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Milbank Quarterly Classics Pharmaceutical and Medical Device Policy
Julie Donohue, PhD
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In 1993, Stephen Soumerai and coauthors published “A Critical Analysis of Studies of State Drug Reimbursement Policies: Research in Need of Discipline.”1 The article, which focused largely on pharmaceutical cost containment in Medicaid, presaged major changes in reimbursement for prescription drugs in the United States.
The article reviewed the limited evidence then in existence on the impact of prescription drug cost-sharing, dispensing limits, formularies, and prior authorization—tools that remain widely used today. The current landscape for pharmaceutical cost containment is, in some ways, radically different from when this Milbank Classic was published. And yet, the conceptual and analytic frameworks remain just as relevant. I assess how the context for pharmaceutical policy research has changed in the past two decades and highlight the extraordinary contributions this article made to research and policy.
I am struck by several massive changes in pharmaceutical markets and reimbursement since Soumerai and colleagues’ publication. First, the article was written when Medicaid was the largest public payer for pharmaceuticals, and a full decade before Congress would create Medicare Part D. Gross retail drug spending in Medicare is now more than double that in Medicaid. The lessons learned from Soumerai and colleagues’ work were widely applied in research that informed both the development and subsequent modifications to Medicare Part D.
Second, pharmacy benefits in Medicaid, the focus of nearly all the studies reviewed by Soumerai and colleagues, were fundamentally altered by the Medicaid drug rebate program created in 1990. This program prohibited state Medicaid programs from imposing restrictive formularies but permitted other cost containment measures. In fact, Soumerai et al. cited data on the sudden drop from 1990 to 1991 in states’ use of restrictive formularies from 19 to 11, and the corresponding increase in the number using prior authorization from 18 to 38. Together with his long-time collaborator Dennis Ross-Degnan, Soumerai went on to conduct many studies on the impact of prior authorization in Medicaid 2 that informed policy decisions across the country for decades.
Third, pharmaceutical markets were undergoing structural changes at the time of Soumerai and colleagues’ writing. The 1993 article defines the problems associated with high-cost drugs using clozapine, the first of several second-generation antipsychotics, as an example. However, the article was published early in the introduction of biologics and other specialty drugs whose launch prices would severely test the limits of cost containment policies. It was likely hard to imagine in 1993 the existence of drugs with $100,000 price tags, which are commonplace today, and the burden they would place on patients and payers.
Fourth, the introduction of high-cost biopharmaceuticals would lead payers to innovate with pharmacy benefit design. Most notably, payers shifted away from use of closed or two-tiered formularies toward four- or five-tiered formularies. This change was fueled by the rise of pharmacy benefit managers as a critical intermediary between the biopharmaceutical industry and payers and patients.
What is remarkable about Soumerai and colleagues’ work is that even though many of the background conditions have changed, it is just as useful to researchers and policymakers today as it was in 1993. The article was a powerful blend of evidence review, methodologic tutorial, and policy analysis. It reviewed 19 studies published between 1972 and 1992, including 7 that evaluated patient limits or cost-sharing and 12 that evaluated limits on prescribers (formularies or prior authorization). The authors concluded that only 5 of the 19 were well-controlled studies capable of reaching valid conclusions and presented a call to action to the research community.
Stephen B. Soumerai, Dennis Ross-Degnan, Eric E. Fortess, and Julia Abelson
The article described threats to internal validity, poor reliability of data sources, and weaknesses of statistical analyses, including the failure to present measures of uncertainty. It also provided important guidance on the need to focus on high-risk subgroups, to examine the durability of policy effects by having follow-up periods long enough to observe how patients and providers adapt in response, and to precisely describe independent variables (policies)—all points relevant to pharmaceutical policy research today.
In addition, the article made important conceptual contributions to pharmaceutical policy research. It provided an anatomy of cost containment policies, including details on how these policies may be operationalized, as well as a comprehensive view of the intended and unintended consequences of such policies, thereby encouraging examination of a wide range of outcomes with attention to patient-level clinical outcomes.
Importantly, Soumerai and colleagues offered a detailed discussion of substitution and cost-offset effects associated with reductions in prescription drug use. This framework would motivate countless studies that built evidence in support of adding drug benefits to Medicare.3 The article also brought the deservingness and vulnerability of Medicaid enrollees into focus to counteract the stigmatized view of enrollees in means-tested programs.
The article cautioned that its guidance on methodological issues was of more than academic importance. It emphasized the risk that poorly conducted studies could perpetuate misguided policies harmful to society’s most vulnerable constituents. One body of work cited in the 1993 article was Soumerai’s own research on prescription caps (i.e., limits of three prescriptions per enrollee per month) in Medicaid programs. Unfortunately, the number of state Medicaid programs imposing prescription caps today is nearly identical to what it was in 1993 4 despite three decades of research demonstrating the deleterious effects of such policies.5 Researchers continue to draw attention to these harmful policies.6
The road map offered by Soumerai and colleagues catalyzed a generation of research that continues to inform pharmaceutical policy at the state and federal levels. Soumerai’s own work and the work he and his colleagues inspired has profoundly shaped Medicaid policy, the development of the Medicare drug benefit, and innovations in pharmacy benefit design in commercial insurance.
1. Soumerai SB, Ross-Degnan D, Fortess EE, Abelson J. A critical analysis of studies of state drug reimbursement policies: research in need of discipline. Milbank Q. 1993;71(2):217-252.
2. Soumerai SB. Benefits and risks of restrictions on access to costly drugs in Medicaid. Health Aff (Millwood). 2004;23(1). https://www.healthaffairs.org/doi/pdf/10.1377/hlthaff.23.1.135.
3. Hsu J, Price M, Huang J, et al. Unintended consequences of caps on Medicare drug benefits. N Engl J Med. 2006;354:2349-2359.
4. Gifford K, Winter A, Wiant L, Dolan R & Tian M. How state Medicaid programs are managing prescription drug costs: results from a state Medicaid pharmacy survey for state fiscal years 2019 and 2020. Kaiser Family Foundation. https://files.kff.org/attachment/How-State-Medicaid-Programsare-Managing-Prescription-Drug-Costs.pdf. Accessed February 14, 2022.
5. Madden JM. Three decades of drug cap studies are enough. JAMA Health Forum. 2021;2(6):e211249. https://doi.org/10.1001/jamahealthforum.2021.1249.
6. Geiger CK, Cohen JL, Sommers BD. Association between Medicaid prescription drug limits and access to medications and health care use among young adults with disabilities. JAMA Health Forum 2021;2(6):e211048. https://doi.org/10.1001/jamahealthforum.2021.1048.
Julie Donohue is professor and vice chair for research in the department of health policy and management at the University of Pittsburgh, where she directs the Medicaid Research Center. Ms. Donohue conducts research on insurance coverage, financing, and delivery of health care with a focus on use of prescription drugs and behavioral health services. She has studied the impact of policy changes on access, quality and costs in Medicare, Medicaid and commercial insurance. In collaboration with AcademyHealth, in 2017, she launched the Medicaid Outcomes Distributed Research Network (MODRN) to support state Medicaid policy evaluations. Donohue also conducts research on the impact of the Affordable Care Act on access to care, regional variation in health care use and spending, and the organizational, industry and policy influences on physician prescribing behavior.
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