Physician's Capitation Trends-Cutting drug selection may backfire on you
Short-term savings lost in long run
In what may be the first empirical study of the impact of pharmaceutical capitation on primary medical groups, researchers are confirming what many practitioners are saying anecdotally: A "Catch-22" occurs when capitation meets pharmacy. At first drug costs go down, but within a year, medical costs overall and drug costs in particular both increase.
That's the overall finding of a recently released study of 22,848 Medicare HMO members over a 12-month period. In the study, patient groups enrolled in pharmacy capitation contracts were compared to one Medicare risk group in which pharmacy was not folded into capitation coverage.
Capitation — 14% higher
Even when taking into account typical cost differences among ages and disease cohorts, costs were vastly different. "When controlling for age, gender, and severity of illness, pharmaceutical capitation patients had 14% higher total health costs than noncapitated patients, an additional $376 per patient per year, and 29% higher pharmaceutical costs, $110 per patient per year," according to a study conducted by Robert Popovian, PharmD, senior medical liaison of Pfizer Inc. and Kathleen A. Johnson, PharmD, PhD, professor of clinical pharmacy and pharmaceutical economics and policy at the University of Southern California in Los Angeles, and colleagues.1
The reason? Capitation's incentive to keep a tight budget on drug costs initially achieves that goal, but it later results in poorer patient care. That leads to higher hospital admission and readmission rates, which then incur associated higher drug costs, the researchers asserted.
"Elevated pharmaceutical expenditures in the capitated group may have resulted from physician focus on prescribing based on pharmacy cost rather than optimal pharmacotherapy," they explained. "This approach would perhaps result in more drug switching [to generics or lower-cost substitutes] initially, but overall achieve poorer outcomes, resulting in more visits and higher total health care costs."
The sample studied was divided into three groups — two which had pharmacy capitation (the experimental groups) and one in which the patient paid for drugs out-of-pocket (control group).
The capitated cohorts were allocated a capitation payment, which was managed by a pharmacy management company (PMC). The noncapitated group also was managed by the PMC, but not via a capitation arrangement; those beneficiaries were free to choose their drugs via a network of pre-selected pharmacies.
The role of chronic disease
Also as part of the study, each enrollee was assigned a chronic disease score identifying six chronic diseases: pulmonary disorder, cardiovascular disorder, diabetes mellitus, glaucoma, hyperlipidemic disorder, and gastrointestinal disorder. The score was assigned via the American Hospital Formulary System, a drug-directed method of identifying diagnoses.
"The strongest factor in whether an enrollee had any health care expenditures during the study interval was chronic disease score," the researchers pointed out.
"The pharmaceutical capitation variable also was associated with an increased chance of incurring total health care and pharmaceutical expenditures. Enrollees receiving care at pharmaceutical capitation PMGs had a 70% greater chance of incurring health expenditures or a 69% greater chance of incurring pharmaceutical expenditures than the patients receiving care [in the control group]," they added.
Other studies have shown that curtailing access to medications through rigid cost-control methods ultimately end up raising overall costs, the researchers said. Theirs is the first to specifically test capitation systems. They offer two recommendations:
1. To policy-makers, recognize that reductions in one sector of health care may induce cost increases in other domains.
2. To physician groups, contracts that capitate medical groups for pharmaceuticals may face higher costs overall.
Reference
1. Popovian R, Johnson KA, Nichol MB, Liu G. The impact of pharmaceutical capitation to primary medical groups on the health expenditures of Medicare HMO enrollees. Journal of Managed Care Pharmacy 1999; 5:414.
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