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PHARMA: Formularies–penny-wise, pound foolish.

You may notice some slightly funky publishing schedules this week as I’m on the east coast confirming that Boston is cold in May, that the Big Dig is never-ending, and that Amtrak can make the trains run on time. Meanwhile in the better late than never category I wanted to make sure that THCB readers didn’t miss (and of course you saw it elsewhere) the RAND report about pharmaceutical formularies and their impact on Rx consumption. In yet more proof that in my earlier life I hung around with intellectuals way above my station, this study was led by Dana Goldman, who was a mere Econ grad student when I was at Stanford, but has certainly moved on since then! (He’s now head of Health Economics at RAND).

Goldman’s team linked a huge dataset of Rx claims with pharmacy benefit design for over half a million lives from a wide variety of plans and employers. (Incidentally the brain and data crunching required for this study–given that these things are not usually correlated in that way–must have been immense and makes me glad that I didn’t try to emulate his success!). The results mirror a study in the NEJM last year, which looked at 3-tier formularies. The bottom line in both studies is that if you increase the co-payment at point of dispensing, people take fewer drugs. RAND found that a doubling of the co-pay caused up to a 45% decrease in use of NSAIDs and antihistamines–presumably because cheaper OTC products were substituted. That’s a win for the payer and probably not too much of a loss for the consumer. But at that point things get a little less clear. “Reductions in overall days supplied of antihyperlipidemics (34%), antiulcerants (33%), antiasthmatics (32%), antihypertensives (26%), antidepressants (26%), and antidiabetics (25%) were also observed.” And even more disturbingly “patients with diabetes reduced their use of anti-diabetes drugs by 23%.”.

Presumably having one in four diabetics reducing their maintenance drug use isn’t the type of health promotion that all the PBMs’ marketing materials claim they are aiming for. And of course as Harvard’s Steve Soumerai showed years ago in looking at restrictions on schizophrenia drugs in Medicaid, a modest saving in one place often causes a much bigger loss in another. Although it’s not in the abstract, the Modern Physician story about the report quotes author Geoffrey Joyce:

    While the drop in usage is not nearly so high with drugs for chronic conditions, “we find significant price sensitivity in this population,” Joyce said. “We think there are adverse health consequences.” For patients with diabetes, asthma and gastric acid diseases, emergency room visits climbed 17% and hospital stays rose 10% as the use of prescription drugs dropped, according to the research.

    What to do is a question of balance when creating a formulary, according to Joyce, who warned against using increase in copays as a “blunt tool.” “I think there is this herd mentality to control drug costs without fully considering their overall healthcare costs,” Joyce said. “You can design it to make people price-sensitive without creating adverse consequences.”

Now bear in mind that not only are the health consequences of these serious, but the DCCT study over a decade ago proved that a combination of testing and drug use could maintain diabetics in a stable state, whereas poor compliance increased both the incidence of hospital visits and overall costs for the diabetic population. It seems that those lessons haven’t been learnt. Of course having a drug budget separated out from the overall health budget doesn’t easily allow a payer to make that connection. Consequently you have to be concerned about the way that Medicare is administratively separating off its drug coverage from its overall care system.

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