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The Commonwealth of Massachusetts increased the copayment for prescription drugs by $1.50 for Medicaid (MassHealth) beneficiaries in 2003. We sought to determine the likely health outcomes and cost shifts attributable to this copayment increase using the example of inhaled corticosteroids (ICS) use among adult asthmatic Medicaid beneficiaries.
We compared the predicted costs and health outcomes projected over a 1-year time horizon with and without the increase in copayment from the perspective of MassHealth, providers, pharmacies, and MassHealth beneficiaries by employing decision analysis simulation model.
In a target population of 17,500 adult asthmatics, increased copayments from 50¢ to $2.00 would result in an additional 646 acute events per year, caused by increased drug nonadherence. Annual combined net savings for the state and federal governments would be $2.10 million. Projected MassHealth savings are attributable to both decreased drug utilization and lower pharmacy reimbursement rates; these more than offset the additional costs of more frequent acute exacerbations. Pharmacies would lose $1.98 million in net revenues, MassHealth beneficiaries would pay an additional $0.28 million, and providers would receive additional $0.16 million.
Over its first year of implementation, increase in the prescription drug copayment is expected to produce more frequent acute exacerbations among asthmatic MassHealth beneficiaries who use ICS and to shift the financial burden from government to other stakeholders.
The prescription drug benefit is one of the fastest growing components of Medicaid spending and one of the program’s most widely utilized services . Since 1998, pharmacy expenditures have risen almost twice as fast as any other medical services . Decreased tax revenue, coupled with a double-digit increase in health-care spending, have brought Medicaid programs under intense pressure to control cost [1,2].
As one response to the trend toward increase cost sharing, the Massachusetts Medicaid program (MassHealth) increased the prescription drug copayment from 50¢ to $2.00 for MassHealth beneficiaries in January 2003 . Although many state Medicaid programs use copayments to rein in unnecessary drug utilization [4–6], the clinical and financial impact of such initiatives is not clear. Drug copayments may cause patients to reduce essential drug utilization [4,5,7–10], which in turn can lead to increased health problems, and ultimately, greater acute-care outlays [7,11]. Because poor and chronically ill beneficiaries spend a higher share of their incomes on medical expenses compared with healthy and higher-income individuals , the burden of cost sharing falls disproportionately on low-income patients with poor health [4,5,13].
We used a decision-analytic approach to determine the net economic and health outcomes associated with an increase in prescription drug copayment in a low-income population with a chronic disease. Using the specific example of inhaled corticosteroid (ICS) therapy among adult asthmatic MassHealth beneficiaries, we explored how total costs and savings might be allocated among different stakeholders (MassHealth, providers, pharmacies, and MassHealth beneficiaries). Asthma was chosen as the example, in part, because it represents a condition that affects a broad cross section of American society while focusing on vulnerable and underserved populations.
We modified a previously developed decision-analytic model of asthma therapy to estimate clinical outcomes and costs among adult asthmatic MassHealth beneficiaries receiving ICS therapy [14–17]. To predict the induced costs attributable to an increase in copayment for prescription drugs, we estimated expected out-comes under two scenarios: “prepolicy” and “postpolicy.” For the prepolicy scenario, we estimated 1-year asthma-related outcomes for a hypothetical population of asthmatic MassHealth beneficiaries all treated with ICS therapy. For the postpolicy scenario, we assumed that a proportion of that population would be discouraged from filling their prescriptions because of the copayment increase; we then separately estimated 1-year asthma-related outcomes for the treated and untreated populations.
We assumed a 10% decrease in drug utilization attributable to the MassHealth copayment increase, based on a critical review of the literature. Soumerai and colleagues conclude that introducing copayments as low as one dollar per prescription among Medicaid beneficiaries produces 5% to 10% declines in overall drug utilization . In a study across all states, Stuart and Zacker estimated that Medicaid prescription drug copayments (ranging from 50¢ to $3.00) reduce annual drug utilization by 15.5% . Similarly, Lurk et al. observed a 16.7% decrease in drug utilization in an indigent population with a prescription copayment increase of $2.50 (generic) and $5.00 (brand) in 2002 . Nelson et al. found that the introduction of a 50¢ copayment in 1977 among South Carolina Medicaid beneficiaries resulted in a 1-year decrease in drug utilization of 11% . Adjusting for inflation, this finding is consistent with an approximate 10% decrease in prescription refill rates for a $1.50 copayment increase in 2003. It is also comparable to findings in a Canadian study on the indigent population .
We assumed that the 10% reduction applied specifically to ICS utilization. This assumption is consistent with a previous study , which observed a statistically significant decrease in ICS utilization among low-income Canadians after the implementation of prescription drug cost sharing. We explored values ranging from 5% to 20% in sensitivity analyses.
We defined our target population as adult MassHealth beneficiaries with persistent asthma using ICS therapy. We estimated the size of the target population at 17,500 based on the total number of adult MassHealth beneficiaries (509,900) , the prevalence of persistent asthma among adult Medicaid beneficiaries (7.89% [21–23]; range from 3.37%  to 9.3% ), and the fraction of daily ICS users among adult Medicaid beneficiaries with persistent asthma (43.5%) . For our analysis, we modified the Asthma Policy Model, a published, computer simulation of asthma’s natural history and the health-economic outcomes of patient care. Details of this model are described elsewhere [14–17]. Briefly, this is a Markov, state-transition model  that characterizes the progression of disease as a sequence of transitions through a defined set of health states, which are chosen to be descriptive of current status, relevant history, quality of life, and resource utilization. Each month the model specifies monthly risks of urgent-care visits, emergency department (ED) visits, hospitalizations, and mortality as a function of asthma severity, patient age, and history of prior hospitalizations (none, once, more than once). Disease severity is defined by lung function impairment as measured by the forced expiratory volume in one second as a percent of predicted normal (FEV1% predicted) , where a mean value of 50 is assigned to patients with severe asthma, 70 to moderate, and 90 to mild . The impact of ICS therapy is mediated entirely through lung function . Lung function, in turn, determines the risk of urgent-care visits, ED visits, and hospitalizations. We estimated that ICS therapy increased FEV1% predicted by 7.6% for mild, 11.6% for moderate, and 17% for severe asthmatic patients, which would in turn reduce acute events, namely hospitalizations, ED visits, and urgent-care visits . The Asthma Policy Model predicts that lower ICS adherence will reduce FEV1% predicted and thereby result in greater acute events.
The risk functions that predict acute events in the Asthma Policy Model were estimated from data obtained from a general asthmatic population. We estimated new model parameters by calibrating model outcomes to match those from a previous study of Medicaid beneficiaries, using estimates of the distribution of disease severity from Medicaid populations. Specifically, Piecoro and colleagues performed a cross-sectional, retrospective analysis of Kentucky Medicaid population to estimate utilization of asthma-related health-care services . They showed an age-adjusted annual hospitalization rate of 74 per 1000 and ED visits of 253 per 1000 adult asthmatic Medicaid beneficiaries, whereas our model projected 37 hospitalizations and 102 ED visits per 1000 adult asthmatic patients. Other studies estimated that among urban residents, many of whom are Medicaid eligible, asthma-related hospitalizations ranged from 41 to 68 per 10,000 residents [29,30], which is higher than what is reported in a general asthmatic population (19.5 per 10,000 population ). Therefore, we calibrated our model to reflect the higher acute-care utilization rates observed in Medicaid populations, where final calibration targets were 64 hospitalizations and 195 ED visits per 1000 adult asthmatic Medicaid patients. We also conducted one-way sensitivity analyses to investigate the degree to which variation in acute event rates altered our results. Key model inputs are shown in Table 1.
Monthly chronic and acute asthma care costs for MassHealth beneficiaries were estimated based on previously published values [16,32–34] updated to 2003 US dollars using the Consumer Price Index (Table 1) . MassHealth’s payment to providers was estimated based on payment-to-cost ratios from a publicly available financial report . MassHealth’s payment-to-cost ratio for inpatient service was estimated to be 0.81 . For outpatient service, the ratio was 0.58 . We categorized chronic care, urgent-care visits, and ED visits as outpatient services and categorized hospitalization as an inpatient service. The federal government matched 53% of Medicaid spending in Massachusetts , with the remainder paid by the state government.
We assumed that patients with mild/moderate asthma who adhered to their drug regimen would take 400 μg of ICS per day, whereas patients with severe asthma would take 1000 μg of ICS per day [28,38]. Based on these assumptions and the published average wholesale price (AWP) per container , the monthly AWP for mild/moderate asthma was $67.45 and for patients with severe asthma was $168.63. Pharmacies were reimbursed from MassHealth according to the following formula : 0.85 × AWP × 1.06 + $3.50 (dispensing fee) – copayment. Therefore, for mild/moderate patients, MassHealth would pay $63.77 per prescription under the prepolicy scenario and $62.27 per prescription under the postpolicy scenario. For patients with severe disease, the pre- and postpolicy MassHealth payments would be $154.93 and $153.43 per prescription, respectively.
We assumed that pharmacies collect all copayments from MassHealth beneficiaries. We also assumed that the reimbursement from MassHealth changed only for pharmaceutical costs after the copayment was increased and that reimbursement to providers remained unchanged. To simplify our analysis, we assumed that all MassHealth beneficiaries are enrolled under the fee-for-service plans.
Table 2 shows the expected health outcomes predicted by our model for adult asthmatic MassHealth (n = 17,500) beneficiaries over a 1-year time horizon, under both the pre- and postpolicy scenarios. For the prepolicy scenario, we predict MassHealth beneficiaries would experience 13,185 urgent-care visits, 3871 ED visits, and 1340 hospitalizations. For the postpolicy scenario, a 10% drop in prescription refills would result in an additional 646 acute events over a 1-year period: 469 urgent-care visits, 133 ED visits, and 44 hospitalizations (Table 2).
Table 3 shows the expected MassHealth (federal and state government) outlays predicted by our model for adult asthmatic beneficiaries over a 1-year time horizon, under both the pre- and postpolicy scenarios. These amounts represent the sum of payments to both pharmacies and providers. For the prepolicy scenario, we predict that federal and state government expenditures would be $31.8 million over a 1-year period. For the postpolicy scenario (with 10% decrease in prescription refills), we predict that MassHealth payments would decrease to $29.7 million, a savings of $2.1 million. The projected payment to providers would increase by $0.16 million under the postpolicy, because of the increased acute-care utilization caused by increased drug nonadherence. Nevertheless, the reduced payments to pharmacies ($2.26 million) would more than offset the increased payments to providers ($0.16 million). Because the federal government matched 53% of MassHealth spending in 2003 , the net projected savings for the state government would be approximately one million dollars.
Although payments from the federal and state government to providers would increase post policy, providers would incur a net financial loss of approximately $100,000 with a 10% decrease in prescription refills (Table 4). This loss reflects the increased number of acute exacerbations and the fact that the government’s reimbursement rate does not fully cover the actual cost of care. Net pharmacy revenues would decrease under the postpolicy scenario (Table 5). Institution of higher copayments would reduce drug utilization, thus decreasing MassHealth’s asthma-related ICS payments to pharmacies by $2.26 million per year. Increased patient outlays ($0.28 million per year among asthmatic MassHealth beneficiaries) would not offset these losses.
To examine the robustness of our findings, we conducted one-way sensitivity analyses, varying each factor through the range reported in the literature. Tables 2–5 report the sensitivity of our results to the prescription drug nonadherence rate. Increased drug nonadherence and the consequent degradation of lung function would result in increased acute-care utilization (Table 2). MassHealth would expect further savings with increased drug nonadherence, because decreased drug payments to pharmacies would more than offset higher acute-care payment to providers (Table 3). This is a finding that persists with higher copayments and reduced ICS consumption.
We also explored the possibility of 10% nonadherence occurring only within a specific disease severity group (Tables 2 and and3).3). In each instance, MassHealth could expect to observe a net savings over a 1-year time frame. Savings were greatest when nonadherence occurred only among severe asthmatics, owing to the high monthly drug cost in this subgroup. But even among patients with mild asthma, low frequencies of acute events resulted in net cost savings to the state.
Our results were sensitive to the AWP of ICS, but less sensitive to changes in the assumed efficacy of ICS, the risk of acute events, acute-care costs, and the payment-to-cost ratio for providers (Table 6). Our results showed that regardless of assumptions, sensitivity analyses were consistent with our base-case analyses: MassHealth would expect savings, because reduced payment to pharmacies would more than offset increased outlays to providers. Even with 100% prescription adherence under the postpolicy scenario, MassHealth would still attain savings, because copayments are automatically deducted from the reimbursement to pharmacies .
We employed a simulation model to project the policy implications of a prescription drug copayment increase on various stakeholders. Because inputs into simulation models can be tailored on the basis of policy makers’ specific interests, our approach could be especially helpful when estimating the impact of a particular variable on health and economic outcomes, orwhen empirical data are not applicable to the precise situation where the policymaker’s interest lies. We conducted extensive sensitivity analyses to estimate the impact of influential model parameters, and regardless of assumptions, they were consistent with our base-case analyses. Nevertheless, because simulation models are based on assumptions and estimations from other studies, our projections should be validated by an empirical analysis.
Given the budget constraints and financial pressures facing Medicaid programs nationwide, there are sound economic reasons to institute cost-containment policies to curb unnecessary utilization by forcing consumers to internalize externalities associated with their consumption of scarce sources. Nevertheless, our analysis suggests that the current copayment policy creates distinct winners and losers that may not reflect public policy objectives being pursued. Using the example of ICS therapy for asthmatic MassHealth beneficiaries, we find that an increase in prescription drug copayment would shift the financial burden from MassHealth to other stakeholders. Asthmatic patients would shoulder a heavier burden in the form of increased out-of-pocket payment and additional acute exacerbations. This finding persists over a broad range of assumptions regarding drug nonadherence rates, drug efficacy, AWP of ICS, risk of acute event, and acute-care cost. Our analysis only takes into account direct out-of-pocket costs to the patient. Additional acute exacerbations are also likely to impact quality-of-life and incur indirect costs due to disability and lost productivity.
Our findings are consistent with previous studies [4,7,10,13,18], which suggest that cost-sharing policies have negative effects on health outcomes among the poor and sick. It can be argued that our nonadherence estimate of 10% is less conservative, considering that the new copayment requirement was only $2.00 per prescription. Nevertheless, it represents a 300% increase from the previous copayment, 50¢. Moreover, chronic conditions, such as diabetes, metal illness, high blood pressure, and asthma require multiple prescriptions, even small copayments add up quickly for low-income patients with chronic diseases . Given the high prevalence of chronic diseases among Medicaid beneficiaries [10,13], health outcomes might deteriorate even further than in our base-case analysis, if potential nonadherence to multiple medications was considered.
Although our analysis suggests that providers would receive additional payments from MassHealth, this should not be interpreted to mean that higher drug copayments represent a net financial gain for providers. MassHealth reimbursement rates to providers are reported to be lower than actual cost [36,40]; hence, increased acute event caseloads in a postpolicy scenario could pose financial problems to providers. MassHealth beneficiaries may encounter higher barriers to care [21,41], because financially stressed providers may refuse to participate in MassHealth programs. We assumed that pharmacies would successfully collect all copayments from patients. Nevertheless, federal laws require that pharmacies dispense prescribed medication regardless of Medicaid patients’ ability to pay the copayment [1,13]. If, as has been reported, more Medicaid patients fail to make the increased copayment, pharmacies may incur even higher financial loss with the copayment increase [10,13].
There is reason to worry that increasing copayment may not be the most effective mechanism available to the state to control health-care spending. As we have noted above, the federal government provides matching funds that covers more than half the cost of Medicaid spending in Massachusetts. With the institution of the copayment, more than half the savings that accrue to the state also pass directly to the federal government. Given the losses—both the financial costs and the adverse health effects—remain in state, there is an inevitable net loss to the people of Massachusetts, when viewed from a local societal perspective, which is built into the structure of this policy.
Nationwide, approximately 6 million beneficiaries dually eligible for Medicare and Medicaid transitions form Medicaid to Medicare Part D drug coverage in 2006 and will face higher copayments as a result. Other low-income beneficiaries will also face copayments of between $1 and $5 depending on their income levels and the drug they are taking.
This study has several limitations. First, we assumed that physicians’ prescribing behavior would not change as a result of the copayment increase. If physicians increased the average prescription size as a result of increased copayment, then Medicaid beneficiaries would make fewer copayments and their monthly financial burden per ICS payment would be smaller. Currently, Medicaid programs in Massachusetts, New York and California allow up to a maximum of 90 days’ supply of drugs to be dispensed with one copayment . Nevertheless, 40 other state Medicaid programs limit the supply of medication dispensed on one prescription to 30 to 34 days , therefore physicians could not increase prescription size. Our assumption that physicians’ prescribing behavior would not change is consistent with a previous study .
Second, Medicaid patients are a fluid group, and more than one-third of Medicaid beneficiaries lose coverage within 12 months . This lack of continuous enrollment led us to choose a 1-year time horizon. Whether there would be a long-term deterrent effect of a copayment increase on the ICS usage is not clear.
Third, drug rebates from manufacturers to the federal and the state government were not included in our analysis: the states and federal government share in the rebates in proportion to their share of the cost of the drugs . The rebate is estimated based on the Average Manufacturer Price (AMP), but AMP of ICS was not publicly available. Including the drug rebate in our analysis would reduce the size of the savings to MassHealth.
Fourth, we did not incorporate a potential increase in the utilization of short-acting beta-agonist resulting from ICS nonadherence, because of the limited number of available studies. In addition, we assumed that there would be no effect on the utilization of rescue therapies for patients experiencing acute exacerbations.
Finally, data on the impact of a copayment increase on the asthmatic Medicaid beneficiaries are limited. Many of the studies that report on price sensitivity were old. Since these studies were conducted, the volume of prescription drug use and polypharmacy for a number of conditions has increased and it is not clear what impact these trends would have on the price responsiveness among Medicaid enrollees. We conducted sensitivity analyses to explore the variations of noncompliance rates in our results, yet our findings in this regard are speculative. Furthermore, our analysis is based on adult, asthmatic Medicaid beneficiaries; the results may not be applicable to children or other patients with higher incomes and better health status.
Using the example of ICS therapy in the asthmatic MassHealth population, we find that increasing copayments for MassHealth beneficiaries would result in greater numbers of acute events and shift the financial burden from MassHealth to pharmacies and Medicaid beneficiaries in a 1-year time horizon. State Medicaid programs should weigh whether short-term cost savings—more than half of which will devolve to the federal government—may be offset by the adverse economic and health consequences shouldered by other stakeholders over the longer term.
The authors are grateful to Drs Joseph Newhouse, Steve Soumerai, Nancy Turnbull, Nancy Kane, Rick Siegrist, Howard Rivenson of Harvard University for their helpful comments. We also thank Mr. Jon Seiff and Mr. Christopher Burk from the Massachusetts Division of Medical Assistance and Dr Janice Cooper of Columbia University for their advice on MassHealth regulations.
Source of financial support: This study was supported by National Heart, Lung, and Blood Institute (1 R01 HL068201-01A1). Dr. Fuhlbrigge was supported by a Mentored Clinical Scientist Development Award from the National Heart, Lung, and Blood Institute 1-K08-HL03910-01.