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The American Journal of Managed Care February 2014
Physician Financial Incentives and Care for the Underserved in the United States
Alyna T. Chien, MD, MS; Marshall H. Chin, MD, MPH; G. Caleb Alexander, MD, MS; Hui Tang, MS; and Monica E. Peek, MD, MPH
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Jessica A. Eng, MD; Cecily J. Hunter, BA; Margaret A. Handley, PhD; Christy K. Boscardin, PhD; Ralph Gonzales, MD; and Sara L. Ackerman, PhD
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Complying With State and Federal Regulations on Essential Drug Benefits: Implementing the Affordable Care Act
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Formulary Restrictions on Atypical Antipsychotics: Impact on Costs for Patients With Schizophrenia and Bipolar Disorder in Medicaid
Seth A. Seabury, PhD; Dana P. Goldman, PhD; Iftekhar Kalsekar, PhD; John J. Sheehan, PhD; Kimberly Laubmeier, PhD; and Darius N. Lakdawalla, PhD
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Min Tao, PhD; Krishna Rangarajan, MS; Michael L. Paustian, PhD, MS; Elizabeth A. Wasilevich, PhD, MPH; and Darline K. El Reda, DrPH, MPH
Positive Predictive Values of ICD-9 Codes to Identify Patients With Stroke or TIA
Kari L. Olson, BSc(Pharm), PharmD; Michele D. Wood, PharmD; Thomas Delate, PhD; Lisa J. Lash, PharmD; Jon Rasmussen, PharmD; Anne M. Denham, PharmD; and John A. Merenich, MD

Formulary Restrictions on Atypical Antipsychotics: Impact on Costs for Patients With Schizophrenia and Bipolar Disorder in Medicaid

Seth A. Seabury, PhD; Dana P. Goldman, PhD; Iftekhar Kalsekar, PhD; John J. Sheehan, PhD; Kimberly Laubmeier, PhD; and Darius N. Lakdawalla, PhD
Retrospective analysis of medical and pharmacy claims for patients diagnosed with schizophrenia or bipolar disorder in 24 state Medicaid programs.
Objectives: To measure the impact of state Medicaid formulary policies on costs for patients with schizophrenia and bipolar disorder.

Study Design: Retrospective analysis of medical and pharmacy claims for patients diagnosed with schizophrenia or bipolar disorder in 24 state Medicaid programs.

Methods: We combined information on formulary restrictions in Medicaid with the medical and pharmacy claims of 117,908 patients with schizophrenia and 170,596 patients with bipolar disorder in Medicaid who were single-eligible, and newly prescribed a second-generation antipsychotic from 2001 to 2008. We tested the impact of formulary restrictions on the medical costs and utilization of patients in the 12 months after the index prescription. To capture social costs in addition to medical expenditures in Medicaid, we estimated the incremental costs of incarcerating patients with schizophrenia and bipolar disorder associated with formulary restrictions.

Results: Patients with schizophrenia subject to formulary restrictions were more likely to be hospitalized (odds ratio 1.13, P <.001), had 23% higher inpatient costs (P <.001), and 16% higher total costs (P <.001). Similar effects were observed for patients with bipolar disorder. Our estimates suggest restrictive formulary policies in Medicaid increased the number of prisoners by 9920 and incarceration costs by $362 million nationwide in 2008.

Conclusions: Applying formulary restrictions to atypical antipsychotics is associated with higher total medical expenditures for patients with schizophrenia and bipolar disorder in Medicaid. Combined with the other social costs such as an increase in incarceration rates, these formulary restrictions could increase state costs by $1 billion annually, enough to offset any savings in pharmacy costs.

Am J Manag Care. 2014;20(2):e52-e60
Applying formulary restrictions to atypical antipsychotics is associated with higher total medical expenditures for patients with schizophrenia and bipolar disorder in Medicaid.
  • Adherence to medication declined due to formulary restrictions.

  • Because a longer half-life means an active drug remains in the circulation longer after the last dose, oral antipsychotics with longer half-lives might be less impacted by partial nonadherence than those with shorter half-lives.

  • Because the prescriber can individualize a patient’s treatment, our results suggest autonomous prescribers constitute an asset to payers, since these prescribers achieve lower hospitalization rates than prescribers who operate within a restricted payer environment.
In an effort to contain rising expenditures on prescription drugs, state Medicaid programs around the United States have increasingly adopted formulary restrictions designed to restrict access to specified high-cost medications.1-5 Second-generation antipsychotics (SGAs), or “atypical” antipsychotics, have been among the most frequently targeted class of drugs.6 Since the first atypical antipsychotics were introduced in the 1990s, they have increasingly replaced first-generation or “typical” antipsychotics and in 2005 accounted for over 15% of all Medicaid spending on pharmaceuticals.7 Their high cost and rapid growth within Medicaid made them natural targets for cost containment. More than one-third of state Medicaid programs and Medicare Part D (MPD) prescription drug plans now require prior authorization or some other restriction for at least 1 atypical antipsychotic.1,2,8 Formulary restrictions on atypical antipsychotics are controversial because they affect patients with severe chronic mental illness, including schizophrenia and bipolar disorder. While these conditions are relatively uncommon in the general population—schizophrenia affects about 1.1% of people in the United States9 while bipolar disorder affects about 2.6%10—they are more common in the Medicaid population. Estimates suggest that the prevalence of diagnosed schizophrenia in the Medicaid population is approximately 1.7%, and it is estimated that over 30% of individuals with schizophrenia are Medicaid beneficiaries.11 Formulary restrictions influence clinical decisions about the type of atypical antipsychotic that a patient receives, but it is known that the efficacy and tolerability of these agents varies substantially from one patient to another.8 This heterogeneity across different treatments means that providers and patients sometimes need to try different treatment regimens to attain desired clinical outcomes, and restricting access to some medications can lead to possible noncompliance with therapy or treatment non-response.

Given the vulnerable nature of these patients, there is concern that such disruption could have adverse consequences. For example, one study of medication nonadherence for individuals with schizophrenia found a 50% increase in the risk of a mental health hospitalization in the first 10 days following a missed prescription refill.12 Other studies have found that adherence to atypical antipsychotics fell3 or that healthcare costs rose.13,14 There is some evidence of a small decrease in pharmacy expenditures associated with formulary restrictions for patients with bipolar disorder, but this was also associated with an increase in treatment discontinuation.5,15

While informative, these studies are limited in that each focuses on only small groups of states (usually 1). More work on a larger number of states with a more diverse set of policy changes is needed to understand the impact of formulary restrictions on health outcomes and medical costs for patients with severe mental illness.6,16 Moreover, while Medicaid expenditures are an important metric of social costs, there are others. Disruptions in antipsychotic therapy could lead to more acute psychotic episodes by affected patients. This can lead to public unrest or even violence, which can be reflected as an uptick in incarceration rates among the mentally ill, driving up the burden of mental illness on society.17

This study examines the relationship between formulary restrictions and healthcare utilization and expenditures for patients with schizophrenia and bipolar disorder from 24 state Medicaid programs. We combined information on formulary restrictions for atypical antipsychotics in these states with data on all of the medical and pharmacy claims in Medicaid for patients with schizophrenia and bipolar disorder from 2001 to 2008. We combined our estimates of formulary restriction effects on healthcare costs with evidence of their effect on incarceration costs. This provides a more complete accounting of the potential unintended consequences of trying to contain costs by restricting access to the full range of therapies for mental illness.



We used claim-level data on inpatient, outpatient, longterm care, and pharmacy claims from the Medicaid Analytic eXtract (MAX) files. Our data included all patients diagnosed with schizophrenia or bipolar disorder from 24 states from 2001 to 2008. (The states are: Alabama, Arkansas, California, Florida, Idaho, Illinois, Indiana, Kentucky, Louisiana, Massachusetts, Maryland, Minnesota, Mississippi, North Carolina, New Jersey, New Mexico, New York, Ohio, Pennsylvania, South Carolina, Texas, Virginia, Wisconsin, and West Virginia. We did not receive 2008 data for Pennsylvania or Wisconsin because they were unavailable at the time of data extraction.) We selected these because other states often deliver services to Medicaid beneficiaries through the use of managed care, and there are issues related to the availability and reliability of claims data for enrollees in Medicaid-funded managed care plans.

Study Sample

The study sample includes all working-age adult enrollees (aged 18-64 years) diagnosed with schizophrenia or bipolar disorder who were first prescribed an atypical antipsychotic (olanzapine, risperidone, quetiapine, aripiprazole, or ziprasidone) during the study period (N = 375,934). We restricted the study sample to patients newly prescribed an atypical antipsychotic, because these patients were more likely to be newly treated for their condition, and thus were most likely to be affected by formulary restrictions. An index date was identified using the start date of the first filled prescription for the first atypical prescribed. We tracked all medical and pharmacy claims 6 months before and 12 months after the index date. Patients with schizophrenia were identified based on medical claims with primary or secondary International Classification of Diseases, Ninth Edition (ICD-9) diagnosis codes of ICD-9-CM 295.x during the study period (2001-2008).

Patients with bipolar disorder were identified based on ICD-9-CM codes of 296.0x, 296.1x, and 296.4x-296.8x. We excluded patients with both schizophrenia and bipolar diagnoses (N = 106,314, 28%), because these patients likely had more uncertainty over their disease status, which could have affected treatment patterns (including use of atypical antipsychotics). We also excluded enrollees who were dually eligible for Medicare because of changes in prescription drug coverage that occurred with the introduction of MPD in 2006, which could have affected atypical antipsychotic use. We also excluded patients with prior first-generation antipsychotic use or a prescription for clozapine prior to the index date, because it is unclear how these patients would be affected by the restrictions (eg, clozapine is only approved for treatment-resistant schizophrenia, so there are already significant restrictions on its use). Finally, we excluded any patients who died in the 12-month follow-up period. Our final study samples included 117,908 patients with schizophrenia and 170,596 patients with bipolar disorder.

Formulary Restrictions

Data on formulary restrictions were obtained from a 2009 survey of state Medicaid programs that asked about their formulary policies affecting atypical antipsychotics and other drugs treating mental illness. The survey, used in prior work,6 covered 30 states (including the 24 states in our study sample) from 1999 to 2008 and asked whether specified restrictions applied to a list of drugs identified by US brand name, including the atypical antipsychotics examined in our study. Programs were asked to identify whether a given type of restriction applied to each drug in the list and over which years it applied. Survey responses were supplemented using the Medicaid pharmacy program websites for relevant documents (eg, preferred drug lists) and with direct contact with Medicaid program personnel.

The survey collected information about the most commonly used restrictions to contain Medicaid pharmacy costs. Prior authorization requires providers to obtain prior permission to prescribe a specified medication, or the Medicaid program will not guarantee reimbursement. Quantity limits are direct restrictions to how many units of a drug may be dispensed in a fixed time period, usually a month or day (this includes daily quantity limits—sometimes referred to as dose optimizations—that operate in the same way as monthly limits). Step therapy requires that medication be prescribed only after a provider tries other selected medications, usually cheaper alternatives. Under these policies, providers must document that the patient has had unsatisfactory responses, and needs the nonpreferred medication. Other, less common policies were also surveyed, including age edits, which restrict use by patients in certain age groups.

Following prior work, we implemented our measure of these policies using binary indicators when any of the policies affected patients using a drug in a state in a year.6 Figure 1 summarizes the share of states that had a restriction by drug and year in our sample. The figure shows that the use of formulary restrictions grew rapidly over the study sample. The most commonly restricted drug in the sample was olanzapine, particularly early on, followed closely by aripiprazole. By 2008, both olanzapine and aripiprazole were targeted in more than half of the states in our sample.

As a sensitivity analysis, we examined how the effects differed based on the type(s) of atypical antipsychotics targeted. Specifically, in our empirical analysis, we created binary categories to allow us to test for the effects of:

  • Any of the policy types against any of the 5 molecules
  • Any of the policy types targeting olanzapine only
  • Any of the policy types targeting olanzapine and any of the other 4 molecules, or
  • Any of the policy types targeting any of the 4 molecules but not olanzapine.

We used these specific categories rather than breaking down the analysis to separately consider policies targeting all 5 drugs because there were an insufficient number of drugpolicy combinations.

Main Outcome Measures

We measured healthcare utilization and spending over a range of potential outcomes. This includes: whether we observe any hospitalization episode for the patient in the follow-up period, the total Medicaid dollars spent on inpatient spending, total medical spending (defined as the sum of inpatient and outpatient spending), total prescription drug spending (including spending on atypical antipsychotics), and total Medicaid spending from all sources. Dollar values were normalized to 2008 using the medical care component of the Consumer Price Index. Finally, we tested the impact of formulary restrictions on adherence to the index atypical antipsychotic, defined as the proportion of days covered (PDC) over the 365 day period after the index date.

Statistical Analysis

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