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Biotechnol Healthc. 2009 Winter; 6(5): 29–32.
PMCID: PMC2816156

Cost-Sharing Reform: Searching For Equity

Abstract

The healthcare reform debate has included discussion of some cost relief for patients by subsidizing their out-of-pocket costs. But employers and payers are looking at other options, such as linking the value of a healthcare intervention to its copayment, to try to improve health-care delivery and make its cost more equitable for all.

In the past couple of years, biologics manufacturers have been talking more and more about cost-sharing requirements for patients being a barrier to medical care. Multiple studies have shown that higher out-of-pocket costs pose a de facto barrier to access to pharmaceuticals, which puts biologics directly on the firing line — these drugs are usually on the highest co-payment tier or require coinsurance, usually 20 percent of the cost of the drug for each dose. How strong a barrier this really is, though, depends in part on the patient’s perception of drug value.

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MICHAEL JUSTICE

“When someone buys a drug that is covered by insurance, we all share in the cost,” says Dana P. Goldman, PhD, director of the Leonard D. Schaeffer Center for Health Policy and Economics, University of Southern California. “That is why we worry about overconsumption.”

A 2006 study conducted by Rand Healthfound that when patients are presented with life- or livelihood-threatening illnesses, cost sharing becomes less of a barrier to treatment.1 The researchers analyzed pharmacy and medical claims from more than 1 million people with a primary diagnosis of cancer, kidney disease, rheumatoid arthritis, or multiple sclerosis, and found that higher copayments for specialty drugs to treat these illnesses resulted in utilization reductions of between 1 and 21 percent — smaller reductions than those documented for conventional and lower-cost pharmaceuticals. The results imply that patients will seek treatments they perceive to have high value and that will extend their life or improve their quality of life, with less regard for the cost of those treatments.

The results also confounded conventional wisdom about the power of cost sharing mechanisms. Still, for most chronic illnesses, setting limits on copayments and other cost-sharing mechanisms should mean easier access to treatment and, potentially, better health outcomes — or so the argument goes. Pharmaceutical companies, physicians, and patient advocacy groups have all said that they support limits on copayments and coinsurance, and have championed this as a key element of healthcare reform. But what about employers and third-party payers? Health plans set their cost structures based on what employers — about five sixths of the total health insurance market — are willing to pay to cover their populations. What are the consequences of, and alternatives to, arbitrary caps on patients’ out-of-pocket liability?

Consider some of the proposals for cost-sharing reform and their implications.

PUSHING FOR EQUITY

At the Pharmaceutical Research & Manufacturers of America annual meeting last April, Chairman David Brennan, who also is chief executive officer of AstraZeneca, encouraged the organization to push for equity in pharmacy copayments and medical expenditures. “Insured patients are forced to pay considerably higher percentage copays on medicines than on what they pay for other healthcare services,” said Brennan.2 Copayment equity is one of PhRMA’s top objectives in the healthcare reform debate.

Joining PhRMA in its push for copayment reform is the AMA. Together, they have been running ads through the group “Americans for Stable Quality Care,” which encourages controlling copayments as a primary benefit of healthcare reform. Other organizations supporting copayment reform include Families USA, the Service Employees International Union and the Federation of American Hospitals.

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“Insured patients pay considerably higher percentage copays on medicines than on what they pay for other healthcare services,” says PhRMA Chairman David Brennan. Copayment equity is a top PhRMA objective.

Cost sharing, which never really registered with Congress until recently, was at the time of this writing in December, addressed in the Senate healthcare reform bill, which called for cost-sharing subsidies for eligible people and families. The House bill includes no such provision. Although none of the health reform proposals addressed the cost of drugs and biologics head-on, a proposal from retired Sens. Howard Baker Jr., Tom Daschle, and Robert Dole calls for “a regulatory pathway for the approval of biosimilar and biogeneric products.”

Ted Buckley, PhD, director of economic policy at Washington-based Biotechnology Industry Organization (BIO), says it is important to conceptualize the cost of biologics and pharmaceuticals as just a part of the overall healthcare dollar. “They only account for 13 percent of overall healthcare costs, so if you are talking about a reduction in copayment, you are talking about an even smaller [share]. It’s not a radical shift of the overall healthcare dollar spent.” Buckley believes that employers have to look at the impact of the use of pharmaceuticals in the broader context. For example, does the increased use of HIV/AIDS medications save healthcare dollars? Do reductions in copayments, which may increase the use of treatments for costly therapies for working-age people with RA or MS, translate to increased productivity?

Asked if copayment reform issues differ for biologics than for other pharmaceuticals, Buckley says it is more of a specialty versus a nonspecialty pharmaceutical issue. “A biologic is reimbursed differently. It is the way it is administered, the price point, and so on that determines whether it has a copayment and what tier of copayment it has, or, if it is in the fourth tier, the co-insurance.”

Laurel Todd, BIO’s director of Medicare reimbursement and health policy, sees a new option emerging that may gain traction — “providing first-dollar coverage for things such as vaccines and other types of preventive services to try to encourage utilization in that direction.”

THE VBID OPTION

Copayment reform in the past has tended to recommend either arbitrary, across-the-board cuts or to cut out-of-pocket expenditures for drugs for which there is evidence to suggest that their use can improve health outcomes or productivity. This second proposal, according to Buckley, gets into the whole issue of value-based insurance design (VBID), although, she adds, “BIO hasn’t yet looked into this issue.”

The National Business Coalition on Health, however, has. “The area that we call value-based plan design is still emerging,” says Dennis White, senior vice president of value-based purchasing. “We look at the variable value of various interventions, such as certain drugs and tests, and then adjust the out-of-pocket consequences for the patient accordingly.” White points to one health plan, HealthPartners in Minnesota, that is implementing VBID.

White admits, though, that VBID can be disruptive. “With pharmaceuticals, for example, it is common to have generics on tier 1, with the lowest out-of-pocket cost,” he explains. “However, there are some essential drugs that are not generics, such as insulin, which, if you don’t take, can get you in trouble.” So the theory, says White, is to recognize the relative value of these interventions and lower the financial barriers for those that are critical.

Although VBID may be gaining interest, Dana P. Goldman, PhD, the Norman Topping/National Medical Enterprises chair in medicine and public policy and director of the Leonard D. Schaeffer Center for Health Policy and Economics at the University of Southern California, has his concerns about the concept. “If you take it to its logical extreme, it says you will pay a lot of money if you are healthy, but if you get a little sick, then you will pay less money. Imagine a health plan that says, ‘We charge sick people nothing, but healthy people pay a lot.’”

Who really pays for healthcare? An update

Nationally, it is estimated that workers with employer-sponsored health insurance pay for about 40 percent of their healthcare. This number may be deceiving, however. In an article published in JAMA in March 2008,* Ezekiel J. Emanuel, MD, PhD, and Victor R. Fuchs, PhD, suggest that regardless of who seems to be paying for healthcare, it’s you and me — employees and taxpayers — who, in the end, pay for it all. “Employers do not bear the cost of employment-based insurance; workers and households pay for health insurance through lower wages and higher prices. Moreover, government has no source of funds other than taxes or borrowing to pay for health care.”

Ezekiel and Fuchs noted that over the last 30 years, premiums have increased by about 300 percent, and corporate profits per employee have increased 150 percent before taxes and 200 percent after taxes, after adjustment for inflation. The average wages for workers in non-agricultural industries decreased by 4 percent (inflation adjusted) during the same time period. Their assessment: “Rather than coming out of corporate profits, the increasing cost of health care has resulted in relatively flat real wages for 30 years.” The authors concluded that, “Not only does third-party payment attenuate the incentive to compare costs and value, but the notion that someone else is paying for the insurance further reduces the incentive for cost control. Getting Americans invested in cost control will require that they realize they pay the price, not just for deductibles and copayments, but for the full insurance premiums, too.”

In an interview with Biotechnology Healthcare, Fuchs elaborated on this. “The problem is that employees and Medicare recipients think they are getting something for nothing, but, in the end, they will pay higher taxes or higher premiums, or experience lower wages,” says Fuchs, who is Henry J. Kaiser, Jr. professor of economics and health research and policy, emeritus, at Stanford University. “This is the pernicious part of the whole thing.” As such, he says, reducing copayments won’t provide much of a benefit. “As it is now, there is typically one uniform copay, regardless of the kind of service or product being offered. However, you can make a very strong case that some preventive services and products should have no copay, and others should have a much higher copay. For example, if you want a brand-name drug rather than a generic, then the copay should be larger.”

*Emanuel EJ, Fuchs VR. Who really pays for health care? JAMA. 2008;299:1057–1059.

White thinks research in this area, needs to focus on the relative spectrum of value for the various stakeholders — patients, physicians, health plans, and employers. He notes that some plan designs are beginning to lower co-insurance levels contingent upon patient behavior, such as filling out health risk assessments, attending coaching sessions, adhering to clinical guidelines, and having periodic medical examinations — though he admits there are challenges involved. “Someone has to track it,” he says.

“What we are starting to see that makes a bit more sense is to have plan designs where the effect is on the out-of-pocket premium share,” White says. “People can participate in one plan [with lower employee contributions toward the premium] if they follow the rules. If they don’t follow the rules, they go to another plan, which will cost more.” So far, according to White, guideline adherence hasn’t made its way into premium setting, though he says it should, “because people who do the right thing aren’t going to cost as much in the long run.”

The idea of stressing adherence to evidence-based care may resonate with biologics manufacturers pressed to demonstrate the value of their wares to those who are skeptical about their costs. One potential problem with this approach, White acknowledges, though, is that premiums are governed by demographics and claims history.

COPAYMENT OPTIONS

Goldman sees options from a number of different perspectives. A senior principal researcher at Rand Health, Goldman was the lead author of the aforementioned study on cost sharing and biologics.

Reducing copayments would end up costing people in other ways, says Goldman. When someone buys a drug that is covered by insurance, he explains, “We all share in the cost. These people are getting other people to pay for their drugs.” Barriers vary according to what is being prescribed, says Goldman using medical devices as an example. “It is much easier to get a device on the market, because you don’t have to do all of the clinical studies that are required for pharmaceuticals. Also, doctors administer them, and then get reimbursed. As a result, devices come out of the medical benefit side, not the pharmaceutical benefit side.”

Goldman believes the healthcare industry is learning from its experiments with copayments. “We went through a period where the idea was to just throw a bunch of stuff on the consumer and ask that they pay more. That turned out to be a naive strategy.” When patients stopped taking their medicines, for example, it ended up costing insurers more down the line. Today, Goldman sees insurers attempting to utilize intelligent and strategic design to manage pharmaceutical benefits.

“During the late 1990s and early 2000s, we saw a lot of very high copays on all drugs. Then, people began to realize that with statins, for example, if you could get people to take their medication, they would have fewer heart attacks down the line. As a result, there now may be one preferred statin that is not too expensive.” Goldman is interested in seeing whether this concept evolves into differential copayments based on the value they get from the device or drug. “If that ends up being the case, then insurers may give statins for free, since they can help prevent heart attacks.” Patients who don’t have any risk factors, but whose doctors want to put them on statins anyway, he adds, would have a copayment.

As for expensive medical devices, high-deductible health plans have done nothing to reduce their use, says Goldman. “With a $35,000 implantable defibrillator, there is little difference to the patient whether he pays $250 or $1,000. As a result, we can’t rely on patient copays to change the way devices are used.”

Goldman believes experimentation linking copayments with clinical status will continue, perhaps to the point where for patients to be covered, their physicians will have to say that they meet certain clinical criteria. As with tracking refills, though, this increases the administrative burden on insurers. It may also open a new can of worms in the area of payer-physician relations.

Cost barriers are on the minds of many. How these are addressed and what is learned from each approach will remain a source of discussion long after this round of healthcare reform debate is over in Washington.

Little change in premiums seen

Most Americans who work will not see a substantial change in health insurance premiums as a result of the proposed Senate healthcare reform bill, according to a Dec. 1, 2009, Congressional Budget Office report.

For companies with 50 or fewer employees, unsubsidized premiums in 2016 would average $7,800 a year for individuals and $19,200 for families — roughly unchanged from current projections. For large employers, premiums in 2016 would average $7,300 for individual coverage and $20,100 for family coverage. Projections under existing law are similar, with coverage averages $7,400 and $20,300 for individuals and families, respectively.

The primary savings would be seen in the individual market, which makes up about 5 percent of private coverage.

Footnotes

1Goldman DP, Joyce GF, Lawless G, et al. Benefit design and specialty drug use. Health Aff. 2006;25:1319–1331.

2As reported in The RPM Report, Aug. 31, 2009. «http://therpmreport.com» Accessed Dec.1, 2009.


Articles from Biotechnology Healthcare are provided here courtesy of MediMedia, USA