Increasing copayments for prescription drugs causes patients to reduce their use of medication and switch to lower-cost drugs, according to a study in the October 9 edition of the Journal of the American Medical Association that was conducted by RAND and commissioned by the California HealthCare Foundation.

The higher copayments drive up the proportion of prescription drug costs that patients pay, while offering a one-time chance to cut insurance plan expenses significantly, according to the study.

"The measures that have been put in place by health plans do have the effect of lowering drug expenditures," said Geoffrey Joyce, a RAND economist and lead author of the study. "But just about all of the cost savings accrue to the health plan and not to the patient."

The higher copayments and other changes studied all cut costs, although by varying amounts. For example, increasing a single copayment from $5 to $10 per prescription cut annual per-person spending by 22%, from $725 to $563. Doubling copayments in plans with multiple tiers reduced average drug plan spending by about one-third.

Other changes cut costs less dramatically. Requiring mandatory generic drug substitution in two-tiered plans cut costs by 8%, while adding a third tier with incremental copayments of $10 cut costs by just 4%.

Nearly all of the savings went to the insurance plans. Doubling copayments in two-tiered plans saved insurance plans $220 per person annually, but saved patients just $3 as they bought fewer medicines. Adding a third copayment tier saved plans $44 per year, but cost patients $25 more. For the most-common two-tiered plan, the proportion of drug costs paid by patients rose about 45%, going from 18% to 26%, researchers found.

The study is the largest ever conducted involving non-elderly patients enrolled in employer-sponsored health plans. The study found that the overall cost to patients remained about the same even as copayments rose, because patients used fewer prescription drugs.

"Although we found no evidence that people are going without essential medication because of the increase in cost sharing, we need additional studies to see whether the shift to generics and higher copayments are having an impact on patient health," said Dana Goldman, director of health economics at RAND and the report's senior author.

Researchers plan to look at whether the higher copayments may hurt patients with chronic conditions such as diabetes and high blood pressure, who must take an array of medication to stay healthy.

Marianne Laouri, Ph.D., senior program officer at the California HealthCare Foundation, said, "This study adds another important piece to the pharmacy cost-management puzzle. As prescription drug costs continue to rise, we must be sure to understand the impact of benefit designs on health plan members. RAND's work illustrates that people are cost-sensitive and use fewer prescription drugs when their out-of-pocket costs go up."

Joyce said the findings send a cautionary note to officials who set benefit terms for government insurance programs that cover the nation's low-income families.

"We found that raising copayments by $10 or $20 changes patients' behavior," Joyce said. "This shows that policymakers should be very careful when they change plans for low-income patients because they may react to even smaller changes in copayments."

For patients, the findings suggest they will continue to see higher out-of-pocket expenses for prescriptions and more restrictions on the types of drugs that insurance plans cover.

"We are moving to a system where if patients want new brand drugs, they will have to pay more money out of their own pocket," Goldman said. "In many cases, you will not be able to get the exact drug your doctor wants you to have, unless you are willing to pay more money."

RAND researchers studied the impact of the increasing copayments by analyzing records for 25 private employers who offered more than 420,000 workers 55 unique medical and pharmacy benefits packages. The records cover 1997 through 1999.

Previously, most studies on the effects of rising drug plan copayments have focused on elderly patients who are covered by Medicare, or older plan arrangements. The new study is the first to examine drug plans with three copayment tiers.

Spending on outpatient prescription drugs has increased at double-digit rates for the past decade and now is the third-largest component of health care, after hospital care and physician services.

In an attempt to control costs, many insurance plans have adopted incentive-based programs where drugs are placed in different tiers. Copayments depend on the tier where a drug is placed. Generics typically have the lowest copayments, with the copayments higher for brand-name drugs. An increasing number of plans have added a third tier by creating a list of preferred brand-name drugs.

Researchers said the findings will prove most useful to insurance plan administrators, who have had limited guidance as they have retooled drug benefits. "Every benefits manager wants to know what likely will happen when they change benefit design," Joyce said. "In the past, they have had to depend on very limited experience."

Other authors of the report are Dr. Jose Escarce and Matthew Solomon, both of RAND.

RAND is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. More information at www.rand.org.