This presentation contains confidential and proprietary information of Caremark and cannot be reproduced, distributed, or printed without written permission

This presentation contains confidential and proprietary information of Caremark and cannot be reproduced, distributed, or printed without written permission from Caremark.

©2006 Caremark. All rights reserved.

Dollars to Doughnuts:Predicting Prescription Drug Costs of Beneficiaries and the Medicare Program Under Part D

M. Christopher Roebuck, CaremarkDominick Esposito, Mathematica Policy Research, Inc.Meredith Lewis, CaremarkJan Berger, Caremark

Academy Health Annual Research Meeting, Seattle, June 26, 2006

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Caremark proprietary and confidential information. Not for distribution.

Research Objectives Examine drug utilization and out-of-pocket (OOP)

costs of Medicare beneficiaries using a Medicare prescription drug discount card that includes beneficiaries who qualified for the Transitional Assistance Program (TAP)

Simulate Medicare beneficiary OOP costs (excluding premiums) and costs to Medicare from the standard Medicare Part D benefit

Understand the factors associated with these simulated costs and the probability of being in the doughnut hole (coverage gap)

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Medicare Drug Discount Card Created via the Medicare Modernization Act

Enrolled nondual eligible beneficiaries into the temporary program June 2004 to December 2005

Provided a $600 annual subsidy to seniors with income below 135% of the federal poverty level (TAP)

May have charged cardholders an enrollment fee of up to $30 per calendar year

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Data Consist of eligibility and prescription claims data for

enrollees with one of 34 separate Medicare drug discount cards managed by Caremark

Comprised of beneficiaries enrolled for six or more months with one or more pharmacy claims between June 2004 and November 2005 (n=37,425)

Generated Pharmacy Health Dimensions (PHD), a pharmacy-based risk index that categorizes prescription data into 62 disease indicators1

Source: 1 Powers, C.M., Meyer, C.M., Roebuck, M.C. and B. Vaziri. 2005. “Predictive Modeling of Total Healthcare Costs Using Pharmacy Claims Data: A Comparison of Alternative Econometric Cost Modeling Techniques.” Medical Care 43(11): 1065-1072.

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Sample CharacteristicsTAP

(n=17,317)Non-TAP

(n=20,108)Total

(n=37,425)

Male 26% 38% 33%

Mean age 76 75 76

Number of conditions 2.5 2.0 2.2

Hypertension 60% 45% 52%

High cholesterol 27% 30% 27%

Diabetes 19% 14% 16%

Hypothyroidism 17% 13% 15%

Osteoarthritis 18% 12% 15%

Allergies 14% 10% 12%

Depression 13% 10% 11%Note: All differences in means across TAP and Non-TAP groups are statistically significant (p<0.01) using Kruskal-Wallis equality of populations test, except high cholesterol.

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Annualized Utilization and Costs Under Medicare Drug Discount Card Program

TAP(n=17,317)

Non-TAP(n=20,108)

Total(n=37,425)

Mean annual number of prescriptions

Brand 11 8 9

Generic 12 7 10

Total 23 15 19

Mean annual drug costs

Enrollee paid (OOP) $256 $781 $538

Medicare paid (TAP) $672 $0 $311

Total $928 $781 $849

Note: All differences in means across TAP and Non-TAP groups are statistically significant (p<0.01) using Kruskal-Wallis equality of populations test.

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Standard Medicare Part D Benefit

Enrollee OOP Cost Share

$250 $2250 $5100

100% co-insurance

$0

25% co-insurance $2/$5 co-pay or 5% co-insurance

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Standard Medicare Part D Benefit Simulation Applied Standard Medicare Part D benefit cost-

share structure to annualized total drug costs (plus a 3.5% price inflation adjustment from 2005 to 2006)

Expected utilization increases under insurance

Applied variable “induction factors” of between 0.701 and 1.252 for prescription drugs

Estimated each $1 decrease in OOP costs to induce between $0.70 and $1.25 of increased drug spending

Sources: 1. Mays, J., Brenner, M., Neuman, T., Cubanski, J., and G. Claxton. November, 2004. “Estimates of Medicare Beneficiaries’ Out-of-Pocket Drug Spending in 2006: Modeling the Impact of the MMA.” Henry J. Kaiser Family Foundation. Menlo Park, CA.2. American Academy of Actuaries. May 1995. “Medical Savings Accounts: Cost Implications and Design Issues.” Washington, DC.

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Beneficiary OOP Costs

$256

$781

$538

$441$410 $424

$601$555 $576

$690

$625$655

$771

$685$725

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

TAP Non-TAP Total

Actual Drug Discount Card Simulated Part D (no induction)

Simulated Part D (induction factor: 0.70) Simulated Part D (induction factor: 1.00)

Simulated Part D (induction factor: 1.25)

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Percent of Beneficiaries in the Doughnut Hole

5.1%

8.1%6.7%

16.0% 15.5% 15.7%

21.9%

18.5%20.0%

26.7%

20.6%

23.4%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

TAP Non-TAP Total

Simulated Part D (no induction) Simulated Part D (induction factor: 0.70)

Simulated Part D (induction factor: 1.00) Simulated Part D (induction factor: 1.25)

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Multivariate Analyses Estimated generalized linear models (GLM;

gamma/log link) for:

Simulated OOP costs under Medicare Part D

Simulated Medicare payments under Medicare Part D

Estimated a probit model for the likelihood of being in the doughnut hole

Explanatory variables included:- Age, gender, geographic region

- TAP status

- Generic dispensing rate

- 62 PHD disease indicators

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Multivariate Results TAP (low income) status is associated with:

$58 to $86 higher beneficiary costs

$199 to $238 higher Medicare payments

Almost no change in the probability of being in the doughnut hole

A 10-percentage point increase in the generic dispensing rate is associated with a: $41 to $55 decrease in beneficiary costs

$62 to $71 decrease in Medicare payments

1.8 to 2.6 percentage point reduction in the probability of being in the doughnut hole

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Conclusions/Policy Implications In choosing whether or not to enroll in Medicare Part D,

beneficiaries will compare annual premiums with the expected payout of the Medicare program

Risk-neutral beneficiaries will enroll at monthly premiums below the $52 to $60 range

Faced with higher OOP costs, low-income beneficiaries without low-income subsidies may reduce their drug utilization, potentially resulting in adverse health effects (e.g., those not passing the asset test)

To reduce costs, Medicare should actively promote generic substitution

With 33 million enrollees, the Medicare program could save more than $2.0 billion to $2.3 billion annually by increasing the generic dispensing rate by 10%

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Strengths and Limitations Strengths:

Actual claims experience, not self-reported use Actual OOP amounts Data on a low-income population (TAP)

Limitations: Enrollees with zero claims excluded from the analysis Discount card may not always have been used Simulating the standard Medicare Part D benefit,

although most have selected nonstandard plans

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Thank you.

Contact:

M. Christopher Roebuck

(410) 785-2136

[email protected]

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This presentation contains confidential and proprietary information of Caremark and cannot be reproduced, distributed, or printed without written permission