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Decomposing pharmaceutical cost growth in different types of health plans
M E Chernew1, D G Smith, D M Kirking
1Department of Health Management and Policy, University of Michigan School of Public Health, 109 Observatory Rm M3118, Ann Arbor, MI 48109-2029, USA. mchernew@umich.edu
Objective:
To decompose pharmaceutical spending growth into price and quantity components and to compare growth across different types of health plans.
Study Design:
Retrospective analysis of pharmaceutical claims for active employees of a large national employer from 1996 to 1998, who were enrolled in traditional fee-for-service plans, health maintenance organizations (HMOs), and preferred provider organizations.
Outcome Measures:
Outcomes measures included total cost growth, price growth, and quantity growth. Quantity growth was divided into growth in use of existing products and in use of newly introduced products. For existing products, quantity growth was further decomposed into growth in the number of prescriptions and change in the mix of prescriptions.
Results:
During the study period, HMOs had the greatest cost growth. This differential cost growth was largely attributable to changes in utilization as opposed to changes in prices, which were similar among types of health plans. Introduction of new products contributed 15 to 20 percentage points to cost growth in each setting. Differences in cost growth were largely attributed to differences in the growth rate of spending on existing products. For existing products, the impact of increases in the number of prescriptions was much greater in the HMOs, while the impact of changes in the mix of prescriptions was only mildly greater in the HMOs.
Conclusions:
Pharmaceutical cost growth was largely attributable to changes in utilization as opposed to changes in prices. Changes in utilization patterns were complex and differed across types of health plans.