Effect of a Medication Copayment Increase in Veterans With Schizophrenia

Published Online: June 01, 2007
John E. Zeber, PhD; Kyle L. Grazier, PhD; Marcia Valenstein, MD; Frederic C. Blow, PhD; and Paula M. Lantz, PhD

Objective: To assess the effect of the 2002 Veterans Millennium Health Care Act, which raised pharmacy copayments from $2 to $7 for lower-priority patients, on medication refill decisions and health services utilization among vulnerable veterans with  schizophrenia.

Study Design: Quasi-experimental.

Methods: This study used secondary data contained in the National Psychosis Registry from June 1, 2000, through September 30, 2003, for all veterans diagnosed with schizophrenia and receiving healthcare through the Department of Veterans Affairs (VA). Longitudinal, mixed models were used to observe changes in prescriptions, health services utilization, and pharmacy costs in veterans subject to copayments (N = 40 654) and a control group of exempt individuals (N = 39 983). Analyses controlled for demographics, substance abuse, non-VA utilization, and medical comorbidities. The Health Belief Model supported analytical criteria for factors directly related to medication adherence issues.

Results: Total prescriptions and overall pharmacy costs leveled among veterans with copayments after the medication cost increase. However, psychiatric drug refills dropped substantially, nearly 25%. Although outpatient visits were unaffected, psychiatric  admissions and total inpatient days increased slightly, particularly 10 to 20 months after the policy change. Factoring in additional copayment revenue, the VA realized a $14.7- million annual net revenue gain from this subpopulation alone.
Conclusion: These results suggest the new policy successfully reduced utilization and costs, with perhaps minimal clinical consequences to date. However, higher inpatient utilization resulting from cost-related nonadherence is troubling within an already high-risk and poorly adherent population, especially considering the reduction in psychiatric drug refills.

(Am J Manag Care. 2007;13(part 2):335-346)

This study showed that higher medication copayments for veterans with schizophrenia yielded a sharply reduced number of psychiatric drug refills, with slightly higher admission rates. Potential policy lessons learned include:

Healthcare benefit decisions are best made at the intersection of clinical and financial implications.

Patients who have multiple illnesses and drug costs face difficult decisions.

“One-size fits all” policies may inequitably serve certain disadvantaged patients.

In 1999, Congress passed the Veterans Millennium Health Care Act (Public Law 106-117), or the “Millennium Bill.”1 Effective in fiscal year 2002 (FY02), this bill raised outpatient prescription copayments from $2 to $7. The goal was ostensibly budgetary, to contain rising pharmacy costs while addressing concerns that patients were increasingly choosing to receive healthcare through the Department of Veterans Affairs (VA) specifically for its generous pharmacy benefits. With nearly 60% of veterans who transferred care citing inexpensive medications as their primary reason,2 this trend led to observations that the “VA was becoming a drug store. A rapidly aging veteran population serves to escalate challenges faced by the system and its patients.

This predicament is certainly not unique to the VA. Outpatient pharmacy utilization remains the largest slice of many healthcare budgets, and the fastest growing cost sector. For privately insured patients, national prescription drug expenditures were $78.9 billion in 1998, up from $2.7 billion in 1960. With annual growth rates doubling to nearly 15% during that period, medications will represent 16% of total US healthcare expenditures by 2008.3 Among Medicaid recipients, a population often compared with veterans, prescription payments rose 15.3% annually from $4.4 billion in 1990 to almost $12 billion in 1997.4

Antipsychotic medications have traditionally spurred rapid pharmacy cost increases. These expenditures rose by a factor of  7 during the 1990s and were up nearly 20% to $14.7 billion in 2001.5,6 This exponential growth is attributable to the introduction of newer atypical antipsychotics, along with improved coverage and access to psychiatric treatment.7 Although the predominant driver of escalating medication costs is generally utilization, the exception is psychotropic drugs: two thirds of rising expenditures is instead due to medication prices.6

VA outpatient pharmacy expenditures totaled $2.85 billion in FY01, increasing 19% annually since FY98 while inpatient and outpatient charges rose by merely 1.5%. Drug costs constitute a significant fraction of the VA budget, increasing from approximately 6% in the early 1990s to 14% this past year.8 Outpatient psychiatric medications cost $373.3 million in FY02, with those for depression (selective serotonin reuptake inhibitors) and schizophrenia (atypical antipsychotics) the dominant components (91%) and largest driver of recent increases. Antipsychotics alone are the third most expensive drug class, with 1.5 million prescriptions totaling $158 million—7% of the total pharmacy budget.

Healthcare organizations have implemented a variety of strategies targeting pharmacy cost increases, including tighter formularies, promotion of generic medications, and an array of copayment plans. The latter frequently prove quite effective in controlling pharmacy and health services utilization. RAND experiment findings revealed that patients receiving free care averaged 4.6 annual physician visits and $340 in expenditures, compared with 3.3 visits and $224 for patients responsible for 50%.9 Cost-sharing among chronically ill patients in the Medical Outcomes Study also reduced physician visits, although utilization reductions occurred among patients with serious as well as minor symptoms.10 Other studies revealed similar reductions in mental health and urgent care visits even for “serious emergencies.”11,12

Pharmacy copayments have become increasingly creative, including prescription caps, coinsurance percentages, and tiered systems. In one recent study, a $5 increase resulted in a 42% reduction of drug costs, but also a 20% decrease in pharmacy utilization and nearly double out-of-pocket patient costs.13 When Gibson and colleagues analyzed the longitudinal effects of a $5 copayment increase on employee prescriptions, they also found a sharp decrease in fills.14 Interestingly, other researchers have reported that medical and psychiatric drug utilization changes minimally in response to large copayment increases.15

Among Medicaid recipients in Massachusetts, Soumerai and colleagues observed that a monthly prescription cap resulted in immediate 15% to 49% utilization decreases across a range of psychiatric drugs (antipsychotics, antidepressants, hypnotics).16 This decrease coincided with increased mental health visits, plus a sharp rise in emergency department (ED) visits and partial hospitalizations. Equally significant, the average $1530 total treatment cost increase exceeded pharmacy savings by a factor of 17. When the cap was replaced by a flat $1 copayment, equivalent pharmacy savings were achieved with significantly fewer adverse events.16

Copayment amount is closely associated with utilization. Smaller charges (<$10) had minimal influence on hypoglycemic fills among diabetic patients, but larger copayments reduced prescriptions by 20%.17 For HMO patients, a $1 to $3 increase led to a 3.9% drop in total prescriptions; another raise to $5 resulted in an additional 6.8% decrease 1 year later.18 A general review estimated that a $3 to $10 copayment increase typically signifies a utilization change of around 20%, with higher copayments resulting in 50% declines within a few months.19

Within the general population, medication cost issues are not trivial. One Harris poll reported that 20% of patients listed “medication too costly as the primary reason for not filling prescriptions.20 Among patients with a chronic illness (including diabetes and depression), 18% claimed to have had episodes of cost-related medication restriction.21 Certain subpopulations are particularly vulnerable to higher copayments. Elderly patients or those with chronic conditions are more sensitive to medication costs than younger adults,22,23 as are ethnic minorities, for whom restrictions are further compounded by advancing age.24,25 One third of elderly patients who restricted medication use reported moderate to serious health ramifications.26 These included higher rates of angina and nonfatal heart attacks or strokes, and a reduction in overall health status. Cardiac patients reducing use of antihypertension drugs were 4 to 6 times more likely to suffer serious coronary events.27 Conversely, in patients with diabetes, a 10% improvement in adherence translated into significantly lower glycosylated hemoglobin levels.28

Medication adherence has long been a problem among patients with serious mental illness. In previous work prior to the copayment increase, we found that 40% of VA patients with schizophrenia were poorly adherent with antipsychotic medications, with a linear relationship between adherence and psychiatric admission risk.29,30 Other studies reported similar findings, noting higher hospitalization rates, longer lengths of stay, multiple relapses, additional ED visits, higher treatment costs, and reduced quality of life.31-33 Lindstrom and Bingefors concluded that noncompliance in patients with schizophrenia is the most significant contributor to ineffective drug therapy.34

The Health Belief Model frequently is used as context for addressing issues of medication adherence.35 It recognizes that patients must balance perceptions of potential treatment benefits with perceptions of potential barriers (eg, costs) when expressing decisions to pursue healthcare services. The chain that links drug costs to nonadherence to negative outcomes is far from hypothetical. Adherence blends a complex mélange of patient characteristics and health beliefs, along with provider and system factors. These include demographics, social support, functional status, the therapeutic relationship, and substance abuse.36-39 A substantial segment of veterans with schizophrenia were already nonadherent before the 2002 policy change. Adding a rising cost further complicates a frustratingly multidimensional phenomenon.

According to the National Psychosis Registry,40 the VA treated 94 395 patients with schizophrenia in FY03, with costs totaling $1.64 billion. Many of these patients had multiple medical or substance abuse comorbidities. Although still relatively modest compared with copayments in other healthcare systems, the $7 copayment triples medication costs for these veterans, whose annual income averages $10 500. In this study, we examine potential ramifications of higher copayments, measured by medication prescriptions and health utilization patterns, along with pharmacy costs from the VA perspective.


Data Source and Study Population The National Psychosis Registry was developed to monitor care provided to veterans with serious mental illness. It provides information on demographics and other characteristics, diagnoses, utilization, pharmacy use, and costs. Pharmacy information includes medication name, fill date, drug class, days supply, and other instructions.

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