Evaluation of Virginia’s Preferred Drug List Policy and Research Division August 31, 2005Department of Medical Assistance Services

2 Presentation Outline  Components of Evaluation For This Report  PDL Process: Movement of Prescriptions  Preliminary Budget Savings  Study Design For Assessment Of Health Impact  PDL Health Impacts  Conclusions

3 PDL Study Requested By DMAS Director And The General Assembly n In 2004, the DMAS director requested a comprehensive evaluation of the agency’s newly administered PDL program. n Focus of the request: –Program implementation -- movement of claims through the system and First Health’s management of the program and its Call Center –Program savings in overall pharmacy program –Health impacts of PDL n One year later the General Assembly placed language in the 2005 Appropriation Act formally directing the agency to conduct a study of the PDL

4 Three Important Research Questions Shape This Review n Within the context of this issue framework, the following specific research questions were addressed in the agency’s full review of the PDL: Has the PDL program been implemented in a way to ensure a high rate of compliance by physicians without adversely affecting patient access? Is there evidence that total spending in DMAS’ pharmacy program has been reduced since the PDL was established as the linchpin initiative in the agency’s pharmacy program? Is there evidence to suggest that the PDL program has adversely impacted patient health outcomes for those Medicaid recipients who are switched from non-preferred to preferred drugs?

5 Presentation Outline  Components of Evaluation For This Report  PDL Process: Movement of Prescriptions  Preliminary Budget Savings  Study Design For Assessment Of Health Impact  PDL Health Impacts  Conclusions

6 Drug Claims For This Report Were Selected From Files Containing Over 26 Million Records And Over 8.5 Million PDL-Eligible Claims Claims Database (Oct 03 to July 05) 26,881,145 PDL Eligible Claims 8,524,437 Pre-PDL Claims 90 Days Prior to Hard Edit Date (multiple claims per recipient and drug) 829,875 Post-PDL Claims (Jan 04 to July 05) (multiple claims per recipient and drug) 6,179,588 Pre-PDL By Prescription Single Claim Per Recipient Per Drug 420,151 Post-PDL By Prescription Single Claim Per Recipient Per Drug 1,376,196

7 Claims Flow Analysis Had To Account For Changes Made To The 2004 PDL Hard Edit (Start) Date Or Preferred Status For Certain NDC Codes (Drugs) In 2005 Hard Edit Date Changed Used 2004 Hard Edit Date (Verified by FH Staff) Used 2004 Preferred Status and Considered “Administratively Changed” in Flowchart Preferred Status Analysis Changed Same Changed Used 2004 Hard Edit Date and Preferred Status and Considered “Administratively Changed” in Flowchart N=586 # of Affected National Drug Codes (NDC)

8 Nearly 7 of 10 Prescriptions That Were Written For Non- Preferred Drugs Prior To The Official Start of PDL Were Switched To Preferred Drugs Once The Program Was Implemented Total Rx 420,151 Non-Preferred Rx 124,088 Preferred Rx 296,063 Change to Preferred Rx 86,143 Approved as Non-Preferred 11,682 Admin Change 1,142 Remained on Preferred Rx 179,600 No New Claim 109,467 Recent Pre-PDL Rx No Claim Found 109,467 Recent Pre-PDL Rx No Claim Found 25,121 Later Refill No Refill Pre-PDL Post-PDL Walk away Claim Not Yet Submitted No New Claim 25,121 Admin Change 6,996

9 19 Months Into The Program There Are Substantially More Recipients Receiving Drugs In The Post-PDL Period Who Did Not Have Paid RX Claims In The Pre-PDL Period Claims Database (Oct 03 to July 05) 26,881,145 PDL Eligible Claims 8,524,437 Pre-PDL Claims 90 Days Prior to Hard Edit Date (multiple claims per recipient and drug) 829,875 Post-PDL Claims 1 to 6 Weeks After Hard Edit Date (multiple claims per recipient and drug) 6,179,588 Pre-PDL By Prescription Single Claim Per Recipient Per Drug 420,151 Post-PDL By Prescription Single Claim Per Recipient Per Drug 1,376,196

10 Thus All PDL Compliance Rates In This Study Are Calculated Without Respect To The Pre-PDL Status Of Any RX Claims…. The Compliance Rate Remains High 93% *1,063,636 * Includes only paid claims.. Not on PDL PDL Drug (Compliance) Total Claims 7% 85% Compliance Rate Needed to Achieve Budget Savings PDL Compliance Rate (January 2004 – July 2005) Status of All Claims Paid After PDL Hard Edits

11 Using This Method Only Minimal Variation In Compliance Rates Across Select Therapeutic Classes Is Observed 96% 94% 91% 93% 89% 94% Cardiac Medications Gastro Asthma/ Allergy Central Nervous System Anti-Biotics Analgesics Total Claims 287,149 77, , , ,854 55,723 98% 64,049 Diabetes Compliance Rate Needed to Achieve Budget Savings 85%

12 Four Out Of Five Requests For Non- Preferred Drugs Continue To Be Approved by the FH Call Center January 2004 to September % 17% 3% October 2004 to June 2005* 34,606 26,887 82% 14% 4% Prior Authorization Approved Physician Agreed To Change to a Preferred Drug Denied (Technical Denials) Total Calls Notes: *There were also 5 reconsiderations (< 1 percent) in the October 2004 to June 2005 time period. Call data indicates that FH staff are answering phone calls within 28 seconds on average and the call lengths average two minutes and 27 seconds. Total (January 2004 to June 2005) 3% 81% 16% 61,493

13 Presentation Outline  Components of Evaluation For This Report  PDL Process: Movement of Prescriptions  Preliminary Budget Savings  Study Design For Assessment Of Health Impact  PDL Health Impacts  Conclusions

14 The Shift In Market Share Created By The PDL Continues Preferred Drugs Non-Preferred Drugs PDL Status of RX Claim 57% 59%58% 43% 42%41% JulyAugSeptOctNovDec 2003 Pre-PDL Period 84%88%89% 83% 17% 11% 12%16% Jan -Aug Sept OctNovDec 91%88%90% 10% 9% Jan 90% 10% FebMarAprMayJun Post-PDL Period

15 The Cost Per Script Continues To Be Below The Projected Amount Since PDL Implementation $50 $52 $54 $56 $58 $60 $62 $64 Pre-PDL Period Post-PDL Period 2003 JulyDecJuneDec JuneMarch Sept Forecasted Cost Per Script Actual Cost Per Script

16 Estimated Savings in The Pharmacy Program Since The Implementation of The PDL (And More Recently The MAC) Exceed $35 Million $300 $350 $400 $450 $500 $550 Millions FY 2001FY 2002FY 2003FY 2004 FY 2005 Official Medicaid Forecast for Pharmacy Expenditures Actual Medicaid Expenditures $35.2 million

17 Presentation Outline  Components of Evaluation For This Report  PDL Process: Movement of Prescriptions  Preliminary Budget Savings  Study Design For Assessment Of Health Impact  PDL Health Impacts  Conclusions

18 Questions Persist Concerning The Impact Of PDLs On Recipient Health Outcomes n The principle criticism leveled at PDL programs is that the change in drugs destabilizes patients causing a number of adverse reactions n Critics of the program believe that over time, effects of the predicted destabilization in the Medicaid program for persons on PDLs will be seen in: –Greater medical costs –More frequent use of emergency departments –Higher rates of hospitalization –Longer hospital stays

19 Research Questions For This Analysis n Net of the influence of other factors, are there meaningful differences in the total amount of Medicaid spending observed for the PDL and non- PDL groups during the follow-up period? n Are Medicaid spending levels for hospital care higher for persons on the PDL after accounting for the impact of other factors? n What, if any, differences are observed in the utilization of inpatient hospital care? n Do PDL recipients utilize emergency departments for care at a higher rate than their counterparts, after controlling for other factors?

20 Quasi-Experimental Design Used To Address The Question Of PDL Health Impacts Design TypeHow It WorksAdvantagesDisadvantages Non- experimental PDL patients’ health status/expenditures are compared from the periods before and after the PDL was implemented Easy to implement and understand Design does not address what would have occurred in the absence of the program – results unreliable ExperimentalPatients are randomly chosen to participate in the PDL and outcomes are compared to those who were randomly screened off of the program Cadillac of research designs in terms of producing reliable, unbiased measures of program impact Not feasible Quasi- Experimental Develop a non-randomly assigned group of PDL participants who were switched to preferred drugs and compare to a non-randomly assigned group of non-participants who remained on non-preferred drugs Produces measure of program impact without the burden of random assignment Subject to selection bias which produces non-equivalency among study groups

21 First Step In Selection Of Study Groups Was To Identify Claims That Define Each Group Total Claims Non-Preferred Rx 102,472 Preferred Rx Change to Preferred Rx 83,197 Approved as Non-Preferred 19,275 No New Claim Remained on Preferred Rx Recent Pre-PDL Rx No New Claim Claims Used To ID PDL Program Group Claims Used To ID Recipient Comparison Group Based On PDL Hard Edit (Start) Dates Established From 1-04 through 5-04

22 Excluded Control Group All Drugs Non-Preferred in Post-PDL Period 491 PDL Group All Drugs Preferred in Post-PDL Period 6,617 The Second Step Was To Identify Unique Recipients, Determine Whether They Were In The PDL Or Comparison Group, And Examine Their Characteristics Switched to Preferred Drugs 83,197 Did Not Switch 19,275 Total Claims 102,472 59,802 Some Drugs Preferred, Some Non-Preferred in Post-PDL Period 52,694 Multiple Claims (Prescriptions) Per Drug Per Recipient Single Claim Per Recipient

23 There Are Key Differences In The Ages, Race, And Geographic Location Between The PDL And Comparison Group 93% 7% Female Male Female Male 62% 38% 55% 45% 74% 26% 70% 30% All Other Black 36% Urban Suburban 38% 43% 24% 33% Rural Urban Suburban Rural Note: *Chi-square values are statistically significant at <.05. N=7,108 26% 49% 51% Over 65 Under 65 All Other Black Over 65 Under 65 GENDER*RACE*AGE*RESIDENCE PDL Comparison 63% 37% 63% 37%

24 Key Differences Also Exist In The Medications Used By Recipients In The PDL Study And Comparison Group CardiacGastro- Intestinal Central Nervous System Asthma/ Allergy ***CDPS (Case mix Score) PDL Group Comparison Group KEY *Rate of Use for Certain Medications **Risk Measure 43% 26% 29% 52% 19% 9% 3% 7% Chi-square values are statistically significant at ** Difference is statistically significant <.05. ***The value of the CDPS in this study is understated for persons who have Medicare coverage

25 The Third Step Was To Establish The Pre- And Post-Program Periods Based On Each Recipients’ 1 st Service Date Under PDL nd Hard Edits 2-04 Date of 1 st RX Service After 2-04 Post Program Period Initiated By Date of 1 st RX Service After Hard Edit (Start) Date With Maximum Possible Claims Run Out to rd Hard Edits 5-04 Date of 1 st RX Service After st Hard Edits 1-04 Date of 1 st RX Service After Pre Program Period Extends Back 12 Months From The First RX Service Date

26 Extending The Follow-up Period Increased Attrition In Both The PDL And Comparison Group PDL Group Comparison Group 1 st PDL RX Service Date Three Months Six Months Nine Months Twelve Months ,617 6,160 1, Period of Follow-up After 1 st RX Service Date Recipient Level

27 Presentation Outline  Components of Evaluation For This Report  PDL Process: Movement of Prescriptions  Preliminary Budget Savings  Study Design For Assessment Of Health Impact  PDL Health Impacts  Conclusions

28 Several Measures Used To Evaluate The Health Effects Of Virginia’s PDL n The following outcome measures were tracked for persons in the PDL program: –Total Medicaid spending (excluding waiver and long-term care maintenance costs) –Total Medicaid hospital spending –Recipient hospitalizations –Emergency room utilization rates

29 Total Medicaid Spending For The Typical Person On Preferred Drugs Is Actually Less Than The Amount Observed For Persons On Non-Preferred Drugs Annualized Medicaid Spending Levels Per Recipient $6,775 $2,570 Notes: Medicaid expenditures are annualized based on 9 months of data in the post-PDL period and are adjusted by the number of days each recipient was eligible during the period. The post-PDL period is initiated with the submission of the 1 st prescription after the program’s hard edit date for the relevant drug. Persons with Medicare coverage were excluded from this analysis PDL Group Comparison Group $1,765 $6060 Average Spending N= Median Spending Level Skewness Levels PDL Group = Comparison Group = 5.32

30 The Typical Person On Preferred And Non-Preferred Drugs Did Not Have Any Hospital Expenditures During The First Nine Months After Submission Of A PDL-Eligible Drug Claim Annualized Hospital Spending Levels Per Recipient $1,699 $0 Notes: Hospital expenditures are annualized based on 9 months of data in the post-PDL period and are adjusted by the number of days each recipient was eligible during the period. The post-PDL period is initiated with the submission of the 1 st prescription after the program’s hard edit date for the relevant drug. Persons with Medicare coverage were excluded from this analysis PDL Group Comparison Group $0 $67.52 Average Hospital Spending N= Median Spending Level Skewness Levels PDL Group = Comparison Group = 10.53

31 A Higher Proportion of PDL Recipients Visited The Emergency Room In The Nine Month Follow-up Period 3% 26% 18%.04% 3%.02% 3% In-Patient Hospital Stays PDL (Study) Group (N =434) Comparison Group (N=116) Recipients With … In The Post-PDL Period Notes: Follow-up period is nine months from the date 1 st prescription was written after hard edits were put in place. Persons who were eligible in the Pre-PDL period but not in the post period were excluded. Persons with Medicare coverage were also excluded. *Emergency Room Visits Mental Health Hospital Visits Mental Health Hospital Days

32 However, There Was No Difference In The Number Of Visits Made To The Emergency Room. The Typical Recipient In The PDL And Comparison Group Had None Annualized Number Of Emergency Room Visits Per Recipient Notes: Number of visits are annualized based on 9 months of data in the post-PDL period and are adjusted by the number of days each recipient was eligible during the period. The post-PDL period is initiated with the submission of the 1 st prescription after the program’s hard edit date for the relevant drug. Persons with Medicare coverage were excluded from this analysis PDL Group Comparison Group Average Number of ER Visits N= Median ER Visits Skewness Levels PDL Group = 7.63 Comparison Group = 4.51

33 A Similar Finding Is Observed With Respect To Days Spent In The Hospital Annualized Number Of Days Spent In The Hospital Per Recipient Notes: Number of days are annualized based on 9 months of data in the post-PDL period and are adjusted by the number of days each recipient was eligible during the period. The post-PDL period is initiated with the submission of the 1 st prescription after the program’s hard edit date for the relevant drug. Persons with Medicare coverage were excluded from this analysis PDL Group Comparison Group 0.42 Average Number of Days in Hospital N= Median Days in Hospital Skewness Levels PDL Group = Comparison Group = 10.88

34 Attempts To Assess Effects Of PDL On Certain Outcomes Must Also Recognize The Impact Of Other External Factors

35 When These Factors Are Accounted For The Total Amount of Medicaid Spending On Persons Switched To Preferred Drugs Is Actually Less When Compared To Those On Non- Preferred Drugs Notes: Estimates produced using OLS regression model. Dependent variable is total Medicaid spending per days of eligibility over a nine month post-PDL period. R2 for model with outliers is.15. For model without outliers the R2 is.12. Factors Considered in Payment Model * Pre-PDL Medicaid Spending *Recipients’ Case Mix Scores Age of Recipients Race of Recipients Type of Residence *Statistically significant effects Predicted Payment Level for Persons On Non-Preferred Drugs $ Relative Difference For Persons On Preferred Drugs ** -$1742 Outliers In Outliers Out ** -$1098 **Differences not statistically significant The Net Impact Of The PDL On Total Medicaid Spending

36 The Difference In Medicaid Spending On Hospital Care For Persons On Preferred Drugs Is Small And Statistically Insignificant Notes: Estimates produced using OLS regression model. Dependent variable is total hospital spending per days of eligibility over a nine month post-PDL period. R2 for model with outliers is.25 No statistically significant effects in model without outliers. Factors Considered in Payment Model Predicted Payment Level for Persons On Non-Preferred Drugs $ Relative Difference For Persons On Preferred Drugs ** 277 Outliers In Outliers Out **Differences not statistically significant ** 28 The Net Impact Of The PDL On Total Hospital Spending Pre-PDL Medicaid Spending Recipients’ Case Mix Scores Age of Recipients Race of Recipients Type of Residence *Statistically significant effects

37 The Impact For Days Spent In Hospital is Small And Actually Negative Factors Considered in Payment Model # Relative Difference For Persons On Preferred Drugs **-.10 Outliers In Outliers Out **Differences not statistically significant The Net Impact Of The PDL On Total Days In Hospital Predicted Number of Days In Hospital For Persons On Non-Preferred Drugs Notes: Estimates produced using OLS regression model. Dependent variable is total days in hospital per days of eligibility over a nine month post-PDL period. R2 for model with outliers is.10 and.06 for model without outliers. **-.17 Pre-PDL Hospital Days *Recipients’ Case Mix Scores Age of Recipients Race of Recipients Type of Residence *Statistically significant effects

38 Finally, No Discernable Impact Could Be Found On Emergency Room Use By Recipients Switched To Preferred Drugs Relative To Their Counterparts On Non- Preferred Drugs Factors Considered in Payment Model # Relative Difference For Persons On Preferred Drugs ** 1.75 Outliers In Outliers Out **Differences not statistically significant The Net Impact Of The PDL On Emergency Room Use Predicted Days Of Emergency Room Use For Persons On Non-Preferred Drugs Notes: Estimates produced using OLS regression model. Dependent variable is total emergency room visits per days of eligibility over a nine month post-PDL period. R2 for model with outliers is.03. For model without outliers the R2 is.03 **.81 *Recipients’ Case Mix Scores *Age of Recipients Race of Recipients Type of Residence *Statistically significant effects

39 Conclusions n After nearly 19 months of program implementation, Virginia’s PDL program continues to gets high marks: –PDL compliance rate is high and most changes are being made voluntarily –Patients are not being denied drugs –The program is saving money for the Commonwealth –Though more research is needed, the program does not appear to be adversely impacting the health status of persons switched to preferred drugs