Report to the President: Prescription Drug Coverage, Spending, Utilization, and Prices.. Price Differences from MEPS Data

04/01/2000

MEPS data for 1996 show that people with prescription drug coverage received more costly drugs than people without coverage. However, for any specific drug, the total price paid for people with coverage tended to be lower than the price paid by people without coverage.31

This section gives considerable emphasis to analyzing brand name and generic drugs separately for several reasons. First, there are substantial price differences between brands and generics. Second, as mentioned earlier in the chapter, the general approach to pricing is quite different for the two categories of drugs. For example, the difference between a pharmacy's acquisition price and what it gets paid is greater in percentage terms for generics than for brand name drugs.

Both insured and uninsured consumers have incentives to use generic drugs. One widely held notion is that generic substitution may be more common for people with coverage, because insurers or PBMs often require it or charge higher copayments when enrollees receive a brand-name drug for which a generic equivalent is available. On the other hand, it is possible that use of generic drugs will be higher among uncovered individuals, as they have the most incentive to seek less expensive therapy. As shown in Figure 3-2, the MEPS data suggest that there are no real differences in percent of total prescriptions filled with a generic drug between covered and uncovered individuals.32


Figure 3-2. Percent of Prescriptions Filled with Generic Drugs by Coverage Status and Source of Insurance, 1996

Figure 3-2. Percent of Prescriptions Filled with Generic Drugs by Coverage Status and Source of Insurance, 1996

*Approximately 4 percent of drugs could not be classified as brand or generic.

Source: Center for Cost and Financing Studies, Agency for Healthcare Research and Quality: Medical Expenditure Panel Survey Household Component, 1996.


Table 3-3 presents results from MEPS on the average retail unit prices paid for brand name, generic, and all prescriptions in 1996, by people with and without prescription drug coverage.33 The retail unit price accounts for prescription size by dividing the price per prescription by the total number of units.34 It is important to take prescription size into account when comparing average drug prices because there may be differences in the quantity of drugs prescribed for people with different insurance coverage. For example, Chapter 2 noted that among hypertensive patients, those with drug coverage receive more pills per prescription than those without drug coverage.

The results in Table 3-3 show clearly the wide differences between the unit prices of brand name medications compared to generic drugs. For all categories of consumers, brand name drugs are priced at least three times higher on average than generic drugs. The results in this table can also be used to see whether individuals with or without coverage for drugs buy more expensive drugs. The first column of Table 3-3 shows that the average unit price per brand name prescription is $1.65 for people with coverage other than Medicaid, as compared to $1.54 for persons without coverage. The second column shows that, for generic drugs, the average unit price per prescription is $0.53 for people with coverage other than Medicaid, as compared to $0.43 for persons without coverage. For all drugs, the average unit price per prescription is $1.53 for people with drug coverage other than Medicaid, as compared to $1.16 for people without drug coverage.35 These price differences reflect the fact that covered individuals buy a more expensive mix of drugs.

Table 3-3. Average Retail Unit Price per Prescription by Type of Drug, Drug Coverage Status, and Source of Insurance, 1996
Coverage Status, Source of Insurance Average retail unit price per prescription
Brand Name Generic All Drugs
Total $1.73 $0.49 $1.46
Drug coverage other than Medicaid 1.65 0.53 1.53
Medicaid 2.47 0.41 1.35
Without drug coverage 1.54 0.43 1.16
       
Medicare 1.76 0.5 1.32
Drug coverage other than Medicaid 1.65 0.53 1.32
Medicaid 3.1 0.51 1.7
Without coverage 1.31 0.38 0.97
       
Non-Medicare 1.71 0.48 1.55
Drug coverage other than Medicaid 1.65 0.53 1.65
Medicaid 2.04 0.35 1.11
Without coverage 1.83 0.52 1.45

Note: Prices shown are point of sale prices and do not include manufacturer rebates.

Source: Center for Cost and Financing Studies, Agency for Healthcare Research and Quality: Medical Expenditure Panel Survey Household Component, 1996.

There exist a variety of other factors, such as form, strength, and mix, that must be taken into account - in addition to the quantity of drugs in a prescription - in order to produce meaningful comparisons of drug prices for those with and without coverage. There is some evidence that physicians may prescribe different, less expensive drugs for people without coverage.36 Table 3-4 shows an illustrative example of how two Medicare beneficiaries - one with drug coverage and one without drug coverage - with the same medical conditions and the same number of prescriptions can receive different quantities, forms and strengths of the same drugs, and a different mix of drugs for the same conditions. These drug differences translate into substantial differences in the average price per prescription (higher for the beneficiary with drug coverage) and average prices paid for the same drugs (higher for the uncovered beneficiary). Thus, to determine whether people with coverage pay less than people without coverage for the same drug, we need to make a more direct comparison - one that holds form, strength, and type of drug, as well as quantity, constant.

Table 3-4. Illustrative Example of Different Mix of Prescription Drugs Received by Two Beneficiaries with Identical Medical Conditions
    Beneficiary A (has Rx Coverage) Beneficiary B (no Rx Coverage)
  Drug Dosage Monthly Cost Dosage Monthly Cost
Same Drugs Inhaler 2 puffs/day $25 same $33
Blood Thinner 5mg, 3X day $20 same $25
Pain Killer 20 Tabs/250 mg each $10 15Tabs/125mg each $7
Different Drugs Anti-Hypertensive A 20 mg/day $40 -- --
AntiHypertensive B -- -- 5mg/day (equivalent) $25
Anti-Heartburn A 10mg/day $90 -- --
Anti-Heartburn B -- -- 2mg/2X day (equivalent) $50
           
  Average Price Per Prescription $37   $28
  Average Price Per Rx for Same Three Drugs $18   $22

Consider two Medicare Beneficiaries, Beneficiary A and Beneficiary B, who suffer from the same conditions: high blood pressure, heartburn, chronic lower back pain, asthma, and atrial fibrillation - a condition which often requires the daily use of a blood thinner. This combination of illnesses is not unusual in the typical Medicare patient.

Both beneficiaries receive five prescriptions per month for their five conditions. However, Beneficiary A has drug coverage and Beneficiary B does not. As illustrated in the diagram above, some of the drugs Beneficiary A receives are the same as Beneficiary B and some are different. Beneficiary A receives discounts on the same drugs for which Beneficiary B pays full price, and pays more for the different drugs because people with coverage often receive newer drugs that are also more expensive. Lastly, in the case of the pain killer, Beneficiary A and B both receive the same drug but Beneficiary A, because he has drug coverage, receives a greater number of pills per month and a higher dosage strength. Thus, the price of the pain killer reflects the difference in total number of pills and any discount Beneficiary A may receive.

As shown, while the average price paid per prescription is higher for Beneficiary A, Beneficiary B still pays more for the same given drug. Moreover, in the case of the pain killer, he actually receives less of the same drug, and at a lower strength.

It should be noted that the prices listed, although used purely as examples, are realistic prices for these types of drugs.

The best way to make comparisons is to use data on the prices paid for a specific form and strength of a drug for different categories of consumers. Ideally, these data would include the effect of manufacturer rebates on the prices paid for those with third-party coverage. No available data set, however, includes these rebates. Although MEPS has insufficient sample size to allow estimates of price differences between covered and uncovered Medicare beneficiaries for any single drug, MEPS allows for the calculation of a powerful summary measure across drugs. To calculate this measure we compare the retail price for each drug to a benchmark price. This benchmark price is obtained from a private company.37

By comparing the retail price to a benchmark price, we can standardize prices across drugs. We calculate the ratio of the retail price to the benchmark price on a unit basis to control for differences in the dispensed quantity. A separate benchmark price is used for each form, strength, and package size (from which each drug was dispensed) of a drug. By calculating this measure separately for each prescription reported in MEPS, we obtain a measure of the relative amount over the benchmark price that the purchaser paid for that prescription.38 We call this measure the percent over benchmark price. Taking the average of this ratio across all drug events gives us a measure that accounts for different forms, strengths, and quantities of medications, and differences in the mix of drugs prescribed, thereby allowing for price comparisons (excluding the effect of rebates) among different subgroups, such as people with and without drug coverage across all of their drug purchases.

Table 3-5 shows the average and median percent over benchmark price for all drugs, by coverage status and source of insurance. Overall, using averages, people without drug coverage paid more when they used the same drugs (57.9 percent over the benchmark) than did people with drug coverage other than Medicaid (33.3 percent over the benchmark). This same result is found using the median percent over benchmark instead of the average, even though the numbers reported are considerably smaller (14.6 percent versus 0.0 percent). In general, these relationships hold up when examining the Medicare and non-Medicare populations separately. In this table, the percent over benchmark for Medicaid beneficiaries is generally closer to individuals without drug coverage than to individuals with coverage. This may be because the prices ultimately paid by Medicaid on behalf of patients are greatly reduced by rebates, which are not captured in these data, and because Medicaid generally pays higher dispensing fees than do PBMs and insurers.

The difference in the magnitude of the results when using medians versus averages suggests that the underlying distributions are skewed. One possible reason for such a skewed distribution is the different pricing patterns for brand name and generic drugs discussed above. In this situation, the median tends to offer a better overall measure of the relationship.

Table 3-5. Average and Median Retail Percent Over Benchmark Price* for All Drugs by Drug Coverage Status and Source of Insurance, 1996
Coverage Status and Source of Insurance Average Retail Percent over Benchmark Median Retail Percent over Benchmark
Total 40.5% 3.0%
Drug coverage other than Medicaid 33.3% 0.0%
Medicaid 61.8% 8.3%
Without drug coverage 57.9% 14.6%
     
Medicare 40.8% 3.7%
Drug coverage other than Medicaid 31.3% 0.1%
Medicaid 58.6% 7.8%
Without coverage 61.4% 10.1%
     
Non-Medicare 40.3% 2.6%
Drug coverage other than Medicaid 34.5% 0.0%
Medicaid 63.9% 9.1%
Without coverage 52.7% 19.2%

*Percent over benchmark price equals the ratio of the average retail unit price (ARUP) to the benchmark unit price (BUP) minus one, multiplied by 100: Percent over benchmark = ((ARUP/BUP) - 1)*100

Note: Data exclude the effect of rebates for those with Medicaid or with drug coverage other than Medicaid.

Source: Center for Cost and Financing Studies, Agency for Healthcare Research and Quality: Medical Expenditure Panel Survey Household Component, 1996.

To test further the robustness of these results, we looked at brand name and generic drugs separately. Table 3-6 shows the median percent over benchmark price for brand name and generic drugs by coverage status and source of insurance. For brand name drugs, the median is 1.0 percent below the benchmark for those with drug coverage other than Medicaid and 10.0 percent above for those without drug coverage. This means that people pay more for brand name drugs, when using the same drugs, if they are not insured. The differences hold up for the Medicare population (-0.6 vs. 7.8 percent) and appear larger for the non-Medicare group (-1.2 vs. 18.6 percent).

Table 3-6. Median Retail Percent Over Benchmark Price* for Brand Name and Generic Drugs by Drug Coverage Status and Source of Insurance, 1996
Coverage Status and Source of Insurance Median Retail Percent over Benchmark
  Brand Name Generic
Total -0.1% 20.7%
Drug coverage other than Medicaid -1.0% 15.6%
Medicaid 3.8% 28.1%
Without drug coverage 10.0% 45.8%
     
Medicare 0.2% 21.6%
Drug coverage other than Medicaid -0.6% 15.5%
Medicaid 4.3% 29.3%
Without coverage 7.8% 44.5%
     
Non-Medicare -0.3% 19.5%
Drug coverage other than Medicaid -1.2% 15.2%
Medicaid 3.7% 26.0%
Without coverage 18.6% 49.0%

*Percent over benchmark price equals the ratio of the average retail unit price (ARUP) to the benchmark unit price (BUP) minus one, multiplied by 100: Percent over benchmark = ((ARUP/BUP) - 1)*100

Note: Data exclude the effect of rebates for those with Medicaid or with drug coverage other than Medicaid.

Source: Center for Cost and Financing Studies, Agency for Healthcare Research and Quality: Medical Expenditure Panel Survey Household Component, 1996.

The absolute differences in the percent over the benchmark price for generics (about 20 percent for both Medicare and non-Medicare populations) are considerably higher than for the brand name drugs (about 0 percent) because the fixed cost of filling the prescription does not vary with the acquisition cost of the drug. This is consistent with the discussion earlier in the chapter that the fixed cost of filling a prescription - the dispensing fee - is a larger proportion of the total cost of lower generic priced drugs.

For generic drugs, the median percent over benchmark is 15.6 percent for those with drug coverage other than Medicaid and 45.8 percent for those without drug coverage. The differences are similar for the Medicare population and the non-Medicare group. The difference in medians reported for generic drugs, however, is not statistically significant for two of the coverage categories (total and Medicare). Because overall prices are lower, however, price differences tend to be less important to the consumer than for the more expensive brand name drugs. Overall, the results in this table appear consistent with those in Table 3-5, in that those without drug coverage appear to pay more above the benchmark price for their drugs. Further research is needed to understand the pricing of generic drugs.

Finally, Table 3-7 shows the median percent over benchmark price for all prescription drugs by duration of coverage over the year. For the total population, the median percent over benchmark for people who had coverage for only part of the year was 9.0 percent, which was higher than for those with full-year coverage (0.7 percent) and appears lower than for those who never had coverage (14.6 percent).39 This is not unexpected, because people with part-year coverage would have paid cash prices if they purchased drugs during their period without coverage. However, an important implication of this result is that the inclusion of persons with part-year coverage in the simple "covered" group used for the analyses in Tables 3-5 and 3-6 has the effect of understating differences that would be observed if the analyses accounted for duration of coverage. These results are similar to the results on drug spending by duration of coverage reported in Chapter 2.

Table 3-7. Median Percent over Benchmark Price* for All Drugs by Length of Coverage During the Year
Duration of coverage in 1996 Median Percent over Benchmark
Total 3.0%
Always 0.7%
Sometimes 9.0%
Never 14.6%
   
Medicare 3.7%
Always 0.2%
Sometimes 0.5%
Never 10.1%
   
Non-Medicare 2.6%
Always 0.8%
Sometimes 11.9%
Never 19.2%

*Percent over benchmark price equals the ratio of the average retail unit (ARUP) price to the benchmark unit price (BUP) price minus one, multiplied by 100: Percent over benchmark = ((ARUP/BUP) - 1)*100

Note: Data exclude the effect of rebates.

Source: Center for Cost and Financing Studies, Agency for Healthcare Research and Quality: Medical Expenditure Panel Survey Household Component, 1996.

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