Do multiple cost containment policies generate policy tradeoffs?

Objectives: To address escalating prescription drug expenditures, Michigan implemented four cost containment policies within a three-year period: (1) a preferred drug list (PDL) in February 2002; (2) a joint purchasing arrangement (JPA) with Vermont in February 2003; (3) a maximum allowable cost (MAC) system for pharmacy reimbursement in November 2003; and (4) a multi-state pooling supplemental rebate arrangement (MPSRA) with Alaska, New Hampshire, Nevada and Montana, in May 2004. Our objective was to examine the extent these policies shifted market share to preferred and generic drugs (“mix effect”), reduced the price of preferred and generic drugs (“price effect”), and reduced the daily cost (“combined price and mix effect”). We also calculated cost savings generated by each policy. Population: 5,554 dual-eligible beneficiaries enrolled in Michigan Medicaid outpatient prescription drug program in FY 2000-2004. Study Design and Methods: We categorized prescription claims under 2 policy-relevant dimensions: brand/generic drug status and preferred/non-preferred/unlisted drug list status. We used interrupted time series analysis to evaluate the mix, price and combined effects of the 4 policies, and to calculate annualized cost savings. Findings: The daily cost fell by 17%. Preferred market share increased by 50%, and preferred expenditure share increased by 63%. Despite a 49% increase in generic market share, generic expenditure share remained constant at 28%. The PDL significantly reduced daily cost, and increased the market share of both preferred and generic drugs. Purchasing arrangements (JPA and MPSRA) decreased preferred market share, and had an insignificant effect on daily cost. MAC policy had no effect on daily cost, and generated negative cost savings. Combined, the 4 policies generated $86,893 in annualized cost savings for Michigan's Medicaid program. Conclusion: Policy tradeoffs partly offset overall cost savings. Study findings suggest that cost containment policies can have unintended consequences, and that generic substitution policy may not significantly reduce drug expenditures. To generate meaningful cost savings, policies should target brand products, which account for a substantial proportion of total prescription drug expenditures. These findings have implications for programs with multiple cost containment strategies, including AIDS Drug Assistance Programs (ADAPs) that are struggling to meet growing demand. Additional research is needed to evaluate policy tradeoffs that inform public health decision-making, and ensure that scarce public dollars achieve the greatest value for money spent.