What is the purpose of copayments in a managed care plan

As more biologics aimed at larger patient populations come to market, the effectiveness and appropriateness of copayments comes into question. This classic cost-sharing tool – developed for an earlier era’s less expensive products – may not work in the biotech era.

You’ve seen the headlines, the stories on television, the countless e-mails offering Internet discounts. Prescription drug prices, the mantra goes, are too high, at least for Americans with little or no insurance.

An oft-cited example is atorvastatin (Lipitor), the cholesterol pill, which runs $3 to $4 a day, more than $1,000 a year. By some measures, this is costly. Even some people with health coverage may balk at a copayment of, say, $25 a month.

But by other yardsticks, this may be a bargain. Consider the price of biologics. The average wholesale price of alefacept (Amevive), a psoriasis medication, was $23,880 in 2004. Cetuximab (Erbitux), the colon cancer drug recently approved to treat head and neck cancers, can cost $120,000 per year. Whatever the treatment, the copayment for a month’s worth of biologic therapy can run between $300 and $400.

For now, some health plans are trying to cushion the blow to members. One approach is to put biologics in the pharmacy benefit and assign them to the top tier in a 3- or 4-tier design, with the copayment amount determined by the plan’s clients.

Yet, this approach may not be feasible for long. With more than 1,000 new biologics in development, we can expect an increasing number of costly products annually for a variety of ailments, according to Michael Russo, a principal at the Bruckner Group, a Wakefield, Mass., healthcare consulting firm. Many of these treatments target large patient populations. The fact that manufacturers are seeking additional indications for existing biologics signals even greater usage ahead.

As more biologics become available, biotechs, insurers, employers, and policymakers will confront the specter of a worsening crisis: finding a way for people to afford copayments that, if implemented, could run hundreds of dollars every month for necessary medications. The higher the copayment, the greater the likelihood that biologic therapies — in some cases, lifesaving drugs — will move out of reach for some people, particularly working-class Americans with health benefits and elderly Americans enrolled in Medicare Part D.

“There are some important questions to be answered: Will people be able to pay? Will the total market be big enough to support both the fixed costs of developing these products and affordable prices?” asks Alan Garber, MD, PhD, a physician at VA Palo Alto Health Care System and professor of medicine and director of the Center for Health Policy at Stanford University.

“At some point, people will simply say health insurance isn’t doing what it’s supposed to do, which is to protect them from the financial burden of medical care. In other words, there will be a limit. We can only go so far with cost sharing.”

This poses a conundrum. Certainly, the cost-sharing concept is attractive to health plans and their clients. A 2004 study in JAMA concluded that adding an extra copayment tier to the pharmacy benefit, increasing existing copayments, and requiring generic substitution all reduce plan expenditures and overall drug spending. Enrollees paid a significantly higher percentage of out-of-pocket costs as a result.

“There is that idea of ‘having skin in the game,’” says Steve Russek, RPh, vice president of product development at Accredo Health Group, a unit of Medco Health Solutions. “But clearly, the equation is different” when it comes to biologics.

Indeed, health insurers and pharmacy benefit managers acknowledge the risk in requiring individuals to shoulder an increasingly larger share of their medication costs, especially biologics. Study after study has shown that larger copayments prompt people to take fewer medicines or forgo them altogether, which can translate into more illnesses and higher health costs. A Rand Corp. study expected out later this year will be the first to look at the relationships among cost sharing, adherence, and outcomes with respect to biologic therapies.

At Express Scripts, the pharmacy benefits manager, internal research has shown a direct and negative relationship between rising copayments and drug utilization. Emily Cox, the company’s senior director of research, notes that a 100 percent increase in a copayment generally translates into 30 percent decrease in utilization of prescription drugs. “And there’s no reason to think the relationship changes” with biologics, says Cox.

Other evidence is equally sobering. A 2004 study of working-age people with insurance, published in JAMA, found “significant increases in copayments raise concern about adverse health consequences, because of the large price effects.” It’s worth noting that the study looked at copayments ranging from $6.31 for generics to $25.70 for common brand-name drugs, not hundreds of dollars for a biologic.

Another study, published in the New England Journal of Medicine in 2003, reached a similar conclusion: higher copayments resulting from incentive-based formularies can “substantially alter” out-of-pocket spending by enrollees, the continued use of their medicines and, possibly, the quality of their healthcare.

“The issue really isn’t the impact of copayments on affordability,” says Sharon Levine, MD, associate executive director at Kaiser Permanente, the Oakland, Calif.-based health plan. “The real question is what is the impact of prices on affordability? The copayment is just a division of expense between the purchasers of healthcare services and products. The problem is managing the cost of new technologies, given the price.

“Patient copayments are one way to control costs, but it’s worrisome,” says Steven Marciniak, RPh, at Michigan-based Care Choices HMO.

PHOTOGRAPH BY JOHN SOBCZAK

PHOTOGRAPH BY GARY WAGNER

“We’re moving from a world where many people have good benefits to one in which many people may become underinsured. And no one knows the extent to which underinsurance will lead to a loss in health gains. Remember, unlike pill splitting, you can’t split a biologic. So you’re more likely to see people choose other therapies, and not even use the biologic.”

The possibility isn’t theoretical. A report published last November by the not-for-profit California Healthcare Foundation, which studies healthcare issues, noted that a nationwide survey of chronically ill older adults found that patients who reported underusing their prescription drugs due to cost were almost twice as likely as others to experience a significant decline in health — 32 percent versus 21 percent.

Such anxiety generally reflects the overall tenor of the national dialogue on healthcare costs rather than a specific product or service. Specialty pharma is still a relatively small percentage of total healthcare expenditures. But, it’s a rising share.

Express Scripts has found that in 2004, among patients taking specialty drugs for multiple sclerosis, rheumatoid arthritis, and hepatitis C, specialty pharmacy accounted for 17 percent of their total prescription consumption, but 80 percent of their total annual drug cost. Looked at another way, the average cost of a specialty drug for those ailments was $12,563, but just $3,329 for conventional medications.

At Care Choices, an HMO based in Farmington Hills, Mich., only about half of 1 percent of the plan’s 100,000 or so members — just 480 people — use biologics, according to Steven Marciniak, RPh, director of pharmacy programs. Still, biologics account for about 10 percent of drug spending, he adds.

“In a couple of years, we should see that rise to between 15 and 20 percent of the total prescription-drug spend,” says Marciniak. “I’ve seen figures suggesting that roughly half of all drugs in development are some kind of specialty drug.”

Cost-sharing goals…

A survey of payers shows that utilization control is the top objective when using copayments and other cost-sharing tools. The goal of reducing premium growth appears to have grown in importance since payers were previously surveyed in 2004.

SOURCE: THE MANAGED CARE INJECTABLES INDEX: SPRING 2005,THE ZITTER GROUP, 2005

… and consequences

Payers believe that patient adherence to therapy drops as out-of-pocket costs rise, thus damaging health outcomes.

SOURCE: THE MANAGED CARE INJECTABLES INDEX: SPRING 2005,THE ZITTER GROUP, 2005.

An official at the Biotechnology Industry Organization suggests that health insurers and their clients should be willing to absorb higher costs for these medications, so long as the products are able to reduce overall health care costs. An example might be the arthritis treatment that prevents a patient from ending up in a wheelchair or undergoing surgery for joint replacement.

“Insurance companies are not really telling the whole story,” says Jayson Slotnik, BIO’s director for Medicare reimbursement and economic policy. “There shouldn’t be any increases in copayments. Just because our drugs are an expense, that doesn’t mean they are an added expense. You should be looking at the totality of healthcare costs.”

Even so, experts believe that prices will remain high. This leaves healthcare planners with the unenviable task of finding the right balance when it comes to slicing up the costs. And, while it may seem tempting to simply increase copayments, some health plans and PBMs say they hope to avoid a scenario that would preclude members from obtaining needed medications or placing caps on access.

“Unfortunately, not all agents have lower-cost alternatives,” says Express Scripts’ Cox. “In traditional plans, of course, the role of the copayments is used to sensitize members to the cost of medications. But we see copayments very differently in the specialty market. So we’re evaluating, pretty aggressively, the cost-sharing arrangement and the impact it has on compliance.”

Already, some health plans say they want to resist increasing the copayment. Care Choices’ Marciniak is adamant that such a move be a last resort. “I don’t know if you can really rein in the costs. But in my mind,” he adds, “it’s almost unconscionable to put these drugs out of [patient] reach.”

Accredo’s Russek also makes an interesting point. Even if a health plan charges a member a copayment of, say, $400 a month, the cost may be extremely significant to the individual but not nearly as significant a hit to the health plan. As a result, the cost shifted to the patient doesn’t go very far in reducing the total cost to the plan or employer.

“I think payers will realize that the higher copayment is really not the way to get out there,” says Russek. “But it’s a dilemma for the health plans. They’re caught between two worlds.”

To illustrate a way around the problem, he sketched out an example. A health plan can design the benefit by requiring a $50 copayment for a biologic drug, but then switch the cost to the medical benefit after the patient reaches a maximum out-of-pocket expense of, perhaps, $2,000 annually.

What remains unclear is whether such an altruistic approach can weather a large increase in expenditures on biologics. The picture is further muddied by other fast-changing developments, such as the advent of pharmacogenomics, which may further slice and dice patient populations by offering targeted treatments. This would have the effect of greatly narrowing the pool of people over which the insurance risk is spread.

Health savings accounts may present another wrinkle, or worse. Although this is still a relatively nascent concept, these accounts could complicate the calculus used to determine how much of the cost of a biologic is absorbed by which parties. Some health policy experts foresee difficulty meshing these accounts, which include large deductibles and the cost of high-priced medications.

“The costs of the biologics exceed the deductible for most consumer-directed health plans and health savings accounts,” says Stanford’s Garber. “Such plans offer no unique strategies for coping with the costs of biologics and other expensive care, such as hospital admissions. Health expenditures are driven by big-ticket items like these. Making consumers pay a greater share of the cost of relatively inexpensive services will do little to moderate health expenditure growth.”

Although a moral compass may point some toward keeping a lid on copayments, it’s not at all clear whether this can be accomplished, as long as technology, marketplace demands, and public policy are at odds. Historically, copayments have not been used as a cost-shifting mechanism, and certainly not as method for denying treatment — all of which leaves their function in a world of biologics up for grabs.

“These will be very difficult decisions,” Cox acknowledges. “It’s certainly an area where we have to struggle to understand how to manage costs. This is a new ball game, and we may not have all the answers.”