Financial Incentives and Drug Spending in Managed Care

Incentives for Both Physicians and Patients Can Interact to Help Curb Spending in This Increasingly Costly Sector

Published in: Health Affairs, v. 18, no. 2, Mar./Apr. 1999, p. 189-200

Posted on RAND.org on December 31, 1998

by Alan L. Hillman, Mark V. Pauly, Jose J. Escarce, Kimberly Ripley, Martin Gaynor, Jon Clouse, Richard Ross

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This study estimates the impact of patient financial incentives on the use and cost of prescription drugs in the context of differing physician payment mechanisms. A large data set was developed that covers persons in managed care who pay varying levels of cost sharing and whose physicians are compensated under two different models: independent practice association (IPA)-model and network-model health maintenance organizations (HMOs). The authors' results indicate that higher patient copayments for prescription drugs are associated with lower drug spending in IPA models (in which physicians are not at risk for drug costs) but have little effect in network models (in which physicians bear financial risk for all prescribing behavior).

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