from 56 percent to 28 percent (KFF, 2007 a). Once consumers were shielded from the true costs of drugs, utilization increased significantly. Additionally, a substantial number of new and more costly drugs came to market and became especially popular through direct-to-consumer advertising (Strunk, 2002) . 

Managed care companies had traditionally offset extensive benefit packages with strict administrative and utilization guidelines, but by 1995 growing consumer and provider dissatisfaction led managed care companies to relax these cost containment mechanisms. Facing increasing drug and health costs, health plans and employers increasingly began to shift costs on to consumers as an alternative cost containment tool. Tiered drugs plans provide consumers with a greater choice of drugs, but they pay more for certain types of drugs - especially expensive brand name drugs- in out-of-pocket costs. These plans have since become widespread. In 1998, 36 percent of health plans offered three-tiered drug plans. This increased to 80 percent in 2000 (Mays, 2001). Fifty percent of workers with Employer Sponsored Insurance (ESI) were enrolled in tiered prescription drug plans in 2000. In 2007, 91 percent of workers with ESI were enrolled in a tiered prescription drug plan and75 percent were enrolled in a plan with three or four tiers (KFF, 2007 b).  

Initiators of idea/main actors

• Regierung: Following the private sector, the Medicare Prescription Drug Benefit allows private drug plans to implement cost-containment mechanisms including tiered drug copayments and coinsurance.

• Leistungserbringer: Physicians are generally aware of the specific cost-sharing requirements in each of their patient's plans.

• Kostenträger: Health insurance plans benefit from tiered drug plans since they shift costs away from the insurer to the consumer.

• Patienten, Verbraucher: Incentive-based formularies provide consumers with a greater choice of drugs than closed formularies, however, they assume greater cost sharing in these plans.

• Privatwirtschaft, privater Sektor: Total spending is lower and companies pay the bill for prescription drugs

Approach of idea

The approach of the idea is described as:
new:

Innovation or pilot project

Else - Most health plans offer tiered drug plans. A few large employers are experimenting with value-based insurance designs for chronic conditions.

Stakeholder positions

Health plans and employers have led the implementation of tiered drug plans to control prescription drug spending, and reduce their share of the cost. Consumers are very familiar with these plans; nearly all workers are in tiered drug plans. However, as consumers take on an increasing share of the cost, many especially those with chronic conditions are unable to afford their out-of-pocket payments for prescription drugs. Betweenn 2000 and 2007, the average copayment for preferred drugs increased from $15 to $25 and $29 to $43 for non-preferred brand name drugs (KFF, 2007). 

Critics of tiered drug plans argue that these plans create financial barriers for consumers, reducing the use of essential drugs. Recent proposals such as Value-Based Insurance Design propose linking patient cost-sharing to the clinical value of drugs and services. Under this strategy, copayments for high value drugs such as those for diabetes or high blood pressure would be reduced, whereas copayments for drugs with limited benefit would be raised (Chernew, 2007). Physicians will have to weigh patient cost-sharing in tiered drug plans in addition to clinical effectiveness when prescribing drugs.

Actors and positions

Regierung
Federal government	sehr unterstützend		stark dagegen
Leistungserbringer
Physicians	sehr unterstützend		stark dagegen
Kostenträger
Health plan	sehr unterstützend		stark dagegen
Patienten, Verbraucher
Consumers	sehr unterstützend		stark dagegen
Privatwirtschaft, privater Sektor
Employers	sehr unterstützend		stark dagegen

Influences in policy making and legislation

The 2003 Medicare Modernization Act established a drug benefit for Medicare beneficiaries, administered either through stand-alone private drug plans, or a Medicare Advantage plan which covers all benefits including drugs. Following the private sector, the Centers for Medicare and Medicaid Services granted private insurance companies significant flexibility to implement its own formulary and cost-sharing mechanisms.  

Actors and influence

Regierung
Federal government	sehr groß		kein
Leistungserbringer
Physicians	sehr groß		kein
Kostenträger
Health plan	sehr groß		kein
Patienten, Verbraucher
Consumers	sehr groß		kein
Privatwirtschaft, privater Sektor
Employers	sehr groß		kein

Positions and Influences at a glance

Adoption and implementation

The Centers for Medicare and Medicaid Services requires plans to use pharmacy and therapeutics committees to establish formularies; include at least two drugs within each therapeutic class of covered Medicare drugs in their formulary; and ensure that the formulary design does not discourage enrollment. Within these broad guidelines, there is wide variation in plan design (CHCF, 2005).

Monitoring and evaluation

The Centers for Medicare and Medicaid Services monitors and evaluates each drug plan's cost sharing provisions for the top 40 prescribed drug classes; evaluates formularies to determine whether access to drugs for chronic conditions is inappropriately restricted; and monitors drug appeals by beneficiaries (CHCF, 2005). Despite these efforts, independent evaluations have found that drugs for treating chronic conditions such as cancer and rheumatoid arthritis are generally placed in the highest cost-sharing tier, making out-of-pocket costs for many beneficiaries with these conditions unaffordable (CHCF, 2005).   

Review mechanisms

keine Angaben

Results of evaluation

N/A

Expected outcome

Since 2000, the growth in prescription drug spending has slowed - possible reasons include the widespread implementation of tiered drug plans, and the decrease in the number of new drugs approved. Several blockbuster drugs have also gone off patent (Strunk, 2005).  Almost all employees with private insurance are in tiered drugs plans; consumers are likely to continue to assume an even greater share of the cost. The effect of increased cost-sharing on access to drugs is especially concerning for Medicare beneficiaries, who are now enrolled in private drug plans which are allowed to implement cost-containment mechanisms such as tiered drug copayments.

Impact of this policy

Qualität	kaum Einfluss		starker Einfluss
Gerechtigkeit	System weniger gerecht		System gerechter
Kosteneffizienz	sehr gering		sehr hoch

Prescription drugs are fundamental to the treatment and maintenance of chronic conditions. Tiered drug copayments may create a financial barrier to access to these drugs particularly for low-income populations, people with chronic conditions and Medicare beneficiaries. This may adversely affect health outcomes in the long term.

References

Sources of Information

• California HealthCare Foundation. The Medicare Drug Benefit: Implications for Chronic Disease Care. Issue Brief October 2005.
• Chernew ME, Rosen AB, and Fendrick AM. Value-Based Insurance Design. Health Affairs (26) 2: w195-w203, 2007.
• Frank R. Prescription Drug Prices: Why Do Some Pay More Than Others Do? Health Affairs (20) 2 :115-128, March/ April 2001.
• Gibson TB, Ozminkowski RJ, and Goetzel RZ. The Effects of Prescription Drug Cost Sharing: A Review of the Evidence. The American Journal of Managed Care (11) 11: 730-740, November 2005.
• Goldman DO, Joyce GF, and Zheng Y. Prescription Drug Cost Sharing: Association with Medication and Medical Utilization and Spending and Health. Journal of the American Medical Association 298 (1): 61-69, July 2007.
• Hillman AL, Pauly MV, Escarce JJ et al. Financial Incentives and Drug Spending in Managed Care. Health Affairs (18) 2: 189-200, March/April 1999.
• Huskamp HA, Deverka PA, Epstein AM et al. The Effect of Incentive-Based Formularies on Prescription Drug Utilization and Spending. New England Journal of Medicine (349) 23: 2224-2232, December 2003.
• Kaiser Family Foundation (a). Prescription Drug Trends. Fact Sheet May 2007.
• Kaiser Family Foundation (b). Employer Health Benefits. 2007 Annual Survey.
• Kamal-Bahl S and Briesacher B. How Do Incentive-Based Formularies Influence Drug Selection and Spending for Hypertension? Health Affairs (23) 1: 227-236, January/February 2004.
• Landon BE, Rosenthal MB, Normand SL et al. Incentive formularies and Changes in Prescription Drug Spending. The American Journal of Managed Care (13) 6: 369, June 2007.
• Mays GP, Jurley R, and Grossman JM. Consumers Face Higher Costs as Health Plans Seek to Control Drug Spending. Center for Studying Health Systems Change. Issue Brief No. 45; November 2001.   
• Nair K, Wolfe P, Valuck R et al. Effects of a 3-tier pharmacy benefit design on the prescription purchasing behavior of individuals with chronic disease. Journal of Managed Care Pharmacy (9) 2:123-33, March/April 2003. 
• Strunk B, Ginsburg P, and Gabel J. Tracking Health Care Costs: Growth Accelerates Again in 2001. Health Affairs (w3): 266-273, Spetember 2002. 
• Strunk B, Ginsurg P, and Gabel J. Tracking Health Care Costs: Declining Growth Trend Pauses in 2004. Health Affairs (w5): 286-295, June 2005.

Author/s and/or contributors to this survey

Petigara, Tanaz and Gerard Anderson

Empfohlene Zitierweise für diesen Online-Artikel:

Petigara, Tanaz and Gerard Anderson. "Tiered Prescription Drug Plans". Health Policy Monitor, April 2008. Available at http://www.hpm.org/survey/us/b11/1