Differences in Incentives between
Stand-Alone Medicare Drug Coverage vs.
Medicare Advantage Plans
Kosali Simon
Cornell University,
y, Indiana University,
y, and NBER
CoAuthor: Kurt Lavetti
PhD Candidate in Economics, Cornell University
We are grateful for funding from NIH/NIA through grant #R03AG033211
• Well-known tradeoffs between drugs and
non-drug healthcare costs
– “Medicare today will pay for extended hospital stays
for ulcer surgery.
surgery That
That’ss at a cost of about $28,000
$28 000
per patient. Yet Medicare will not pay for the drugs
that eliminate the cause of most ulcers, drugs that
cost about $500
$
a year....Drug coverage under
Medicare will allow seniors to replace more expensive
surgeries and hospitalizations with less expensive
prescription medicine.” (Source: G.W.B., December
8th 2003 MMA signing, emphasis added)
• Unclear whether there are incentives to internalize these
spillovers within stand-alone drug coverage
•
=>MA & PDPs have incentives to approach
f
formulary
l
d
design
i diff
differently
tl
1|
Motivation
Regulation limits the extent to which they can
act on differential incentives
– In aggregate, each plan formulary must be actuarially
equivalent to standard benefit
• Provides formulary flexibility in treatment of specific drugs, and allowed
to use management tools
– Must cover at least two drugs
g in each therapeutic
p
class,, and
substantially all drugs in 6 key classes
• Cost sharing is not regulated; drugs just have to be on formulary
– Pl
Plans are prohibited
hibit d from
f
decreasing
d
i generosity
it after
ft openenrollment
• Permitted to make formularies more generous after open-enrollment
– Coverage is heavily subsidized, with open enrollment periods,
lessening scope for selection
– Part D reinsurance
reinsurance, risk adjustments in drug and non
non-drug
drug
reimbursements in Medicare
=>Despite restrictions, plans may still have incentive to engage in selection
and medical management
•
2|
Formulary Design Restrictions
• Hypothesis 1: MA formularies are more
generous than SA formularies for drugs
whose use can lower non-drug medical costs
• T
To test
t t effect
ff t off medical
di l managementt
incentive on formulary design:
– Identify drugs that should have large non-drug cost
offsets (”List M” drugs)
– Test whether MA plan formularies treat List M drugs
more generously than do SA plans, relative to other
drugs covered by each plan
plan.
– Focus on formularies outside open-enrollment to
avoid confounding selection issues
issues.
•
3|
Medical Management Hypothesis
• Hypothesis 2: MA plans also differ from SA
plans
l
in
i the
th incentive
i
ti to
t discourage
di
enrollment (or to encourage disenrollment)
of beneficiaries with
ith high medical costs
costs.
• To test effect of selection incentive on
formulary design:
– Identify drugs commonly taken by patients with
large non-drug medical costs (”List S” drugs)
– Test whether MA plan formularies during open
enrollment treat List S drugs less generously than
do MA formularies outside open
open-enrollment.
enrollment.
•
4|
Selection Hypothesis
During Open
Enrollment
Outside Open
Enrollment
MA Plans
Selection,
Spillovers
No Selection,
Spillovers
SA Plans
No Selection,
No Spillovers
No Selection,
No Spillovers
Australian PBS
No Selection,
Selection
Spillovers
No Selection,
Selection
Spillovers
– ’Selection’
Selection
• a plan has the incentive to select patients with lower
non-drug medical costs
– ’Spillovers’
• Medical Management; a plan has the incentive to
internalize tradeoffs between drugs and other
medical treatment options
•
5|
Identification Summary
– Chandra, Gruber and McKnight, 2010
– Goldman and Philipson, 2007
– Fendrick
F d i k ett al.,
l 2001
– (& many others)
=> useful for defining drug list M
•
6|
Evidence of Drug and Non-Drug Spillovers
– Lustig, 2007
• Evidence that the existence of adverse selection causes
i
insurers
to
t distort
di t t design
d i off insurance
i
plans
l
in
i
Medicare+Choice, leading to social welfare loss
•
7|
Evidence of Insurer Selection
• CMS Formulary Files
– Has cost-sharing rules and restrictions for every plan,
every drug
– Doesn't have full cost of drug (prior to 2009)
• Plan Finder Pricing Data
– Has full cost of drug
– Sample
p of drugs
g ((not universe))
• Australian formulary
– Has medical management incentive but no selection
incentive
• Preliminary work uses only 2007 data
•
8|
Data
• Similar overall
generosity
• Both MA and SA
plans decrease
generosity during
open enrollment via
formulary restrictions
– MA plans are more
likely to increase
use of quantity
prior
limits and p
authorization during
open enrollment
•
9|
Summary Stats
Descriptive Statistics: Plan Generosity
2007 Formulary Files
Number of Plans
Num of plan-drug pairs
Quantity Limits
Open Enrollment
Non Open Enrollment
Prior Authorization
p Enrollment
Open
Non Open Enrollment
Step Therapy
p Enrollment
Open
Non Open Enrollment
MAPDP
3 760
3,760
11,376,713
13.16%
14 26%
14.26%
11.46%
10.77%
11.59%
9.51%
2.01%
2.30%
1.55%
PDP
2 100
2,100
8,460,255
12.88%
13 91%
13.91%
11.84%
11.96%
11.93%
12.00%
1.77%
2.17%
1.37%
2007 Planfinder Data
• MA and SA plans
have similar costsharing levels
• Both MA and SA
plans are more
generous than the
Australian formulary
•
10|
Summary Stats
Average Initial Coverage
Cost / Full Cost
Num of plan-drug pairs
MAPDP
PDP
40.10%
67,717
40.80%
568,133
A tr li n FFormulary
Australian
r lr
Number of Drugs
Average
g Initial Coverage
g
Cost / Full Cost
Restricted Benefit
Prior Authorization
3,876
50.36%
28.19%
28 15%
28.15%
During Open Enrollment
Outside Open
Enrollment
MA Plans
Selection, Spillovers
No Selection, Spillovers
SA Plans
No Selection,
Selection
No Spillovers
No Selection,
Selection
No Spillovers
Australian PBS
p
No Selection, Spillovers
No Selection, Spillovers
p
• Generosityjd = b0 + b1ListMd + b2ListMd * MAj + b3MAj + ejd
• Dependent variable: measure of plan generosity
– Out-of-pocket
p
cost / Full cost of drug
g
• Compare MA to SA generosity for List M drugs relative to
other drugs
• Hypothesis is that b2 < 0
•
11|
Methods-Medical Management Hypothesis
• On average, integrated
MA plans and SA plans
are about equally
generous for List M
d
drugs
• There are huge
differences in
generosity between
drug classes
– Integrated plans
cover ACE Inhibitors
and Statins more
generously, and cover
Anticonvulsants,
Antihypertensives,
and Beta Blockers
less generously
•
12|
Comparison of Integrated MAPDPs to
Stand-Alone PDPs
Dependent
D
d V
Variable:
i bl IInitial
ii lC
Coverage % off totall cost paid
id outof-pocket by consumer
Model 1
List M
List M * Integrated Plan
Integrated Plan
N
Coeff.
S.E. Sig.
-0.066 [0.003] ***
0.001 [0.009]
-0.007 [0.004] *
124,425
Adj. R2
Model 2
Anticonvulsant
ACE Inhibitor
Antihypertensive
Statin
Beta Blocker
Anticonvulsant * Integrated Plan
ACE Inhibitor * Integrated Plan
Antihypertensive * Integrated Plan
Statin * Integrated Plan
Beta Blocker * Integrated Plan
I
Integrated
d Plan
Pl
N
0.005
Coeff.
-0.121
0.104
-0.082
-0.049
-0.111
0.033
-0.095
0.079
-0.176
0.092
-0.007
0 007
S.E.
[0.004]
[0.006]
[0.008]
[0.008]
[0.006]
[0.012]
[0.019]
[0.028]
[0.026]
[0.019]
[0 003]
[0.003]
124,425
2
Adj. R
0.016
Findings--Medical Management--MIXED
Sig.
***
***
***
***
***
***
***
***
***
***
*
During Open Enrollment
Outside Open
Enrollment
MA Plans
Selection, Spillovers
No Selection, Spillovers
SA Plans
No Selection, No
Spillovers
No Selection, No
Spillovers
Australian PBS
No Selection,, Spillovers
p
No Selection,, Spillovers
p
• Generosityjd = b0 + b1ListSd + b2ListSd * OEj + b3OEj + ejd
• Dependent variable: 3 measures of plan generosity
– % of dr
drugs
gs with
ith 3 non
non-price
price form
formulary
lar restrictions
restrictions: prior a
authorization,
thori ation
quantity limits, step therapy
• Only MA plans in regression
• Hypothesis: b2 > 0
•
13|
Methods - Selection Hypothesis
Comparison of MAPDPs during Open Enrollment
to MAPDPs outside Open Enrollment
Dependent Variable:
List S (Class 1)
List S (Class 1) *Open Enrollment
Open Enrollment
N
Adj. R2
Dependent Variable:
List S (All)
Li S (All) *Open
List
*O
Enrollment
E ll
Open Enrollment
N
Adj. R2
•
14|
Quantity Limits
-0.0200 ***
((0.0003))
0.0100 ***
(0.0004)
0.0270 ***
(0 0001)
(0.0001)
Prior Authorization
0.1095 ***
((0.0003))
0.0083 ***
(0.0004)
0.0210 ***
(0 0001)
(0.0001)
Step Therapy
-0.0080 ***
((0.0001))
-0.0017 ***
(0.0002)
0.0076 ***
(0 0001)
(0.0001)
22,753,426
22,753,426
22,753,426
0.017
0.015
0.001
Quantity Limits
-0.0055 ***
(0.0002)
0 0186 ***
0.0186
(0.0003)
0.0219 ***
((0.0002))
Prior Authorization
-0.0152 ***
(0.0002)
-0.0080
0 0080 ***
(0.0003)
0.0230 ***
((0.0002))
Step Therapy
0.0014 ***
(0.0001)
0 0008 ***
0.0008
(0.0001)
0.0073 ***
((0.0001))
22,753,426
22,753,426
22,753,426
0.002
0.002
0.001
Findings - Selection
• We test incentive differences in formulary design
between MA and SA part D plans
– Selection and medical management hypotheses
• Preliminary results show large but mixed differences
in medical management incentives, depending on
drug class
• Smaller and mixed differences in selection
incenti es
incentives
•
15|
Summary
• More comprehensive measure of generosity
• Trends across years
• Test whether effects are isolated to p
particular plans
p
• Include plan ownership structure to assess whether
plan competition affects incentives
•
16|
Future work