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Reducing Patient Drug Acquisition Costs Can Lower Diabetes Health Claims
John J. Mahoney, MD

Reducing Patient Drug Acquisition Costs Can Lower Diabetes Health Claims

John J. Mahoney, MD

Concerned about rising prevalence and costs of diabetes among its employees, Pitney Bowes Inc recently revamped its drug benefit design to synergize with ongoing efforts in its disease management and patient education programs. Specifically, based on a predictive model showing that low medication adherence was linked to subsequent increases in healthcare costs in patients with diabetes, the company shifted all diabetes drugs and devices from tier 2 or 3 formulary status to tier 1. The rationale was that reducing patient out-of-pocket costs would eliminate financial barriers to preventive care, and thereby increase adherence, reduce costly complications, and slow the overall rate of rising healthcare costs. This single change in pharmaceutical benefit design immediately made critical brand-name drugs available to most Pitney Bowes employees and their covered dependents for 10% coinsurance, the same coinsurance level as for generic drugs, versus the previous cost share of 25% to 50%. After 2 to 3 years, preliminary results in plan participants with diabetes indicate that medication possession rates have increased significantly, use of fixed-combination drugs has increased (possibly related to easier adherence), average total pharmacy costs have decreased by 7%, and emergency department visits have decreased by 26%. Hospital admission rates, although increasing slightly, remain below the demographically adjusted Medstat benchmark. Overall direct healthcare costs per plan participant with diabetes decreased by 6%. In addition, the rate of increase in overall per-plan-participant health costs at Pitney Bowes has slowed markedly, with net per-plan-participant costs in 2003 at about $4000 per year versus $6500 for the industry benchmark. This recent moderation in overall corporate health costs may be related to these strategic changes in drug benefit design for diabetes, asthma, and hypertension and also to ongoing enhancements in the company's disease management and wellness programs.

(Am J Manag Care. 2005;11:S170-S176)

Direct medical costs for diabetes and related complications are notoriously high. The Centers for Disease Control and Prevention estimates the cost at $92 billion per year,1 and health insurance expenditures for the individual with diabetes are triple those of the average consumer.2 From the US employers' perspective, the burden of diabetes extends even further to include the $40-billion annual cost for indirect expenditures because of disability, work loss, and premature mortality.1,3,4 In fact, disease-related work absences and disability account for about one third of the total cost per employee with diabetes.5

Fortunately, investing in aggressive diabetes control not only improves blood glucose levels but reduces medical complications and costs6-8 and may also boost productivity and lower absenteeism.3,9,10 Although optimized use of medications is essential to improved diabetes control,9 the trend in pharmaceutical benefit design has been to pass higher portions of drug costs to members to slow the growth of the healthcare budget. But employers must balance this need for employee cost-sharing and "demand management" with the desire to increase access to optimal care for costly conditions like diabetes.11 If not managed judiciously, the high copays and coinsurance may become a financial barrier to proper diabetes care. The short-term savings may actually impede the opportunity for longer-term health budget savings and productivity gains.

At Pitney Bowes, the escalating cost of healthcare hit home most recently in the year 2000, when per-employee claims jumped by 13% versus an increase of just 3% in the benchmark of similar companies (as measured by the Hewitt Health Value Index). Although the company's average per-participant cost of approximately $3300 per year remained well below the benchmark average, the double-digit increase was cause for alarm. Some of the increase was attributed to managed care companies cutting back on utilization management programs and some to an average employee age slightly above the benchmark, thus increasing prevalence of chronic medical conditions. Perhaps related to this demographics issue was the additional fact that more extremely high-cost (>$100 000) cases of end-stage long-term disease were being treated. But these were only guesses about the real sources of the cost spike.

As described in this article, the company's concerns led it to tap its own considerable information resources to identify its true cost drivers for several long-term diseases. After evaluating these drivers, management then altered its prescription drug plan in an attempt to boost plan participant (ie, employee and covered dependents) access to medications required for the treatment of key chronic conditions such as asthma, diabetes, and hypertension. Key findings related to diabetes are presented in this report because the details of employer-initiated efforts may be relevant to any healthcare manager dealing with rising costs for long-term diseases.

The Opportunity at Pitney Bowes

Pitney Bowes, a Fortune 500 company providing integrated mail and document management systems services and solutions, has 35 000 employees worldwide and a revenue of $5 billion per year. Within the United States, the company's 23 000 employees are 58% male with an average age of 41 years and an average length of service of 8.1 years. Twenty-five percent of employees are located in the New York, New Jersey, and Connecticut tristate area, with wide dispersal across the remaining states.

The company has an integrated health, wellness, and disability strategy with databases providing timely feedback on each. For example, cost data are available on all plan participant medical and pharmacy expenditures. Also available for scrutiny are employee disability rates, absence data, worker compensation costs, and demographic information along with employee risk factors and behaviors, productivity information, and selected survey results. All data are available in aggregated, deidentified format that is fully compliant with the Health Insurance Portability and Accountability Act of 1996 (HIPAA).

The medical benefits at Pitney Bowes are available through self-insured or fully-insured plans and share a common benefit design. About 80% of plan participants opt for a self-insured plan. There are 46 local and national health maintenance organization carriers and 4 national preferred provider organizations. In all of the self-funded plans and a few of the others, the drug benefits are provided by a carve-out pharmacy benefit manager. This coverage of approximately 90% of all employees under 1 common pharmaceutical plan provides a potentially powerful single point of entry for studying—and for leveraging—long-term disease outcomes in the Pitney Bowes population.

Typically, disease management programs are the logical solution for measuring and manipulating health in areas such as asthma, cardiovascular disease, and diabetes. Although disease management is part of the integrated effort of long-term disease care at Pitney Bowes—in fact, such programs remain a condition for bidding on company business—the presence of close to 50 separate health plan vendors precluded any easy opportunity to have an impact on diabetes care with a single employer-driven program change. The company had already introduced an Internet-based health portal for employees and an opt-in voluntary disease management program, and modified their existing wellness program to encourage more long-term disease awareness and treatment. These existing disease management and patient education/wellness programs helped form a broad base of a sensible benefits package aimed at improving care and limiting total costs. Still, company management was looking for a new catalyst to change health behaviors and limit costs. Specifically, they wanted to get ahead of the cost curve by quickly shifting more plan participants with expensive long-term diseases into prevention compliance.

In this situation, the drug benefit design suggested itself as a logical tool for employer-driven population management. The potential value of this common denominator of employee health became even more striking after the company's health benefits managers realized, as discussed next, that low medication adherence was linked to high-cost claims.

The Predictive Model: What Causes High-cost Claims?

Shortly after the 13% cost surge of 2000, the company commissioned an analysis to determine what population-based factors caused plan participants to migrate from "normal-cost" ($400-$700 per year) to "high-cost" status (>$10 000 per year). A consulting company called Medical Scientists Inc (recently acquired by LifeMasters Supported SelfCare, Inc) worked with Pitney Bowes to develop a hybrid artificial intelligence program that defined the end point in question—in this case, the transition to high costs—and then identified the population-level variables associated with that end point. The program was unique in the way that it scoured the database for any employee variable linked to increased costs—not just the preconceived variables such as age, concomitant disease, or hemoglobin A1C level. Notably, the predictive model also considered the total cost of care for employees, including not only direct medical costs, such as medical claims, pharmacy, and behavioral health, but also indirect costs related to absenteeism and disability. The database and cost assumptions for the predictive modeling were set up and are still maintained by Medstat, a division of the Thomson Corporation.

The model results quickly confirmed the relationship between long-term conditions and future high total healthcare costs. A key actionable finding was that illness burden and costs were driven by a lack of pharmaceutical adherence. In diabetes, those plan participants with 9 or fewer 30-day prescription fills for their diabetic medications were most likely to transition into the high-cost group. In other words, the patients with diabetes who were refilling their insulin and oral medications only two thirds of the time or less were likely to become the costliest. Similar findings were identified for asthma and hypertension. Again, lack of adherence to treatment has been known for decades to contribute to diabetes complications.12,13 But reading about nonadherence in a dry journal article and seeing a low possession rate linked directly to next-year per-patient costs in a printout from your own health plan database are 2 quite different experiences. As described next, this stark evidence of nonadherence as a cost driver led to questioning of fundamental assumptions about cost sharing, price elasticity, and drug accessibility in the Pitney Bowes prescription benefit plan.

Redesigning the Pharmacy Benefits for Diabetes

The drug plan at Pitney Bowes is not dissimilar from that used by many other large corporations. The 2 main options are the Regular Rx Plan and the "buy-up" Extra Rx Plan with a slightly lower coinsurance and copays, and an annual out-of-pocket maximum of $500 (Table 1). About 1 of every 4 employees elects the Extra Rx Plan. The plan is built on a traditional 3-tier formulary but has several consumer-centric elements, including limited prior authorization (only 6 drugs require it, all because of safety concerns) and no policies calling for mandatory generics, step therapy, or therapeutic substitution. Overall, the plan achieves a 75%/25% cost sharing with employees and is considered to be performing well in terms of standard pharmacy benefit measures, with an 11% rate of mail service prescriptions, an overall 48% generic drug utilization, and a generic drug fill efficiency rate of 91%.


In January of 2002, however, the company radically modified the pharmacy plan for participants with diabetes, asthma, or hypertension, allowing them to pay for brand-name medications at the tier 1 rates (eg, 10% coinsurance) and thus reducing a potential barrier to care for long-term disease (Figure 1). These changes were initiated despite the inevitable financial loss because of lower coinsurance payments and copays as well as foregone supplier rebates, an annual hit estimated at $1 million. Of course, the whole purpose in limiting out-of-pocket payments was to eliminate a potential reason that employees discontinue taking their medications and thereby to keep more of them on therapy and out of the hospital or emergency department (ED). So such a change could save money too.


Copyright AJMC 2006-2017 Clinical Care Targeted Communications Group, LLC. All Rights Reserved.
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