Issue No. 35: A Surprisingly Simple Way to Save Lives and Money

If you want to know what’s wrong with health costs today, just take a look at a new study titled “Patient Behavior and Therapy Consumption,” a research release by IQVIA on affordability and its consequences.
 
The study looked at the rate at which commercially insured patients filled new prescriptions from their doctors, correlating that rate with the out-of-pocket (OOP) cost of the medicines. The researchers found that more than half of patients did not fill their prescriptions if the OOP cost was between $125 and $250 and an incredible 69% of patients did not start therapy if the OOP cost was higher than $250. That compares with only 11% of patients being non-adherent if the OOP costs were less than $30.
 
A shockingly high proportion of Americans can’t, or won’t, pay for medicines when the cost gets over $100, no matter the importance of those therapies to their health.
 
“Increasing patient cost sharing was associated with declines in medication adherence, which in turn was associated with poorer health outcomes,” concluded a literature review by Michael Eaddy and colleagues in the peer-reviewed Journal of Managed Care and Hospital Formulary Management in 2012. The researchers found that 85% of the studies they examined “demonstrated a statistically significant relationship between increased patient cost sharing and decreased medication adherence.” In other words, as OOP obligations go up, adhering to prescriptions goes down.
 
The consequences are significant, in morbidity, mortality, and cost. By many measures – including life expectancy and prevalence of chronic diseases – the United States is the most unhealthy rich country on earth (a matter we explored in Issue No. 8 andIssue No. 18 of this newsletter), despite the fact that we spend more on health care than anyone else. Not adhering to prescribed therapy is a key reason that Americans, despite our wealth, are so deficient in our health.
 
A JAMA study in 2006 of diabetes patients, for example, found that those who were non-adherent (that is, took prescribed medicines 80% of the time or less) had about 20% higher rates of hospitalization and nearly 50% higher death rates. Diabetes is not alone.
 
The Eaddy literature review found that 100% of the nine journal articles on post-myocardial infarction and 83% of the 12 articles on coronary heart disease found a “significant positive relationship” between medication adherence and treatment outcomes.
 
Savings in the Tens of Billions of Dollars, and Probably More
 
Not taking prescribed medicines is boosting health-care spending considerably. Astudy by Rachelle Louise Cutler of the University of Technology in Sydney, Australia, and her colleagues, published in January, found that the adjusted cost of medication non-adherence for five major disease groups was between about $15,000 and $25,000 per patient per year. According to the study:

Poor medication adherence results in increased costs of T2D [Type 2 Diabetes] outpatient care, ER visits, hospitalization, and managing T2D complications. An analysis of adherence to medications used to treat diabetes, dyslipidemia, and hypertension estimated that the direct cost of poor adherence was $105.8 billion in 2010 across 230 million patients, which represented $453 per adult.
 
There’s debate over total costs, but the numbers are undoubtedly big. An article in theJournal of General Internal Medicine stated that non-adherence was costing Americans $170 billion in medical costs incurred, for example, by a non-adherent patient whose medicines would have kept him healthy but instead was forced to be hospitalized. But that was in 2010. The figure today almost certainly exceeds $300 billion, or roughly one-tenth of total U.S. health expenditures.
 
A study published last month in the Annals of Pharmacotherapy estimated that “nonoptimized medication therapy” was costing the U.S. $528.4 billion a year, but that amount includes not just unfilled prescriptions but also being prescribed the wrong medicine or taking it improperly. There’s no doubt that merely tackling the issue of people not filling prescriptions could save Americans tens or even hundreds of billions of dollars.

Insurance Design Is Moving in the Wrong Direction

Fixing the problem should begin with changing the design of health insurance policies. Unfortunately, those policies are changing in precisely the wrong direction.

“Consumer cost-sharing for medical care and medications is high, and it’s getting higher,” reports the Center for Value-Based Insurance Design (CVBID) at the University of Michigan. The Kaiser Family Foundation’s 2018 Employer Health Benefits Survey, just released on Oct. 6, found that the average deductible for employer-based coverage has increased 53% in just the past five years, and “42% of covered workers in small firms and 20% of covered workers in large firms are in a plan with a deductible of at least $2,000 for single coverage.”
 
Even after the deductible, patients are liable for significant payments. Kaiser found that 88% of insured workers are in plans with at least three tiers, with co-insurance obligations rising. The average co-payment for tier-four drugs is $105 and the average co-insurance is 31%. As the CVBID reports:
 
In 2016, more than 25% of Medicare beneficiaries spent 20% or more of their income on out-of-pocket health care costs, with a significant share of this spending devoted to coinsurance of 25-33% for specialty medications. Most Medicare Part D beneficiaries taking a single specialty drug will pay no less than $2,000 over the course of one year.
 
What makes matters worse, according to an analysis last year by Amundsen Consulting, is that more than half of OOP spending by commercially insured patients was based on the full list price of medicines, even though the actual cost may be substantially reduced by rebates by manufacturers to insurers and pharmacy benefit managers (PBMs).
 
At the same time as OOP spending is mounting for specialty drugs, insurers are paying the full tab for the most inexpensive drugs. They’re turning insurance on its head.
 
What Is Insurance, After All?
 
Insurance is a method of transferring risk. Typically, it’s an agreement where you pay a monthly premium to an insurance company, which agrees to reimburse you against a large, unpredictable loss. For example, you might pay $100 a month to insure against a $50,000 diamond ring being stolen.
 
Insurance that covers drug costs is something else entirely. It reimburses you against the trivial. Imagine an insurance policy that pays not for your car sustaining massive damage in an accident but for an oil change – that is, for a predictable, inexpensive event. A recent study found that in 2016 about one-third of all medicines are dispensed to insured patients at a cost of zero, and only 2.3% of prescriptions cost more than $50. The average generic prescription cost $5.54 out of pocket; the average brand prescription, $28.31.
 
On the other hand, these insurance policies are parsimonious when it comes to reimbursing for expensive medicines. The same study found that the 3.4 million prescriptions that cost patients more than $500 accounted for $5.2 billion in out of pocket costs, averaging $1,502 per prescription. True, many private health plans have OOP caps, but some do not, and even with a cap, OOP spending can be high. The Affordable Care Act, despite its title, has caps that are horrendously high: $7,350 for an individual plan and $14,700 for a family plan (and these figures do not count premium payments).
 
In other words, health insurance has it backwards. It pays when you change your oil but not when you total your car. Or, put another way, a small number of patients is subsidizing the masses. Does that make sense?
 
Average OOP spending by those with insurance coverage through a large employer was $2,925 annually for digestive disorders, $3,099 for cancer, and $5,150 for diseases of the blood. And an article in Health Affairs in July by Jalpa Doshi, Amy Pettit, and Pengxiang Li pointed out that with private policies under Medicare Part D, patients must pay $5,304 a year out of their own pockets for their prescriptions of Humira, the popular medicine for rheumatoid arthritis and other indications. Of that amount, $1,634 has to be paid in the month of January alone. For the drug Sprycel, for myeloid leukemia, the out-of-pocket (OOP) cost $10,128, including $3,026 in January.
 
As a possible remedy, in 2016, the Medicare Payment Advisory Commission proposed that the government should “eliminate enrollee cost-sharing above the out-of-pocket threshold.” The same change would help commercially insured patients with workplace plans as well.
 
Other remedies beyond redesign? Insurers, pushed by consumer outrage, are beginning to allow point-of-sale pass-through savings; that is, give patients direct savings from rebates and discounts. Legislators are also moving to eliminate the PBMs’ clawback and gag rules that currently prevent pharmacists from telling patients that, in some cases, they could be paying less if they paid for drugs themselves rather than using insurance.
 
Total Spending Vs. Spending Out-of-Pocket on Innovative Medicines
 
A massive new study by Amanda Frost of the Health Care Cost Institute (HCCI) and three colleagues looked at data from tens of millions of Americans insured by employer-sponsored plans over the period 2007 to 2016. The researchers found that, despite some ups and downs, health costs continue to rise at an average of about two percentage points more than inflation annually. In part, that increment can be explained by the fact that from one year to another, health spending measures an improving product. A few years ago, for example, there was no effective cure for Hepatitis C, and cancer immunotherapy was largely unavailable.
 
The problem is not the overall cost of drugs; it is, as we have shown, the way health insurance policies to reimburse for those drugs are structured.
 
An IQVIA report in April, for example, found that just 0.2% of all prescriptions that are filled cost more than $250 out of pocket, but those prescriptions accounted for 9% of all OOP spending. If you are someone with a serious disease – or someone who worries that you may get one – then the aggregate figures on OOP spending are meaningless. Your problem is staring you in the face. As Kaiser reports:
 
Over time, the share of people with high retail drug spending (exceeding $5,000, including amounts paid by insurance and out-of-pocket) has increased from 1.6% in 2004 to 3.9% in 2014, [and]…the share of people with exceptionally high drug spending (exceeding $20,000) [has risen] from 0.1% to 0.8% over the same period. 
 
Americans have to pay a much higher proportion of total costs out of their own pockets for drugs (14%) than for hospitalization (3.1%), as you can see in Table 95 of this Centers for Disease Control report. And those OOP expenditures are heavily concentrated in the category of innovative, specialty drugs.
 
In fact, QuintilesIMS found that prices for existing brand-name medicines actually declined by an average of 2.5% over the last six years, and Express Scripts, the giant pharmaceutical benefit manager, reported that overall spending on traditional medicines, the majority of its costs, dropped in 2017 by 4.3%.
 
The way to tame OOP costs is more sensible insurance design: reimburse less for cheap medicines and more for expensive ones.
 
Discriminating Against Drugs
 
Another problem is that insurers discriminate against the most efficient means of fighting disease: medicines. The actuarial value – that is, the percentage of total average costs for benefits that a plan will cover – is 72% for hospitals, 71% for the category “professionals and other” (encompassing physicians and outpatient facilities) and just 54% for drugs.
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Medicare has the same problem. Hospitals represent 40% of total Medicare spending and only 9% of the average recipient’s out-of-pocket costs: a ratio of 4.4. But pharmaceuticals represent 12% of total spending and 19% of out-of-pocket costs, for a ratio of 0.6.
 
This makes little sense. You take drugs to avoid having to go to the hospital. A rational health insurance plan would weight drugs at least equally and probably more heavily than hospitals and doctors.

Insurance redesign is a simple, fast means of cutting overall medical costs. The more health insurance looks like other kinds of insurance, the more efficient the U.S. health care system will be.