Cutting Drug Co-Pays Lowers Costs for Insurers

Cheaper meds for patients mean fewer pricey hospitalizations, study finds

WEDNESDAY, Jan. 11, 2006 (HealthDay News) -- It may seem counterintuitive, but a new study finds that by eliminating patient co-payments for cholesterol-lowering statins, health insurers could actually save more than $1 billion a year in hospitalization costs.

That's because patients at highest risk for heart problems are more likely to take statins if they are cheaper. And better cholesterol control means fewer patients will develop the types of serious health problems that require expensive hospitalizations, the study authors say.

Eliminating or cutting co-pays for other widely used drugs could have a similar effect on health plans' bottom line, the experts noted.

"In the rush to contain health-care costs, the response of health plans has been to raise costs for pharmaceuticals," said study author Dana Goldman, director of health economics at Rand Health.

The point of the study, according to Goldman, was to see if there were more intelligent ways to design drug benefits to get drugs to those who would benefit most. "We wanted to see if it makes sense to [raise co-payments] when you have some patients who really need medication and others who might not benefit," he added.

The report appears in the January issue of the American Journal of Managed Care.

Using statins as an example, the researchers report that for people with heart disease, eliminating the co-pay for these drugs would dramatically reduce health-care costs, Goldman said. "If you gave these medications to them free, you could actually reduce overall health-care costs," he added.

In their study, Goldman's team examined cost estimates among the 6.3 million U.S. adults with private insurance or Medicare who take statins.

They found that by eliminating co-payments for the sickest patients, there would be nearly 80,000 fewer hospitalizations and more than 31,000 fewer emergency room visits each year. This would account for the more than $1 billion in annual savings to health insurers.

They also found that patients with co-pays of just $10 per month for their statins were 6 percent to 10 percent more likely to follow their drug regimen compared with patients who had co-pays of $20 per month.

The same strategy could be used with other drugs, Goldman said. One idea is to provide drugs free to those most at risk, with co-pays of $10 to $22 for other patients, so that health insurers don't lose money in their drug benefit program. But even providing drugs free to all patients would save money, Goldman believes.

Goldman noted that high co-pays are often a barrier to medication use. "That's true even for people with chronic illnesses like asthma, diabetes and heart conditions," he said. "When people have to pay more, they are less likely to adhere to their regimen."

The savings could be used to reduce the cost of health insurance or to pay bonuses to patients for staying healthy, Goldman said. "There are lots of intelligent uses for that money besides lining the pockets of the health plan," he said.

Another expert agreed that lowering drug co-pays saves money, pointing to one company that's proved it can be done.

"There have been similar findings with regard to diabetes care," said Paul Fronstin, a senior research associate at the Employee Benefits Research Institute. "When Pitney Bowes lowered costs for diabetes and asthma medications, they found that overall costs went down and compliance went up," he added.

The release of the Rand study coincides with the publication Wednesday of a second, related study -- this time from the U.S. Agency for Healthcare Research and Quality.

That study found that the number of American employees working for large firms who were offered single-coverage, no-premium contribution health plans dropped by about one-fifth since the late 1990s, from 28 percent in 1998 to just over 22 percent in 2003. The number of workers employed by smaller firms (fewer than 50 workers) who were offered these cheaper, no-premium plans has remained stable at around 55 percent between 1998-2003, the AHRQ researchers reported.

However, the statins study suggests that cheaper costs for patients may actually save health plans money, according to Frostin. "When you've got evidence to suggest that lower or no co-payments to comply with a course of care reduces the cost of care, I think employers and insurers are going to take notice of that very quickly," he said.

Another expert agrees that this strategy is a viable way of increasing compliance and reducing costs.

"This paper advances our understanding further by showing that reductions in co-payments can lead to improved compliance and decreased downstream events and costs," added James G. Stevenson, director of pharmacy services at the University of Michigan Health System.

"When there are treatments or interventions that are clearly beneficial, health plans need to consider new ways of encouraging appropriate patients to take advantage of those treatments," Stevenson said.

Another expert thinks that basing co-pays on medical risk is a good idea, as long as there are good guidelines for determining who is at risk.

"It seems to be a good idea to use targeted co-pays rather than a flat across-the-board approach, if you can target well," said Mark V. Pauly, chairman of the Health Care Systems Department at The Wharton School, University of Pennsylvania.

"That requires knowing that there are good indicators of therapeutic effectiveness, having the administrative ability to use them in real time, being sure that patients or their doctors will not alter how they represent their illness to get lower co-pays, and being sure that, before the fact, consumers will accept insurance that will charge them more if they aren't that sick," Pauly said.

More information

For more on managing drug costs, head to the American Academy of Family Physicians.

SOURCES: Dana Goldman, Ph.D., director, health economics, Rand Health, Santa Monica, Calif.; Paul Fronstin, Ph.D., senior research associate, Employee Benefits Research Institute, Washington, D.C.; James G. Stevenson, Pharm.D., director, pharmacy services, University of Michigan Health System, Ann Arbor; Mark V. Pauly, Ph.D., chairman, Health Care Systems Department, The Wharton School, University of Pennsylvania, Philadelphia; January 2006 American Journal of Managed Care; Jan. 11, 2006, news release, U.S. Agency for Healthcare Research and Quality.
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