Tier 4 co-pays: a flawed approach to keeping a lid on drug costs
Health insurance companies are already an oxymoron– they neither are about health nor insurance– instead they have become a redistribution vehicle for transferring money from the healthy to pay for chronic care of the sick and end-of-life “heroics”.
The Nytimes has an interesting article on the emergence and implications of Tier 4 “co-pays” for medications– bringing a percent of drug cost into the co-pay equation for expensive medications.
With the new pricing system, insurers abandoned the traditional arrangement that has patients pay a fixed amount, like $10, $20 or $30 for a prescription, no matter what the drug’s actual cost. Instead, they are charging patients a percentage of the cost of certain high-priced drugs, usually 20 to 33 percent, which can amount to thousands of dollars a month.
For example, here is a sample Tier 4 explanation from BCBS NM.
What is a 3-Tier or 4-Tier prescription drug plan?Our 3-Tier and 4-Tier prescription drug plans allow you to get a prescription drug even if it’s not on the BCBSNM Drug List and to get a brand-name drug even when a generic-equivalent is available. Make sure to have your prescriptions filled at either a participating pharmacy (search Pharmacy Network on the Provider Finder®) or through the PrimeMail Pharmacy Program, our managed prescription mail-order service.
Your copayment is based on whether you are receiving a generic drug or a brand-name drug AND whether the drug is on our Drug List.
Tier 1=lowest copayment You pay this amount when you receive a generic drug. Tier 2=middle copayment* You pay this amount when you receive a brand-name drug that is on our drug list and no generic is available. Tier 3=highest copayment* You pay this amount when you receive a brand-name drug that is not on our drug list. Tier 4=specialty drug** You pay a copay or percentage based on your plan benefits. *If you or your doctor prefer that you receive a brand-name drug when a generic equivalent is available, you’ll pay the Tier 1 copayment PLUS the difference in cost between the generic and brand-name drug.
For commercially packaged items (such as inhalers, tubes of ointment, drug blister packs, insulin or boxes of test strips), you will pay the applicable copayment for each package, regardless of the days’ supply the package represents. For example, if two inhalers are purchased under the Retail Pharmacy Program, two copayments will apply. Under the PrimeMail Pharmacy Program, you may receive up to three packages (a 90-day supply) via mail order for only 2 or 2-1/2 times the retail copayment depending on your plan.
**Specialty pharmacy drugs are used to treat serious and/or chronic conditions such as multiple sclerosis, pulmonary hypertension, hepatitis, and rheumatoid arthritis. These medications are typically injectable and can be administered by a patient or family member. Members must use a contracting specialty network pharmacy to fill these specific prescriptions.
See your Prescription Drug Plan Rider for details, limitations, and exclusions.
What is a specialty pharmacy drug?
Specialty pharmacy drugs are used to treat serious and/or chronic conditions such as multiple sclerosis, pulmonary hypertension, hepatitis, and rheumatoid arthritis. These medications are typically injectable and can be administered by a patient or family member. Members with health coverage that includes specialty pharmacy benefits must use a contracting specialty network pharmacy to fill these specific prescriptions.
The previous system had led to a spiral of pharmaceutical costs, as “$10″ medication that really cost hundreds a month. Unchallenged at the high end of pricing for branded drugs, pharmaceutical companies pushed pricing to the limits of the “Red Face Test“. And as they all did the same thing, the embarassment kept getting pushed further out by benchmarking.
Definition of Red Face Test: Ask yourself this one basic question: If I did this thing I’m about to do, and it was reported on the front page of my local newspaper or put on the evening news, would I be embarrassed?
It makes sense that payers would want to check the growth in expenditures driven by specialty medications (estimates are the sector will increase from $54B in 2006 to $99B by 2010). Many of these medicines run in the thousands of dollars per month and have no generic equivalents.
However, assuming that people taking these drugs are actually using them to treat a real illness, there’s several options that would philosophically appear to hold muster while allowing the treatment of disease:
- Cap the high end of monthly payments, to discourage pharmacos from pricing beyond X due to pressure from patients. Instead, Tier 4 still leaves the high end in place while utilizing high monthly payments to discourage usage of the medication
- Pay a lump sum on “triggering” of the disease, to be used for any treatment. This would be more of a capped insurance model, if the event has already occurred moves you toward a managed chronic care model vs. “insurance”. After all, one can’t insure what has already happened.
Either way, putting a cap on the high end of spend would seem to limit marginal pharmaceutical company pricing. Instead, the Tier 4 programs look to limit overall utilization of a helpful drug while not reigning in marginal pricing– causing significant pain to the people most in need and not changing the incentives of the pharmacos.
A flawed approach either way you look at it.
Addendum: Brass and Ivory has a terrific review of different blogger reactions to this issue.
