Healthy Skepticism Library item: 19980

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Publication type: Journal Article

Soumerai SB
Benefits and Risks of Increasing Restrictions on Access to Costly Drugs in Medicaid
Health Affairs 2004 Jan; 23:(1):135-146

Abstract:

States are reacting to increased Medicaid drug costs by implementing cost-control policies, such as preferred drug lists (PDLs) and prior authorization. PDLs have risks as well as benefits. Targeting essential drug classes with heterogeneous patient responses and side effects could reduce appropriate care, adversely affect health status, and cause shifts to more costly types of care. Assessing inappropriate use of high-cost drugs before implementing regulations and instituting simple mechanisms to exempt high-risk patients could maximize savings and minimize harm. The current exponential growth in such policies and the limited evidence base justifies investment in research to identify which policies can achieve savings without unintended consequences.

Some policies can reduce drug spending, but their effects on patients’ health and costs remain largely unknown.

Fueled in part by increasing use of costly new drugs, Medicaid drug spending has increased by more than 18 percent per year since 1997.1 It exceeded $20 billion in 2000 (Exhibit 1⇓). Some of this growth is likely attributable to physician prescribing of expensive new drugs when older, inexpensive agents would be equally effective.2 This trend is supported to some extent by pharmaceutical manufacturers’ high spending on direct detailing to physicians (estimated at $5.5 billion in 2001).3 Despite this high rate of growth, prescription drugs accounted for only 11.1 percent of Medicaid spending in 2000 (Exhibit 1⇓), a level that could be relatively low, given that medications often represent the most cost-effective technologies for treating chronic illnesses.4
EXHIBIT 1
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EXHIBIT 1

Trends In Medicaid Spending For Prescription Drugs, And Drug Spending As A Proportion Of Total Medicaid Spending, 1988–2000

States have responded to declining overall budgets and Medicaid drug cost increases by implementing a variety of policies aimed at limiting use of expensive or risky medications. These include adoption of preferred drug lists (PDLs), prior authorization (PA) before reimbursement of specific drugs, increased cost sharing for Medicaid enrollees, limits on the number of prescriptions that can be filled without PA, “fail first” requirements (that an alternative, inexpensive drug be tried before an expensive one), and drug category reimbursement exclusions.5 Such policies could have especially powerful effects on the elderly and disabled, who represent 27 percent of Medicaid enrollees but account for 80 percent of Medicaid drug spending.6

Although the goal of these policies is to reduce costs without reducing appropriate care, there are concerns that when used inappropriately they could result in unintended outcomes, including lower use of essential therapies; declines in health; substitution of less effective, more toxic, or more expensive medications for nonreimbursed agents; or increased use of more costly physician or institutional care.7 For example, well-controlled studies demonstrate that arbitrary limits on the number of Medicaid prescriptions reimbursed for chronically ill elderly and disabled people resulted in a 35 percent reduction in the use of clinically essential drugs (such as insulin), particularly among people with mental health problems or chronic pain; increased exacerbation of chronic illness; and a 200 percent increase in the use of services (such as nursing homes and emergency mental health services) whose costs exceeded the cost of drugs.8 In one study, increases in the use of emergency services among schizophrenic patients after a cap on the number of prescriptions outweighed drug savings by a factor of seventeen to one.9 Even moderate drug cost sharing was found, in a recent well-controlled study, to reduce use of essential medications among low-income and elderly populations, increase hospitalization and nursing home admissions, and increase mortality.10

This paper examines the implications of the more recent, widespread adoption of policies encouraging use of less costly drugs within a therapeutic class (for example, cholesterol-lowering medications); critically examines the evidence on the economic and clinical risks and benefits of such policies; suggests ways to reduce clinical risks and maximize savings; and ends with recommendations for research and policy.