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Are Mexicos Conditional Cash Transfers Missing the Target? Jennifer Tucker
PolicyMatters
A Journal of the Goldman School of Public Policy UNIvE rSITy O f CALIf OrN I A, B ErkELEy
volume 9 Number 1 fall 210 - Spring 2011
GASOLINE
Are Mexicos Conditional Cash Transfers Missing the Target? Jennifer Tucker
CONVERSATIONS
Are Mexicos Conditional Cash Transfers Missing the Target? Jennifer Tucker
PHYSICIANS
Are Mexicos Conditional Cash Transfers Missing the Target? Jennifer Tucker
ENERGY
Are Mexicos Conditional Cash Transfers Missing the Target? Jennifer Tucker
SOCIAL WELFARE
Are Mexicos Conditional Cash Transfers Missing the Target? Jennifer Tucker
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I appreciate the excellent contributions and contagious energy of our students and contributing authors. Their hard work continues to propel an excellent student-run policy journal. More than that, they foster a continuous conversation of rarely covered issues and people who speak truth to power around the world - the mission of the Goldman School at its 40th Anniversary. I cannot think of a better venue for that mission. The students also dedicate a great deal of their canvas in this issue to highlighting the accomplishments of impressive women in politics. These devoted public servants include the first female Governor of Michigan Jennifer Granholm, who discusses how her experience in establishing a new foundation for Michigans economy holds lessons for other states. We are proud to welcome Gov. Granholm to the Goldman School and Berkeley Law faculty. The first female California Senate Majority Leader Gloria Romero discusses her continued efforts to improve the effectiveness and equity of Californias education system. And our very own Jennifer West, first-year masters student at the Goldman School and Vice Mayor of Emeryville, promotes constituent engagement in policymaking. These conversations illustrate Sarah Anzias research finding that women provide high value in legislative productivity. Sarah Anzia will also join our faculty.
Foreword
I hope you continue the conversation on the Journals website www.PolicyMatters.net where you can find each of these articles, comment fields, and blog posts. Sincerely,
PolicyMatters
is the student journal of the Goldman School of Public Policy University of California, Berkeley
Copyright 2011 by the University of California Regents. All rights reserved. No part of this publication may be reproduced in any form or by any meanselectronic, photocopy, or otherwisewithout written permission from PolicyMatters.
Policy Matters
EdITOrIal BOard
Editor in Chief Danny yost, Jr. Executive Editor Laura Morsch-Babu Senior Editor Hope richardson Business Manager Enrique ruacho Associate Publisher, Layout & Design Stanley Ellicott
PHARmACEuTICALS
Are Mexicos Conditional Cash Transfers Missing the Target? Jennifer Tucker
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Are Mexicos Conditional Cash Transfers Missing the Target? Jennifer Tucker
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Are Mexicos Conditional Cash Transfers Missing the Target? Jennifer Tucker
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PHARmACEuTICALS
EdITOrS
Carolyn Chu John Erickson kasandra Griffin rashi kesarwani Stephanie McLeod Pilar Mendoza Mark reinardy Josh Smith
Are Mexicos Conditional Cash Transfers Missing the Target? Jennifer Tucker
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Are Mexicos Conditional Cash Transfers Missing the Target? Jennifer Tucker
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PUBlISHINg aSSOcIaTES
Miranda Dietz kathy Wilson
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PolicyMatters Journal
COmmENTARY
Under traditional regulation, water utilities profit by increasing their sales and thus have a disincentive to promote conservation. Severing the connection between water utilities revenues and the quantity of water they sell, a system known as revenue decoupling, offers opportunities to solve this problem. However, revenue decoupling has limitations and raises some concerns. First, decoupling by itself is not a conservation program, and must be supplemented with additional conservation efforts such as appropriate Increasing Block Rate (IBR) pricing structures. Second, decoupling alters the risks that both utilities and ratepayers face. Third, water users may perceive a conservation penalty if their rates increase when their consumption decreases. Despite these and other challenges, revenue decoupling is a powerful tool to promote conservation and should be expanded. Regulators should also study the long-term conservation incentives that the policy creates.
Prescription drug spending constitutes a significant proportion of health care costs in the U.S. To manage these costs, the government and private sectors utilize independent corporations known as Prescription Benefit Managers (PBMs) to administer prescription drug benefit programs for employers or health plans. Under this current system, PBMs require that certain drugs receive Prior Authorization (PA) before distribution, creating negative externalities for both health care providers and consumers. This paper explores three alternative ways of reducing spending and inefficiencies present in the current system. The first alternative places a cap on the number of PAs allowed; the second alternative looks at reform through federal regulation; and the third analyzes an instant prescription drug approval model that reduces the role of PBMs. Spending on drugs, as a component of health care costs, has become increasingly important in recent years, as more illnesses are managed by drugs and the number of prescriptions continues to increase . In 2009, $2.5 trillion was spent on health care, including hospital care, physician and clinical services, retail prescription drugs, research, and infrastructure; $249.9 billion of this was spent on prescription drugs. Prescription drug spending accounted for 12% of 2009 total personal health expenditures, excluding health insurance costs, government administrative costs, public health activities, research, and structures and equipment . These costs are shared by government (Medicare/Medicaid), the private sector (out-of-pocket expenditures), and private health insurance . To combat rising drug costs, government entities and private insurers have turned to Prescription Benefit Managers www.policymatters.net (PBMs) to reduce spending. PBMs are independent corporations that administer the prescription drug benefit program for employers or health plans. The three largest PBMs are Medco, Caremark and Express Scripts. One of the tools used by PBMs to manage prescription costs is requiring that certain drugs receive Prior Authorization (PA) from the PBM before dispensing. Usually, a plan has a formulary with a list of preferred drugs and any drug not on the list requires special approval. Some drugs have a step therapy requirement in which the drugs may not be approved unless a cheaper drug is tried first and proven to be ineffective or not tolerated by the patient. This paper will show that while PA requirements do help to control costs, they incur consequences not adequately quantified in the market, and it will explore alternatives to the use of this tool. The question is not whether costs need to be controlled, but whether the PA is the optimal tool for managing these costs and whether PAs provide quality care as defined by a balance of efficiency and efficacy. Good management, according to the Academy of Managed Care Pharmacy (AMCP), means one of these measures: 1. better health at the same or lower cost, 2. equal health at lower cost or 3. much better health at slightly higher cost . It is not clear that PAs satisfy any of these criteria. The goal is to find alternate ways of reducing drug spending without the negative externalities to patients, physicians and pharmacists and the increased risk of abandoned prescriptions. With the passage of the Health Care Reform Act, this goal is even more important as more Americans will have access to private health insurance coverage that use fall 2010 - Spring 2011
PolicyMatters Journal profits. In fact, the Medicare prescription drug benefit assumes that this profit motive will encourage PBMs to seek cheaper sources of drugs and/or rebates, which, in turn, will keep down the cost of drugs to the government. There is no countervailing incentive to deter formulary changes that reflects the true social cost of the changing formularies. Full Costs of the Prior Authorization System Lennertz & Wertheimer found that PAs reduce medication costs but note that administrative costs for PAs are high . one study estimates costs for each PA as $20 for the PBM and $17 for the physicians office . Pharmacist cost can be estimated as follows: A survey of pharmacists found median time spent on PAs per week about 4 hours for an average of 1417 prescriptions a week . As PBMs control about 75% of the prescription market and about 5% of drugs require PA, pharmacists spent 4 hours on 53 PAs or 4.5 minutes per PA; at an hourly rate of $50 this equals to $3.75 . Total administrative cost per PA is provider cost ($17) + PBM cost ($20) + pharmacist cost ($3.75) or $40.75. These figures do not include any negative health outcomes,which have significant additional costs. A study of psychotherapeutics among Texas Medicaid Providers found a moderate burden on patient care outcomes . Another found increased hospitalizations and emergency care among psychiatric patients whose drugs were switched for non-clinical reasons . Another study called switching drugs medically risky for patients in long-term care facilities who had hypertension, heart disease, diabetes, HIV, and bipolar disorder . Anecdotal evidence points to increased health care costs as well. It seems clear that the problem is greater for psychiatric drugs because patients are less compliant and because reactions to drugs is more variable. Terry gives the example of a patient stable on zyprexa, an expensive but effective psychiatric drug that is often taken when everything else has failed. When the patient needed a refill, the Medicare plan required a PA, creating an obstacle for this mentally ill patient . The risk in this case of the substituted drug not being effective is substantial and, clearly, the resultant loss in both quality of life and potential future costs is great. Three alternatives to Prior Authorizations in managing drug spending As explained above, there is no controversy about whether costs need to be controlled, only about whether Prior Authorizations are the best way to do it. Below are several proposals of ways to reduce prescription spending while also reducing the negative externalities of the current PA system. Alternative 1. Allow physicians a fixed number of pre-authorized PAs. United Health Care recently announced a new pilot in which it intends to pay oncologists a fixed price to cover total cost of treatment per cancer patient rather than making payments per drug infusion. This change removes the personal financial incentive for the doctor to do additional treatments. However, it also introduces a danger that oncolowww.policymatters.net gists will provide lower levels of care if they are not paid incrementally. United Health Care plans to monitor outcomes and adjust the payment schedule based on the outcomes to minimize this potential risk . It is possible to apply a similar approach to other aspects of drug spending, targeting high-cost drugs and creating pilot programs for them. One idea is to give physicians a fixed number of PAs to use at their discretion before a formal PA is needed. The number would be based on the number of patients they treat that are managed by the PBM and by the number of PAs that were approved the previous year. This could be adjusted monthly based on the current patient load. Doctors could then prioritize the highest needs for off-formulary drugs among their patients. If the initial allotment is used, the usual PA process might apply, or some other exception procedure could be instituted that would include disincentives. This idea has major advantages: Systems for tracking the number of fills per prescriber as well as a way for physicians to check their usage of PAs will be needed. But investment is minimal as PBMs already have prescriber databases that associate each script with the prescriber. THE ADMInISTRATIvE ovERHEAD RELATED To PAS, WHICH IS SUBSTAnTIAL FoR PBMS , WILL BE REDUCED AnD WILL oFFSET THE CoSTS FoR nEW SySTEMS NEEDED. PHYSICIAnS WILL BE EMPoWERED To TREAT PATIEnTS MEDICALLY WITHoUT BEInG SEConD-GUESSED BY PBMS, BUT WILL HAvE An InCEnTIvE To AvoID THE ADMInISTRATIvE BURDEn ASSoCIATED WITH ExCESSIvE PAS So ARE LIKELY To USE THEIR ALLoTMEnT SPARInGLY, THUS nATURALLY REDUCInG DRUG CoSTS. PATIEnTS WILL noT SUFFER THE HEALTH CARE DAnGERS oR InConvEnIEnCE oF THE PA PRoCESS AS FREqUEnTLY THUS IMPRovInG HEALTH CARE qUALITY. PHARMACISTS WILL noT InCUR THE CoSTS oF PA PRoCESSInG AS OFTEN. THIS PLAn CAn BE IMPLEMEnTED USInG MEDICAL KnoWLEDGE AVAILABLE TODAy, IN THE SAME WAy THAT PAS ARE USED ToDAY. AS MoRE fall 2010 - Spring 2011
COmmENTARY