dollars to doughnuts: predicting prescription drug costs of beneficiaries and the medicare program...

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©2006 Caremark. All rights reserved.

Dollars to Doughnuts:Predicting Prescription Drug Costs of Beneficiaries and the Medicare Program under Part D

M. Christopher Roebuck1

Dominick Esposito2

Meredith Lewis1

Jan Berger1

1Caremark Rx, Inc.2Mathematica Policy Research, Inc.

Academy HealthAnnual Research MeetingSeattle, WAJune 26, 2006Received “Best Abstract Award”

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Caremark proprietary and confidential information. Not for distribution.

Research Objectives To examine drug utilization and out-of-pocket

costs of Medicare beneficiaries using a Medicare prescription drug discount card, including beneficiaries who qualified for the Transitional Assistance Program (TAP)

To simulate Medicare beneficiaries’ out-of-pocket costs (excluding premiums) and costs to Medicare under the standard Part D benefit.

To understand the factors associated with these simulated costs and the probability of being in the doughnut hole.

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Medicare Drug Discount Card Created via the Medicare Modernization Act.

A temporary program (enrollment period: June 2004 - December 2005) for non-dual eligible beneficiaries.

TAP provided a $600 annual subsidy to seniors with income below 135% of the federal poverty level.

Cardholders may have been charged an enrollment fee of up to $30 per calendar year.

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Data Eligibility and prescription claims data for enrollees

with one of 34 separate Medicare drug discount cards managed by Caremark.

Sample consists of beneficiaries enrolled for 6+ months with 1+ claims between June 2004 and November 2005 (n=37,425).

Pharmacy Health Dimensions (PHD), a pharmacy-based risk index that categorizes prescription data into 62 disease indicators, were generated.1

1 Powers, C.M., Meyer, C.M., Roebuck, M.C. and B. Vaziri. 2005. “Predictive Modeling of Total Healthcare Costs Using Pharmacy Claims Data: A Comparison of Alternative Econometric Cost Modeling Techniques.” Medical Care 43(11): 1065-1072.

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Sample CharacteristicsTAP

(n=17,317)Non-TAP

(n=20,108)Total

(n=37,425)

Male 26% 38% 33%

Mean Age 76 75 76

Number of Conditions 2.5 2.0 2.2

Hypertension 60% 45% 52%

High Cholesterol 27% 27% 27%

Diabetes 19% 14% 16%

Hypothyroidism 17% 13% 15%

Osteoarthritis 18% 12% 15%

Allergies 14% 10% 12%

Depression 13% 10% 11%Note: All differences in means across TAP and Non-TAP groups are statistically significant (p<0.01) using Kruskal-Wallis equality of populations test, except High Cholesterol.

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Annualized Utilization and Costs under Medicare Drug Discount Card Program

TAP(n=17,317)

Non-TAP(n=20,108)

Total(n=37,425)

Annual Number of Rxs

Brand 11 8 9

Generic 12 7 10

Total 23 15 19

Annual Drug Costs

Enrollee (Out-of-Pocket) $256 $781 $538

Medicare (TAP Subsidy) $672 $0 $311

Total $928 $781 $849Note: All differences in means across TAP and Non-TAP groups are statistically significant (p<0.01) using Kruskal-Wallis equality of populations test.

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Standard Medicare Part D Benefit

Enrollee Out-of-Pocket Cost Share

$250 $2250 $5100

100% coinsurance

$0

25% coinsurance $2/$5 copay or 5% coinsurance

Doughnut Hole

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Standard Part D Benefit Simulation Standard Part D benefit cost-share structure was

applied to annualized total drug costs (plus a 3.5% price inflation adjustment from 2005 to 2006).

Utilization increases are expected under insurance.

Applied variable “induction factors” of between 0.70a and 1.25b for prescription drugs.

Each $1.00 decrease in out-of-pocket costs are estimated to induce between $0.70 and $1.25 of increased drug spending.

a Mays, J., Brenner, M., Neuman, T., Cubanski, J., and G. Claxton. November, 2004. “Estimates of Medicare Beneficiaries’ Out-of-Pocket Drug Spending in 2006: Modeling the Impact of the MMA.” Henry J. Kaiser Family Foundation. Menlo Park, CA.

b American Academy of Actuaries. May 1995. “Medical Savings Accounts: Cost Implications and Design Issues.” Washington, DC.

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Beneficiaries’ Mean Out-of-Pocket Costs

$256

$781

$538

$402

$544

$478

$382

$609

$504

$447

$666

$575

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

TAP Non-TAP Total

Actual Drug Discount Card Simulated Part D (induction factor: 0.70)

Simulated Part D (induction factor: 1.00) Simulated Part D (induction factor: 1.25)

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Percent of Beneficiaries in the Doughnut Hole

7.0%

15.0%

11.0%

7.0%

18.0%

13.0%

7.0%

20.0%

14.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

TAP Non-TAP Total

Simulated Part D (induction factor: 0.70) Simulated Part D (induction factor: 1.00)

Simulated Part D (induction factor: 1.25)

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Multivariate Analyses Estimated generalized linear models (GLM;

gamma/log link) for:

Simulated out-of-pocket costs under Part D.

Simulated Medicare payments under Part D.

Estimated a probit model for the likelihood of being in the doughnut hole.

Explanatory variables included:- Age, gender, geographic region

- TAP status

- Generic dispensing rate

- 62 PHD disease indicators

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Multivariate Results TAP (low income) status is associated with:

$186 lower beneficiary costs

$175 lower Medicare payments

8 percentage point reduction in the probability of being in the doughnut hole

A 10-percentage point increase in the generic dispensing rate is associated with a: $35 decrease in beneficiary costs

$49 decrease in Medicare payments

1 percentage point reduction in the probability of being in the doughnut hole

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Conclusions / Policy Implications In choosing whether or not to enroll in Medicare Part D,

beneficiaries will compare annual premiums with the expected payout of the Medicare program.

Risk-neutral beneficiaries will enroll at monthly premiums below the $40-45 range.

Faced with higher out-of-pocket costs, low-income beneficiaries without low-income subsidies may reduce their drug utilization, potentially resulting in adverse health effects (e.g., those not passing the asset test).

To reduce costs, Medicare should actively promote generic substitution.

With 33 million enrollees, the Medicare program could save more than $1.6 billion annually by increasing the generic dispensing rate by 10%.

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Strengths and Limitations Strengths:

Actual claims experience, not self-reported use. Actual out-of-pocket amounts. Data on a low-income population (TAP).

Limitations: Enrollees with zero claims excluded from the

analysis. Discount card may not always have been used. Simulating the standard Part D benefit, although

most have selected non-standard plans.

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THANK YOU!

dollars to doughnuts: predicting prescription drug costs of beneficiaries and the medicare program...

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