Increased Co-Payments For Expensive Specialty Drugs Won't Cut Health Care Costs, RAND Study Finds

For Release

September 12, 2006

Increasing patient co-payments for expensive specialty prescription drugs won't cut costs to employers and health insurance plans because patients will continue taking the drugs even when their costs rise, according to a RAND Corporation study issued today.

The RAND Health study found that the best way to hold down costs to employers and health insurance plans for expensive specialty drugs is to make sure the medications are prescribed only to the patients who can truly benefit from them.

While increasing the cost of co-payments often can reduce prescription drug use by 30 percent to 50 percent for traditional medicines, increasing co-payments for specialty drugs used to treat cancer, rheumatoid arthritis, multiple sclerosis and kidney disease only reduced usage by 1 percent to 21 percent, the study found.

Titled “Benefit Design and Specialty Drug Use,” the study is in the September/October issue of the journal Health Affairs.

“Generally, people are very responsive to co-payment increases,” said Dana Goldman, chair and director of health economics at RAND and one of the co-authors of the study. “When companies increase co-pays, people tend to back off on their use of most medicines. But what happens with these expensive specialty drugs is that people will use them regardless of cost, because there just aren't any other options.”

“Given the high cost of these specialty drugs, insurers would be better off finding ways to manage use, so only patients who would benefit will get access to them, rather than pursuing high co-payment policies designed to deter use by all patients, regardless of clinical need,” Goldman said.

Specialty drugs include injectible medicines that are often administered by a doctor and biotechnology drugs — known as “biologic agents” — that target a specific gene or protein. Although they are used only by an estimated 1 to 5 percent of most typical health insurance plans' members, these medications frequently are more expensive than most drugs.

For example 1,943 patients with prostate cancer spent $6.3 million for leuprolide acetate (Lupron), or about $3,200 a year per patient. And the 17 hemophiliacs taking recombinant factor VIII spent more than $1.7 million on that drug, or an average of more than $100,000 per patient each year.

The RAND study examined pharmacy and medical claims from 55 health plans at 15 large employers from 2003 to 2004, representing more than 1 million patients. It focused on patients with at least two primary diagnoses for cancer, kidney disease, rheumatoid arthritis or multiple sclerosis. Researchers found that these patients' cost-sharing portion for specialty drugs ranged from zero to 100 percent, but the patients also faced significant out-of-pocket expenses for other aspects of their medical care.

“In some cases, it's worth providing coverage,” said Geoffrey F. Joyce, RAND Health senior economist and the other co-author of the study. “It's what insurance is designed for: high-cost, low-probability events. Consumers are probably willing to pay for these when it's a serious, life-threatening illness regardless of the cost, but you're just transferring the risk from well-funded insurance companies to patients with life-threatening illnesses who already have high out-of-pocket costs.”

For traditional drugs, health plan managers have employed such cost-control measures as prior authorization requirements, mandatory generic substitutions, mail-order pharmacies and multi-tier formularies, which charge patients less if they choose a generic drug over a non-generic one. Those measures have helped slow the growth in prescription drug spending from 16 percent in 2000 to 8 percent in 2004.

But Goldman and Joyce note that pharmaceutical manufacturers are beginning to create new specialty drugs that will target medical conditions that are far more common, including diabetes and osteoporosis. For those conditions, better screening of patients and/or increasing co-payments may be a way to help control costs, particularly in cases where the treatment should be evaluated on a trial basis in case it is not effective for a particular patient.

“There's a lot of variety to how patients respond,” Joyce said. “Even for rheumatoid arthritis patients, some of the new, expensive biologics only work effectively on a minority of patients.”

The study was supported by Amgen Inc., with additional funding from UnitedHealthcare and the National Institute on Aging through its support of the RAND Roybal Center for Health Policy Simulation. Neither Amgen, UnitedHealthcare nor the National Institute on Aging had any authority over the design and conduct of the study or over the interpretation of the data.

RAND Health, a division of the RAND Corporation, is the nation's largest independent health policy research program, with a broad research portfolio that focuses on quality, costs and delivery, among other topics.

About RAND

RAND is a research organization that develops solutions to public policy challenges to help make communities throughout the world safer and more secure, healthier and more prosperous.