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Benefit-based Copays in the Real World: The Employer Perspective

Benefit-based Copays in the Real World: The Employer Perspective

Since 1960, healthcare costs as a percentage of the gross domestic product have climbed from 5% to about 15% in 2002.1 Yet despite greater spending, significant gaps in healthcare quality remain.

The continued rise in healthcare costs and spending has hit employers particularly hard. Between 2000 and 2005, employer health insurance premiums rose an average of 9.4%, jumping 11.2% in 2004 alone.2,3 That has resulted in fewer employers offering health coverage. In 2005, the Kaiser Family Foundation reported 60% of all firms offered health benefits to their employees, a significant decrease from 69% in 2000.3

One of the fastest-growing costs for employers has been in the area of prescription drugs. Spending in the United States increased more than 400% between 1990 ($40.3 billion) and 2004 ($188.5 billion). The increase in cost is primarily driven by drug utilization (an increase of 71% between 1994 and 2005) and higher costs for drugs that are, in most cases, linked to new medications entering into the market.4 Although the proportion of the US population with a prescription drug expense did not significantly change from 1996 to 2003 (from 62% to 61% in those younger than 65 years of age, and from 88% to 91% for those 65 years and older, respectively), drug costs increased an average of 8.3% per year from 1994 to 2005 (from an average of $28.67 to $64.86).4

Employer efforts to address the issues of suboptimal quality and costs, including drug costs, have followed 2 broad paths: benefit design changes that focus on cost control, largely by increasing cost sharing with employees; and quality initiatives, such as disease management coupled with pay-for-performance initiatives designed to improve quality, potentially indirectly limiting cost growth by keeping employees healthier.5

Can Disease Management Coexist with Cost-shifting?
Disease management programs aim to improve quality by increasing adherence to recommended treatment and screening services. Increasing adherence to recommended care can potentially lessen overall costs by reducing hospitalizations, emergency department (ED) visits, and rates of complications.6 However, the return on investment from disease management remains largely unproven.7 Nevertheless, even without a positive financial gain, disease management can improve health and increase the value associated with healthcare spending.6

Cost containment is designed to decrease the use of inappropriate healthcare services.8 If patients can respond optimally to cost sharing, not only would there be a reduction in expenditures, but value would be enhanced, because forfeited services would provide only a marginal benefit.

Yet, it is clear that copays affect patient adherence to recommended treatments, such as those treatments advocated by disease management programs. For example, Ellis et al found that 50% of patients taking a statin for secondary prevention of coronary heart disease (CHD) discontinued statin therapy after 3.4 years, whereas 50% taking the drug for primary prevention of CHD discontinued after an average of 3.7 years–both independently linked to drug copay amounts. Seventy-six percent of patients with a $20 or greater copay were nonadherent compared with 49.4% of those with less than a $10 copay.8

Goldman et al found that doubling copays reduced medication use by 25% to 45% in 8 therapeutic classes, although the patients with chronic illnesses who had ongoing needs were somewhat less responsive to copay increases.9

Unfortunately, cost-containment efforts primarily through increased patient cost sharing have occurred without substantial improvement for the quality initiatives that are simultaneously under way. For example, Chernew et al found no difference in the copay amounts of patients in disease management programs and those who are not in such programs.10

At the same time plans and purchasers encourage the use of quality-enhancing services, efforts to constrain overall health costs result in patients being directed to consume the recommended services (such as increased use of pharmaceutical drugs or services recommended by the disease management program),10 causing conflicting approaches to benefit design which actually contradict each other.

Although increased cost sharing can reduce inappropriate healthcare resource use because employees take a more active role in managing their care, such cost sharing can also work against the use of appropriate services encouraged by disease management and potentially reduce the effectiveness of this management.

Value-based Insurance Design
It may be possible to successfully integrate disease management programs with patient cost sharing without negatively affecting treatment adherence and outcomes. A value-based insurance design, which bases patient copays on medical need and cost as determined from available medical and economic evidence, offers such an option.11

The plan begins with a cost/benefit analysis of the medical benefits available from specific drugs based on evidence-based data relative to the total cost of treatment. Patients who exhibit symptoms for which the drug appears to provide the greatest benefit receive the lowest copays, and sometimes no copay at all. Those less likely to benefit clinically have higher copays.11

For example, a patient with a history of 2 myocardial infarctions and a low-density lipoprotein cholesterol (LDL-C) level >160 mg/dL would receive the lowest copay for a statin, whereas a patient with an LDL-C of 130 mg/dL and just 1 coronary artery disease risk factor would receive a higher copay. The benefit is designed to be dynamic, enabling copays to change as drug costs or overall use change.11

Although value-based insurance designs may not be applicable to all disease areas, this clinically rational approach is best used in areas that have scientifically tested and generally accepted guidelines, such as cholesterol reduction, asthma, and diabetes.5,11

A predictive modeling by Goldman et al found that such an approach used for cholesterol-lowering therapy could reduce hospitalizations and ED visits among patients receiving therapy, particularly high-risk patients, without increasing a benefit plan's pharmacy costs.12

Goldman et al modeled 2 copay scenarios relative to a base case in which high- and medium-risk cholesterol-lowering therapy users of all risk levels had a copay of $10. In the first scenario, eliminating high- and medium-risk users' copays and increasing low-risk patients' copays to $22 increased full adherence to the medication from 62% (base case) to 71% among the high-risk group and from 59% (base case) to 69% among the medium-risk group. Adherence dropped from 52% to 44% in the low-risk group. Nonetheless, the model avoided 79 837 hospitalizations overall, and accounted for an additional 10 406 hospitalizations among the low-risk group. Similar results were seen in reduced ED visits.12

The second scenario also eliminated copays for high- and medium-risk patients, but made no change for low-risk patients. In that scenario, drug spending increased, but the additional costs were more than offset by reduced hospitalizations and ED visits compared with the base case, yielding significant savings overall.11 Since this value-based approach was first described by Fendrick et al in 2001, more than 20 employers nationwide have adopted it, including Pitney Bowes and a variation on the value-based insurance design implemented by Humana Inc.11

Pitney Bowes
Pitney Bowes, a Fortune 500 company based in Stamford, Connecticut, has more than 35000 employees worldwide. It provides more than $5.5 billion in integrated mail and document management solutions to more than 2 million customers. Pitney Bowes' primary product, however, is service, making its employees' health critical.13

The company's employees are split into 2 groups: those who work for the corporate entity, with an average age of 43 years, who have been working for the company an average of 11.3 years, and those who work for Enterprise Solutions, which outsources mailrooms. Enterprise Solutions' population skews younger, with an average age of 40 years and an average tenure of 5.3 years. This population is also more likely to have a history of unemployment or receiving public assistance.13

In 2000, Pitney Bowes experienced its first double-digit increase in per-employee medical costs in 10 years, a 13% increase, compared with an increase of just 3% as benchmarked against a cohort of similar companies. Analysis and predictive modeling found the company's highest-cost chronic diseases were asthma, diabetes, and cardiovascular diseases, with a strong association between chronic disease progression, low rates of medication to treat the conditions, and lack of prevention and screening utilization. For example, the analysis found plan participants with diabetes who had 9 or less 30-day refills for their medications were most likely to transition into the high-cost group.14

Findings led to a major benefit redesign in which all front-end deductibles were eliminated and free preventive care was provided. Located in its Connecticut office, Pitney Bowes runs onsite medical clinics and call centers for its employees, and captures medical data in an electronic data tracking system. Pitney Bowes recontracted with its health plans, holding them to quality metrics based on those developed by the National Business Coalition on Healthcare, including a viable disease management and case management program.

The company changed its wellness program to focus on personal safety, exercise, nutrition, and screenings, offering significant incentives to employees who participated in these areas. Additionally, Pitney Bowes worked to increase the overall perception of health in the workplace. For example, it offered opt-in disease management programs, an Internet-based health portal, and even charged more for some less healthy snacks than healthier alternatives in the employee cafeteria.13,14

Also among the changes was a redesign of its pharmacy benefit plan. At the time, Pitney Bowes offered 2 options: a regular drug plan and a buy-up Extra Rx Plan, with slightly lower coinsurance and copays and an annual out-of-pocket maximum. Both plans were built on a 3-tier coinsurance plan.14

In January 2002, the company moved all drugs for asthma, diabetes, and hypertension–generic, preferred, and nonpreferred brands–into the 10% tier, including all diabetes testing equipment and test strips. Pitney Bowes also automatically added new drugs approved for these diseases to the first-tier category without a waiting period or review by its Pharmacy and Therapeutics Committee.14 Given lost rebates and reduced employee copays, this amounted to a $5-million investment.13 The change decreased the average cost of a 30-day prescription for employees with any of these diseases by 50% to 80%.14

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