Treatment Denied
State Formularies and Cost Controls Restrict Access to Prescription Drugs
2003-05
Over the last four decades, state and federal officials have routinely under-estimated Medicaid costs. Now that it is the second largest item in most state budgets, state officials desperate for budgetary relief are embracing centralized prescription drug controls. Proponents of these programs claim that forcing patients to use less expensive medications will substantially lower health care costs by reducing the amount paid for prescription drugs.
But the cost of prescription drugs is just one component of total Medicaid costs, and the data suggest that increased spending on pharmaceuticals reduces overall health care costs because new drugs reduce side effects and do a better job of controlling disease. This is a particular concern for Medicaid, because Medicaid patients are more likely to have fragile health. Though Medicaid spending on prescription drugs grew at an annual rate of 17% from 1980 to 1998, and was $310 billion in 1998, its rapid growth may have helped slow the growth of the much larger expenditure categories of hospital services, which were $927 billion in 1998, growing annually by about 13%, and nursing home services, which were $632 million in 1998, growing annually by about 7.4%.
For example, the introduction of the H2 antagonists in the late 1970s increased spending on prescription drugs. It also reduced overall spending by reducing the need for gastrointestinal surgery.
The Therapeutic Consultation Service (TCS) monitors prescriptions written under Medicaid in Washington state. It is biased against brand name drugs, typically newer, more effective, compounds. It requires prior approval for medications not on its preferred drug list, places arbitrary limits on the number of brand name prescriptions a person can fill each month, and prevents patients from using newer, possibly more efficacious, therapies until they have gotten sick on older, cheaper ones.
Though Washington state officials claim that “the implementation of a similar program by the Florida Medicaid system last year—where drug increases were held to zero growth—has shown that the review and intervention techniques involved in TCS can be remarkably successful in controlling the prescription drug expenses [sic],” Florida’s Agency for Health Care Administration said that Florida’s Medicaid prescribed drug funding actually experienced a 10.3% growth in FY 2000-2001, and was projecting an increase of 13.9% for FY 2001-2002 in its January 2002 report.
In 1999, Florida’s Formulary Study Panel examined previous experiments with state prescription drug restrictions and recommended against adopting a formulary list of preferred drugs. When the legislature decided to go ahead anyway, the most knowledgeable and politically powerful patient groups, notably those afflicted with HIV/AIDS and serious mental health problems, successfully lobbied to exclude “their” drugs from the Florida control program.
Numerous attempts to use formularies to control private sector prescription drug spending have failed. In 1999, the National Pharmaceutical Council reviewed the research on restrictive formularies. In general, the results suggested formularies increase costs because overruling physician prescribing decisions increases the utilization of other forms of health care. In 1992, a Health Care Financing Administration drug utilization review demonstration project designed to lower errors in prescribing, spot harmful drug interactions, and reduce costs by substituting less expensive drugs for more expensive ones found no evidence of “any measurable effects in reducing the frequency of drug problems or on utilization of and expenditures for prescription drugs and other medical services.”
According to the Kaiser Commission, Florida’s prescription drug control program does not include any mechanism for evaluating it. When researchers at the University of Florida’s Center for Medicaid Issues conducted the first independent evaluation in June 2001, they found that the drugs with the highest denial rates were agents that “are often appropriate for use by patients with multiple illnesses, and persons who are medically complex and at high risk from adverse effects of drug therapy or inadequate treatment of their disease.” Physicians reported that their Medicaid patients were not getting the brand name medication that they needed, and that denials had resulted in negative clinical outcomes. Patients denied drugs went without treatment until the situation was resolved, and multiple trips to the pharmacy posed a particular burden for recently discharged hospital patients and the elderly.
Also of concern, particularly at a time when low physician reimbursements are making many doctors and health plans unwilling to treat Medicaid patients at all, is the fact that physicians felt that the program was time consuming, made coordinating care more difficult, and created “just one more set of hurdles and hassles associated with Medicaid.” This raises physician costs and makes them less likely to participate in Medicaid.
Health officials defend the Florida drug control program with comments like “if it wasn’t a good idea, the Blues wouldn’t have been doing it for the past twenty years.” In fact, private sector plans have been dismantling strict formularies in favor of co-pay arrangements that encourage patients to evaluate their need for a particular drug in terms of its additional costs. In extreme cases, patients who are denied lifesaving therapies by private insurers can sue for redress. Medicaid patients have no such recourse. State officials assume that they are too poor to pay even nominal amounts for copays with the result that patients have no way to register their preferences.
Letting government impose its preferences on patients is dangerous because officials typically pay more attention to money than to the quality of care. In the early 1990s, the advent of atypical anti- psychotic drugs revolutionized the care of schizophrenia and allowed many people to leave mental institutions. State officials were horrified by the cost of the new drugs and worked hard to deny Medicaid patients access to them. They did not take into account the fact that higher drug spending was counterbalanced by huge reductions in other health care costs. As an official for the National Association of the Mentally Ill pointed out, states that routinely spent $50,000 a year to keep a single Medicaid patient on dialysis and incurred costs of about $66,000 a year to hospitalize schizo-phrenics were bitterly opposed to spending just $9,000 a year for drugs that could cut overall costs and allow many schizophrenic patients to lead a more normal life.
Dr. Gorman’s full study on drug formularies is available here.