Paul Grootendorst, John Marshall, Anne Holbrook, Lisa Dolovich, Bernie J. O'Brien, Adrian R. Levy
Faced with growing drug expenditures, drug insurance plan executives have adopted various cost containment measures. One such policy, reference pricing (RP), limits drug plan reimbursement of interchangeable medicines to a reference price, which is typically equal to the price of the lowest cost interchangeable drug; any cost above that is borne by the patient. RP policies vary in the extent to which drugs are considered interchangeable by a particular plan (Lopez-Casasnovas and Puig-Junoy 2000). Under its most restrictive form—Type 1 RP—on (...)
Faced with growing drug expenditures, drug insurance plan executives have adopted various cost containment measures. One such policy, reference pricing (RP), limits drug plan reimbursement of interchangeable medicines to a reference price, which is typically equal to the price of the lowest cost interchangeable drug; any cost above that is borne by the patient. RP policies vary in the extent to which drugs are considered interchangeable by a particular plan (Lopez-Casasnovas and Puig-Junoy 2000). Under its most restrictive form—Type 1 RP—only chemically equivalent drugs (i.e., branded and “generic” versions of the same drug) are considered interchangeable. Under Type 2 RP, all drugs from the same therapeutic class are considered interchangeable. For instance, under such a system all nonsteroidal antiinflammatory drugs (NSAIDs), used for analgesia, would be reimbursed at the same rate. Under Type 3 RP, by contrast, all the different analgesic drugs, including opiates and NSAIDs, would be considered interchangeable. There have been calls to integrate RP into the Medicare prescription drug benefit (Huskamp et al. 2000; Morgan, Barer, and Agnew 2003). Unlike traditional patient cost sharing policies, RP fully subsidizes lower cost medicines, and, for those who meet exemption criteria, higher cost medicines as well. RP might therefore save money while avoiding the adverse impacts on patient health associated with patient cost sharing, which typically applies to all drugs (Tamblyn et al. 2001). While the debate on whether RP should be widely used in the U.S. has been heated, evidence on its outcomes is limited (Kanavos and Reinhardt 2003). In this paper, we use retrospective population-based claims data to compare the net drug program savings realized by the application of Type 1 and then Type 2 RP with the NSAIDs by Pharmacare, the publicly funded drug subsidy program for seniors and various other residents of British Columbia (BC), Canada. NSAIDs are among the most commonly used medications worldwide, with over 70 million prescriptions and more than 30 billion over-the-counter tablets sold each year in the U.S. (Wolfe, Lichtenstein, and Singh 1999). Over 15 percent of North Americans suffer from arthritis and/or musculoskeletal disease (Lawrence et al. 1998), and current guidelines endorse both NSAIDs and acetaminophen as first-line therapies for symptomatic osteoarthritis (ACR 2000). Potential program savings from RP depend on the vector of reimbursement prices of the drugs considered interchangeable as well as on the quantities dispensed. Potential savings are greatest when use is skewed toward higher priced drugs and the price spread—the difference between the highest and lowest drug prices—is large. The price spread can only increase (or at least not decrease) the greater the number of drugs that are deemed interchangeable; potential savings are therefore largest for Type 3 RP and lowest for Type 1 RP. There were considerable differences in the prices of the different NSAIDs in BC prior to the introduction of Type 2 RP. The cost of generic ibuprofen, for instance, varied between $0.11 and $0.16 per day (depending on the amount used), whereas the daily cost of a newer NSAID, etodolac, varied from $1.79 to $3.58 (Therapeutics Initiative 1995). Several factors can mitigate drug plan savings from RP. The first of these is the generosity of the criteria, if any, by which patients are exempted from RP. Pharmacare exempts patients who have failed or are likely to fail on a lower cost, fully reimbursed drug. Although the physician must submit a written petition for review by Pharmacare's pharmacist personnel, exemption requests are usually granted within 48 hours. Pharmacare also exempts all NSAID prescriptions written by rheumatologists from Type 2 RP. Second, physicians might “prescribe around” the RP restrictions. In other words, they might substitute relatively costly analgesic drugs, including various opiates, that are not subject to RP for those that are. Third, economic theory suggests that setting reimbursement rates according to the prices of a set of reference standard drugs might encourage the manufacturers of those drugs to raise retail prices (Zweifel and Crivelli 1996; Morton 1997; Anis and Wen 1998). On the other hand, experience from Type 2 RP introduced in European countries suggests that such price increases are offset by decreases in the retail prices of drugs that are only partially reimbursed by drug plans. Fourth, although the drug plan saves money on those beneficiaries who elect to pay extra for the higher cost drugs, these expenditures are merely shifted—overall drug costs do not decline. Finally, the health of patients who switch to lower quality drugs might suffer, resulting in an off-setting increase in drug and other treatment costs. While we do not have data on patient health outcomes and individual patients commonly report better efficacy and/or tolerability with particular NSAIDs (Walker, Chan, and Yood 1992; Langman et al. 2001), we note that there is no consistent evidence of clinically significant differences in the anti-inflammatory and analgesic effect of the numerous different NSAIDs (Brooks and Day 1991; Holbrook 2001). Retrospective analyses of observational data have suggested a hierarchy among conventional NSAIDs in their potential for gastrointestinal injury, but these differences can be attributed to variations in effective dose and channeling bias (Henry et al. 1996; Rodriguez 1998). Others have studied the effects of prior authorization programs targeting higher cost NSAIDs on the health-related quality of life (Momani, Madhavan, and Nau 2002) and medical services use (Kotzan et al. 1993; Smalley et al. 1995) of chronic NSAID users enrolled in various U.S. state Medicaid programs. None of these studies detected any deleterious effects among those who were denied Medicaid subsidies for the higher cost NSAIDs. To address the net effect of Type 1 and 2 RP on Pharmacare and patient analgesic expenditures, we used monthly Pharmacare claims data aggregated across its senior (age 65+ years) beneficiaries, over the period February 1993 to June 2001, to examine prescribing patterns, NSAID prices, Pharmacare expenditure, and patient out-of-pocket expenditure on individual NSAIDs and other analgesic drugs. A previous report indicated high accuracy and completeness of provincial government drug claims data (Williams and Young 1996a Williams and Young 1996b). We focused on seniors given that they are the highest per capita users of analgesics (Health Canada 2003), and the size and composition of the beneficiary population is relatively stable over time.