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The cost-sharing sweet spot

In the long search for an effective co-payment system, Massachusetts tries value-based insurance designs.

Source: Flickr (Creative Commons)Value-based insurance designs (VBID) provide cost incentives to encourage individuals to utilize certain highly effective medications in order to cut costs while improving quality and health outcomes. While this has mostly been done in the private market, less is known about the impact of increased cost sharing for prescription drugs for Medicaid patients.

Medicaid patients, who are likely to be more financially sensitive to small increases in out-of-pocket costs, could be encouraged to use certain cost effective medications by decreasing the co-payments, in theory improving medication utilization and decreasing overall Medicaid costs.

Does decreasing out-of-pocket costs for important generic prescription drugs actually increase their use and decrease overall costs? Massachusetts implemented a new prescription drug policy in their Medicaid program that may answer this question.

In 2009, MassHealth implemented a two-step co-payment increase aimed at increasing use of generics for certain target medications in cardiovascular health, specifically blood pressure, cholesterol, and diabetic medications. Initially, all generic medications under MassHealth were $1, while all brand names were $3. Their policy change increased the price of generic prescriptions for non-target prescriptions to $2, while all brand name prescriptions remained at $3. Later, in July 2010, all non-target generics increased to the maximum of $3, the same as the price of brand name prescriptions.

Did it work? Well, yes and no. The intended impact of the policy was seen, with a moderate increase in generic prescription drug use by 0.93%, or about 28,000 more prescriptions. However, as the cost of generic non-target prescriptions increased, the use of non-target brand name prescriptions increased. By the end of 2010, there were 272,100 more brand name prescriptions filled that were attributed to the policy change.


While there was only 1 additional target generic prescription filled for every 35 non-elderly adult enrollees, there was 1 additional brand name prescription for every 3.6 non-elderly enrollees. Not surprisingly, this suggests that when given an option, people tend to purchase brand name medications over generics. Sure, the policy increased generic prescription drug use, but the increase in brand name prescription drug use was much more, begging the question of whether the policy change really decreased costs at all.

Still, policy changes like these don’t occur in a vacuum—there could be other factors affecting prescription drug use in this population. during the time of this policy initiative, which could have affected prescription drug utilization. Furthermore, this behavior may not be applicable to the private market, which may require larger increases in co-payments to cause a change in prescription drug utilization.

While this policy may initially increase Medicaid prescription drug costs, if the increased use of the targeted medications results in decreased hospitalizations and other associated health care use, there could be an overall decrease in health care costs.

Lieberman D. et. al. Medical Care. 2014 52 (5): 422-427. 


Joneigh Khaldun, MD, MPH

Joneigh Khaldun, MD, MPH
About Joneigh Khaldun, MD, MPH

Dr. Joneigh S. Khaldun, MD, MPH, FAAEM is the Medical Director at the Detroit Health Department and a board certified emergency physician at Henry Ford Hospital. Contact: Website | Twitter | More Posts