Studies examine impact of drug caps and pay for performance on care costs and outcomes

Research Activities, January 2010, No. 353

A number of innovative methods have been used to curb elderly health care costs and improve care quality at the State and Medicare levels. To reduce costs, some State pharmacy assistance plans incorporate a spending cap to offset prescription drug costs. One of these is called a soft cap. This requires enrollees to pay higher copayments after they incur total spending that is more than a designated amount. Medicare uses their Premier Hospital Quality Incentive Demonstration (PHQID) to provide pay-for-performance incentives to hospitals to improve care quality and reduce costs. Two new studies illustrate how these programs are working. The first study found that once spending caps were reached, elderly patients reduced the number of drugs they purchased. In the second study, the PHQID, often cited as a model for other pay-for-performance programs, had little effect on mortality and care costs for patients diagnosed with one of four conditions. Both studies, supported in part by the Agency for Healthcare Research and Quality (T32 HS00062), are summarized here.

Bishop, C. E., Ryan, A. M., Gilden, D. M., and others (2009, June). "Effect of an expenditure cap on low-income seniors' drug use and spending in a state pharmacy assistance program." HSR: Health Services Research 44(3), pp. 1010-1028.

In this study, researchers looked at claims and enrollment files from a State senior pharmacy assistance program in Illinois. The program enrolled non-Medicaid-eligible seniors who had incomes of less than 200 percent of the Federal poverty level. Once prescription drug costs exceeded $1,750, the patient's copays increased by 20 percent.

Once enrollees exceeded their prescription drug caps, they reduced the number of drugs purchased by 14 percent. The use of generic prescription drugs increased by 4 percent after the cap was reached. Seniors' monthly drug expenses also dropped by 19 percent. Near-poor elders were most likely to be affected by reaching the cap. Prior to the cap, the out-of-pocket price was estimated at $2.82 per prescription. This increased to $13.04 after the cap was met, more than a threefold price increase. Based on a monthly income of $1,100, the monthly out-of-pocket expense for the average precap prescriptions would increase from 1.5 to 6.4 percent. The researchers conclude that the impact of the cap on low-income elders' health is likely to be substantial.

Ryan, A. M. (2009, June). "Effects of the Premier Hospital Quality Incentive Demonstration on Medicare patient mortality and cost." HSR: Health Services Research 44(3), pp. 821-842.

Researchers used Medicare inpatient claims and other data from 2000 to 2006 to identify more than 6.7 million patients with more than 11.2 million hospital admissions. Diagnoses were heart attack, heart failure, pneumonia, and coronary artery bypass graft surgery (CABG). The PHQID pays a 2 percent bonus on Medicare reimbursement rates to hospitals performing in the top 10 percent of performance of a composite quality measure for each of these four clinical conditions.

The researchers examined the effects of PHQID on mortality (after adjusting for the patient's risk of dying) and cost. They found no evidence that PHQID had any significant effect on 30-day mortality or 60-day costs for heart attack, heart failure, pneumonia, or CABG. The researchers conclude that the PHQID made little impact on the value of Medicare-paid inpatient care. They suggest that, by primarily using care process measures of quality, the PHQID may not have been sufficiently targeted to decrease mortality. Also, the magnitude of the financial incentives in the PHQID may have been insufficient to defray the high cost of improving patient outcomes.

Current as of January 2010
Internet Citation: Studies examine impact of drug caps and pay for performance on care costs and outcomes: Research Activities, January 2010, No. 353. January 2010. Agency for Healthcare Research and Quality, Rockville, MD. http://archive.ahrq.gov/news/newsletters/research-activities/jan10/0110RA22.html