Use of Cheaper Drugs Pushes Costs Up, Not Down, Study Finds

In a study that casts doubt on a cornerstone strategy in the campaign to cut medical costs, researchers have found that requiring the use of cheaper or generic prescription drugs ultimately drives the cost of medical care up, not down.

That is because the practice of tightly restricting access to drugs sometimes means the most effective drugs aren’t used, resulting in longer illnesses, more visits to doctors and hospital emergency rooms and even greater overall drug use, according to the study.

The findings, reported today in the American Journal of Managed Care, dealt a blow to one of the favorite methods that insurers, employers and government agencies have used to prune medical costs: restricting patients’ access to more costly drugs and substituting cheaper generic ones.

More than 100 million Americans belong to managed-care programs that require or encourage doctors to prescribe medications only from approved lists of drugs known as “formularies.” These programs also encourage pharmacists to recommend less-expensive drugs or generics when appropriate.

Companies created to manage such programs for employers have mushroomed and wield increasing influence over drug prices and doctors’ prescription-writing habits. For that reason, drug giants including Merck & Co. and Eli Lilly & Co. have paid premium prices to buy drug-managing firms in recent years.

Patient advocacy groups, however, have long complained that these drug-benefit restrictions sometimes make it difficult or impossible for patients to get the most effective treatments for their illnesses.

The study, involving 13,000 patients in six health maintenance organizations, concluded that limiting what drugs can be prescribed--intended to prevent the unnecessary use of expensive drugs--is having the unintended effect of raising medical costs.

Moreover, researchers found that members of health plans with the most-restrictive drug programs used other medical services roughly twice as much as members in plans with no restrictions on drug benefits.

That is important because health plans and employers have increasingly been moving toward so-called closed formularies, the most restrictive coverage in which the health plans outright refuse to pay for drugs not on their approved list without prior authorization.

More than 60% of HMOs and 21% of employers now use this closed approach, according to a 1995 report by CibaGeneva Pharmaceuticals.

Nancy Sander, president of the Allergy and Asthma Network in Fairfax, Va., said asthma patients often suffer the consequences of managed-care programs that require generic drug substitutes.

Though generics are chemically identical to name-brand drugs, Sander and others note that generic drugs produced by different manufacturers can actually differ by 20% to 25% in their effectiveness--a variance that patients can sometimes notice.

Similarly, drugs designed to treat the same conditions often work differently or have varying strengths or effectiveness ratings, in addition to different prices.

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Thus, a narrow list of drugs acceptable to a health-care program for treatment of a given condition might exclude numerous drug options better suited in individual cases. When less-effective drugs are used, the effect can be to prolong or worsen the condition, driving up the ultimate costs in the name of saving money on the original prescription.

The researchers conceded that the study’s findings caught them by surprise. “We didn’t believe the results when we first got them” in 1993, said the study’s principal author, University of Utah researcher Susan Horn.

But Horn, a senior scientist at the university’s Institute for Clinical Outcomes Research, said researchers conducted a detailed analysis of the data for two years, confirming the original conclusion.

“This simplistic approach, of restricting what drugs are available and automatically prescribing generic substitutes, may work fine for some patients, but for most patients it doesn’t,” Horn said.

The study analyzed patients who were receiving treatment for at least one of several common diseases: asthma, ear infections, arthritis, ulcers and high blood pressure. Researchers grouped the patients by the severity of their illness, and tracked their use of medical services for a year. They collected data on the patients’ prescription drug use, visits to the doctor, emergency room visits and hospitalizations and outpatient surgeries.

The study was funded by the six participating HMOs, which researchers did not identify. Additional funding came from the National Pharmaceutical Council.

“Some of these people criticized the study extensively” when the preliminary findings were known, Horn said, “but later said the results were OK.”

Joel Hay, a pharmaceutical economist at the University of Southern California, said he was unaware of any research findings that demonstrate drug formularies save money.

“There are a lot of people that will have egg on their face when these results are known,” Hay said. “The HMOs and pharmacy-benefit managers have made lots of money selling these programs, but they are doing exactly the wrong thing.”

Not so, said Jeff Herzfeld, a vice president of Prescription Solutions, the drug-benefit management unit of PacifiCare Health Systems, a Cypress-based HMO.

“We believe, and our experience has found, that drug-benefit management can be used to control costs without having a negative impact on patient care or overall health-care costs.”

Herzfeld cautioned against “painting all formulary programs with the same brush,” and said he agreed with Horn’s conclusion that severely restrictive formularies “can unravel on you and increase health-care costs throughout the system.”