1. Consumer-Driven Health Plans: Early Cost & Use Evidence with a Focus on Pharmaceuticals Stephen T Parente Jon B Christianson Roger Feldman August, 2004

2. Questions to be Addressed  What is the impact of CDHP on total cost?  What is the impact of CDHP on pharmacy cost?  Is there a general pharmacy utilization effect?  Is there a specific pharmacy utilization effect? Therapeutic groups Brand vs. generic Chronic patients  Is there a CDHP pharmacy consumer price effect?

3. Why Focus on Pharmacy  Fastest rising cost sector of health economy  Recent innovations in both CDHP and non- CDHP marketplace Non-CDHP: 3-tier consumer payment CDHP: Consumer prices vary by employee/patient total expenditure level  CDHP ‘shopping’ tools are most advanced for pharmacy market

4. 3-Tier Overview  Three tiers jointly determined and priced by employer/insurer/pharmaceutical benefits management firms (PBMs)  Common in most health plans  Example of structure (price 500mg of X): Tier 1 ($20): Generic Tier 2 ($40): Brand-preferred pricing Tier 3 ($60): Brand-no preferred pricing

5. Definity Health as CDHP Model Definity Health Care Advantage Web- and Phone- Based Tools Health Tools and Resources Care management program Internet enables Health Coverage Preventive care covered 100% Annual deductible Expenses beyond the PCA Personal Care Account (PCA) Employer allocates PCA 1 Member directs PCA Roll over at year-end Apply toward deductible 2 Annual Deductible Preventive Care 100% Health Coverage Annual Deductible 1 Employer selects which expense apply toward the Health Coverage annual deductible. 2 Paid out of employer’s general assets. PCA $$

6. CDHP Pharmacy Expenditure Model: Chuck’s Story ONE 1/1/04 to 4/17/04: Chuck’s Rx $800 expenditures are ‘debited’ from his family’s PCA. For example, his Clarinex prescription with price of $85 for a month supply is charged to the account. His copayment is $0. TWO 4/18/04: Chuck’s son breaks his leg playing Bocce Ball. Son’s bills total $1,700. Total expenditure for 2004 are now $2,500. Rx now paid out of pocket. THREE: 7/5/04: After Chuck Jr.’s fall and $500 of Rx and medical care, Rx is now paid with a 10% co-insurance until 1/1/2005. Annual Deductible $1,500 Preventive Care 100% Health Coverage Annual Deductible PCA$1,500 $3,000 Drug prices negotiated used a PBM, but no tiered prices are in play.

7. Study Hypotheses  Greater price sensitivity in a CDHP than 3-tier plan Incentive to conserve $$ if healthy Incentive to seek best price for Rx if chronically ill to use all PCA $$ ‘cost-effectively’  More generic use in CDHP than 3-tier  No change in price elasticity for specific drugs between CDHP and 3-tier

8. Study Setting  Large employer that offered HMO and PPO in 2000-2002 and introduced CDHP in 2001  Variation in cost sharing by contract  Take-up of CDHP approximately 15%  General caveat: Employer’s experience can be quite different due to: Alternatives offered Plan design Communications with employees Sponsor’s objectives for the plan

9. Presentation of Results  Results are limited to three groups of employees who worked for the firm continuously for three years (2000-2002) where: 1.Employee chose the CDHP in 2001 and 2002 2.Employee chose another health plan in 2001 and 2002.  This limitation removed 40% to 50% of all employees from the analysis  We want to see both adoption and maturing impact of CDHP while controlling for prior spending 2000: Pre-CDHP experience controls for prior spending 2001: CDHP adoption year 2002: CDHP ‘maturation’ year

10. Impact of CDHP on pharmacy cost NOTE: These are results from a restricted continuously enrolled sample of 50% to 60% of the total employee population and are not a reflection of the plans’ expenditures.

11. Is CDHP general pharmacy use different? NOTE: These are results from a restricted continuously enrolled sample of 50% to 60% of the total employee population and are not a reflection of the plans’ full experience.

12. Is CDHP general pharmacy use different?  CDHP cohort has lower pharmacy use over time than PPO, but higher than HMO.  CDHP cohort has lowest pharmaceutical expenditure over time.  Consumer-driven component could work for pharmacy.

13. Is pharmacy use different by the ‘Top 10’ therapeutic drug groups? NOTE: These are results from a restricted continuously enrolled sample of 50% to 60% of the total employee population and are not a reflection of the plans’ full prescription drug experience.

14. Is brand name pharmacy use different for CDHP enrollees? NOTE: These are results from a restricted continuously enrolled sample of 50% to 60% of the total employee population and are not a reflection of the plans’ full prescription drug experience.

15. Is there a difference in pharmacy use for CDHP patients with chronic conditions? NOTE: These are results from a restricted continuously enrolled sample of 50% to 60% of the total employee population and are not a reflection of the plans’ full prescription drug experience.

16. Are there more specific differences in CDHP pharmacy use?  CDHP population has no major difference in the distribution of therapeutic groups.  The CDHP & HMO had consistent increases in both generic and brand name drugs; whereas the PPO had across-the-board decrease in 2002.  The CDHP chronic condition cohort had initial higher drug use in 2001, but a decrease in 2002.  The biggest decrease in chronically ill patient drug use occurred in the PPO.

17. CDHP Specific Drug Case Studies: Lipitor & Viagra NOTE: These are results from a restricted continuously enrolled sample of 50% to 60% of the total employee population and are not a reflection of the plans’ full prescription drug experience.

18. Does CDHP affect use and patient expenditure for popular Rx?  Lipitor HMO and PPO: Use goes up as price goes up CDHP: Decrease in patient price accompanied by a small increase in Lipitor use  Viagra HMO and PPO: Use also increases with price CDHP: Viagra use increases, but the out of pocket expense is nil, suggesting that it may be purchased explicitly from the PCA or after the deductible is met.

19. Summary  Early evidence suggests overall costs in CDHP are less than a PPO by the second year, but greater than an HMO.  CDHP pharmacy expenditures are less than HMO and PPO.  CDHP pharmacy use largely similar to other health plan types.  CDHP chronic condition cohort drug use is a mixed story – initial increase followed by decrease in 2 nd year.  Brand name drug use higher in CDHP, but overall cost is lower. Suggests 3-tier model may not be very effective in comparison if pharmaceutical expenditures are less and brand consumption is higher.  Demand for specific drugs may not respond to price in PPO and HMO

20. Next Steps  Examine other employers’ data for comparison.  Examine employers willing to provide more than two years of data to see longer-term CDHP effects.  Get other CDHPs for comparison data (e.g., Lumenos, Aetna, United Healthcare’s iPlan).  Examine specific chronic illnesses where drug consumption is critical to treatment (e.g., depression, heart disease, epilepsy).