THE EFFECT OF DEMOGRAPHICS AND PLAN CHARACTERISTICS ON THE COST OF PHARMACEUTICALS IN A PRIVATE THIRD-PARTY PRESCRIPTION PROGRAM

Abstract

Objective: Using prescription claims data, the objectives of this study were: (1) to compare the proportion of variation in cost of pharmaceuticals that could be explained by available demographic variables and plan characteristics within various therapeutic categories; (2) to examine the relationships among plan characteristics and cost of pharmaceuticals; and (3) to evaluate whether utilization differed among various demographic variables and plan characteristics after controlling for appropriate covariates. Design: Retrospective, cross-sectional study. Data Collection: Data for this study were obtained from 1996 prescription claims information for the commercial population administered by a Rhode Island-based pharmacy benefit management company. Six therapeutic categories with the highest expenditures were analyzed. Methodology: Information on claims for six drug categories was extracted using database management software. Statistical analyses utilizing multiple regression and analysis of covariance were carried out. Results: Plan characteristics out-performed demographic variables sixteen-fold for all drug categories combined in explaining variance in cost of pharmaceuticals among plan enrollees. Significant associations were found among plan characteristics and cost of pharmaceuticals. Utilization differed among various demographic variables and plan characteristics after controlling for average wholesale price and days supply. Demographic variables included age, gender, place of employment and place of residence while plan characteristics included variables such as co-payment, mode of payment, formulary status and pham1acy type. Conclusions: The results obtained in this study have practical significance in the determination of capitation rates when utilization history of prospective members is not available. In this situation pharmacy benefit managers may have to set capitation rates based solely on eligibility data. In addition to highlighting the importance of utilization history in setting capitation rates for new enrollees the study results have other ramifications. PBMs contract with commercial clients to provide pharmacy benefits to their employees irrespective of their occupation. Significant differences in utilization among the members based on place of employment suggest that benefit managers should consider differentiating capitation rates according to their clients' business. Finally, the data from this study indicated that commercial members residing in Tennessee had the lowest level of drug utilization among all states evaluated. The fact that one PBM manages over 80% of the TennCare prescription program along with a significant commercial client base suggests that a "spillover effect" may exist. Results may be helpful in understanding some of the factors associated with cost of pharmaceuticals. For example, the inverse relationship of pharmaceutical cost with eligible days may be helpful in budgeting