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The Ethics Of Pharmaceutical Benefit Management
Efforts to limit pharmacy costs raise both ethical and economic considerations. Six values should inform pharmacy benefit management: (1) accepting resource constraints; (2) helping the sick; (3) protecting the worst off; (4) respecting autonomy; (5) sustaining trust; and (6) promoting inclusive decision making. Direct controls, such as formularies, step therapy, and prior authorization, can focus limited resources on the sick and worst off. However, direct controls limit autonomy and are administratively burdensome. Indirect controls, such as physician capitation, tiered copayments, and drug benefit caps, align physicians’ and patients’ interests with resource constraints, respect autonomy, and are administratively efficient. Unfortunately, they deter use based on cost, not medical need; they do not focus cuts on unnecessary or marginal drug use or focus resources on the sick. Budget caps are the least defensible, while tiered copays and physician capitation can be justified if implemented with safeguards. Formularies and step therapy are ethically justifiable if they can be efficiently instituted.
Spending on prescription drugs in the United States rose at double-digit rates throughout the past decade, even as the rate of cost increases in other medical services fell to near the overall rate of inflation.1 Indeed, in 2000 pharmaceutical spending increased 19 percent. Consequently, the percentage of national health care expenditures allocated to prescription drugs rose from about 5.4 percent in 1990 to 8.2 percent in 1999, representing more than $100 billion per year.2 This trend is expected to continue into the future, largely because of the development and increased use of new drugs and the introduction of pharmacogenomics, rather than because of increased prices for existing drugs.3 The increasing burden of prescription drug costs weighs particularly heavily on managed care organizations (MCOs), pharmacy benefit management (PBM) companies, and employers. While recent years have witnessed tighter controls on many medical services, coverage for pharmaceuticals has actually expanded. Traditional fee-for-service (FFS) health insurance did not offer prescription drug coverage; now, mainly as a result of managed care and more effective drugs, such coverage is the norm. Consequently, drugs have become more readily available to more Americans for less out-of-pocket cost, and this trend will increase if a Medicare outpatient drug benefit is enacted. But as drug costs have grown both in absolute terms and as a percentage of overall medical spending, and as potential savings from cuts in other medical expenditures have approached or exceeded acceptable limits, pressure is building to contain pharmaceutical spending. In response, MCOs, PBMs, and employers have explored various strategies for managing pharmacy benefits. Some of these strategies, such as negotiating with drug companies to bring down prices, seem ethically uncontroversial, although they might be controversial if government entities with dominant market share pursue them. Other approaches, aimed not at reducing prices but limiting drug use (such as prior authorization or tiered copayments), are potentially more problematic. The more central pharmaceuticals become to health care, the less sense it makes to treat drug benefits as a dispensable frill and the more necessary and important limits become. Limits on drug benefits, and how they are developed and implemented, raise important ethical considerations that must be evaluated as rigorously as their economic impact is. Yet there is almost no ethical analysis of pharmacy benefit management. This paper begins that analysis.
PBM policies must seek to balance "mission and margin"—that is, to achieve economic efficiency while respecting, to the extent possible, the ethical goals of medicine. This is difficult. Because of the fragmented nature of the U.S. health care system, MCOs, PBMs, employers, government, and physicians are all involved in the establishment and administration of pharmacy benefits. No stakeholder has absolute responsibility, and all must accept a share of the responsibility to manage these benefits in an ethically justifiable manner. Furthermore, the ways in which pharmacy benefits are financed vary widely. In some cases, it is a benefit like other medical services; in others, it is carved out with a distinct budget. Which stakeholder bears primary responsibility and how the benefit is financed vary by the details of contracts, which require contextualized ethical evaluation. More importantly, the values informing a policy may not be explicitly delineated, making it difficult to identify and compare the ethical implications of pursuing different policies. Thus, it is important to specify (1) the key values that need to be considered in pharmacy benefit management, (2) how different policies realize these values, and (3) which policies seem more or less justifiable. Fundamental values. No list of ethical values commands universal assent. Yet a few values are widely affirmed as fundamental and cannot be summarily ignored.4 Accepting resource constraints. Limits on the coverage and use of drugs are not just an economic necessity but an ethical requirement. There are multiple legitimate claims on resources both between health care and other goods and between various health care services. Resources for health care in general and pharmacy benefits in particular are limited. To satisfy the need for some drugs within the constraints of the resources society is willing to devote to health care may require limits on other services. Similarly, to provide certain necessary health care services may require limits on drug benefits. The ethical challenge is to ensure that these limits are both fair and legitimate. Helping the sick. The fundamental ethical goal of medicine is to help the sick. It is they who need prescription drugs and who stand to lose the most from unjustifiable barriers to obtaining them. Within limits, ethically acceptable policies should strive to protect patients’ access to the drugs that are essential to their medical welfare. Protecting the worst off. Widely accepted principles of justice require that the welfare of the worst off be specially protected.5 Thus, pharmacy-benefit management should avoid policies that impose a disproportionate burden on the most vulnerable patients. This does not mean that the claims of the medically worst off are absolute, but they should be given priority when trade-offs are being considered. Respecting autonomy. Ethically acceptable policies should respect the autonomy of both patients and physicians. Some might place a higher value on convenience or fewer side effects, while others might opt for greater economy. So far as possible, policies should be structured to permit patients to choose among prescription drugs or pharmacy benefit policies according to their own preferences. Similarly, using professional standards, physicians should be free to exercise their judgment about the best drugs to enhance each patient’s well-being. Sustaining trust. Ethically acceptable policies should warrant and sustain patients’ trust in their physicians. Such trust is central to the physician-patient relationship.6 Indeed, it is difficult, if not impossible, for physicians to help patients who do not trust them.7 Pharmacy benefit management should foster trust and minimize conflicts between physicians’ interests and medical responsibilities that could lead patients to perceive them as "double agents" with deeply divided loyalties.8 Promoting inclusive decision making. Insurance is inherently a communal activity; it pools resources among a group to benefit the unfortunate. Fundamental to creating a sense of community and shared mission are transparent and inclusive decision-making processes.9 Physicians and patients are more likely to identify with the goals of an organization if they have a voice in forming and guiding its policies. These processes can make patients and physicians more willing to accept constraints on pharmaceutical use. They can also contribute to accountability for making reasonable decisions by the management organization.10 Pragmatic considerations. There is also a practical criterion: It should go without saying that restrictions imposed by a PBM policy in the name of cutting costs should actually achieve that goal. Approaches that end up adding more in administrative and legal expenses than they save in unnecessary medical spending defeat their own purpose, there by wasting resources at the community’s expense. It is utopian to expect ethical values to identify the single right pharmacy benefit policy. With multiple ethical values involved in allocation decisions, and limited resources, there is no way to avoid conflicts among these values.11 Considering only the well-being of an individual patient—even the worst-off one—can make all measures to cut drug costs appear objectionable. Saying "yes" to one patient’s preference for the latest remedy may mean saying "no" to the more basic needs of others. Providing expensive medications to certain sick patients may drive up overall costs, leaving the poorest and sickest without coverage altogether. There is more than one way to legitimately balance these ethical values and resolve these conflicts.12 Ethical analysis can help to identify-policies that may be clearly unethical as well as a range of reasonable policies. It can also elucidate how different policies realize various combinations of values, thereby providing reasons for selecting one approach over another. But ethical values are not the only consideration, especially in an imperfectly just world. Practical and economic considerations cannot be dismissed.
The following set of policies for controlling pharmaceutical use might be called direct methods. (1) Drugs not included on an organization’s formulary (a restricted list of covered drugs) may be covered only under special circumstances or excluded entirely. Exclusions typically target so-called lifestyle drugs, such as contraceptives, treatments for sexual dysfunction, and smoking-cessation aids. (2) Step therapy permits the use of more costly medications only after less expensive drugs with the same indications have been tried and rejected because of therapeutic inefficacy or adverse reactions. (3) Prior authorization may be required before drugs that an organization deems overpriced or over prescribed can be prescribed. (4) Utilization review may be used to weed out unnecessary or conflicting ongoing prescriptions.
Direct controls have distinct advantages, especially by focusing on patient health outcomes, while their ethical shortcomings arise from restrictions on autonomy and administrative burdens (Exhibit 1
Patients, not profits. What few data exist suggest that concern for patients’ welfare is the main motivation for using direct methods to limit utilization.13 However, if limits were motivated primarily by cost concerns rather than by medical need, patients’ welfare might be subverted. Moreover, if physicians and patients merely perceive direct controls as cost-driven, then their trust in the organization that imposes them is undermined. Indeed, since direct controls restrict physicians’ and patients’ ability to select drugs and increase their dependence on the MCO or PBM, trust is all the more essential. To foster trust and ensure that coverage decisions are seen to reasonably advance patients’ welfare and not just savings, direct controls should be developed through an inclusive, transparent decision making procedure. Giving physicians and patients a voice in establishing and structuring controls on pharmaceutical use can restore some of the autonomy that such controls take away, albeit collectively rather than individually. In dispersed networks that lack a sense of community, shared decision-making procedures might also help to foster such a sense. Although physicians are now well represented on committees that evaluate pharmacy benefits for MCOs, patient participation is rare. Administrative burden. Combined with restricting autonomy, the main disadvantages of direct methods relate to administrative burden and inflexibility. Many physicians work with several health plans. For them, the administrative burden of abiding by the plans’ differing formularies, step requirements, and prior authorization procedures can be both costly and time-consuming. Administrative hassles alienate physicians from the MCO or PBM and reduce their already limited time for seeing patients. In addition, prior authorization and utilization review are administratively cumbersome and costly for MCOs and PBMs. Such was the experience that persuaded United HealthCare to abandoned prior authorization requirements for hospitalization in 1999.14 Disruption of drug regimens. Direct controls also may disrupt already established medications for new enrollees, if they are required to start all over with new drugs mandated by their new plan, and for continuing enrollees when mandated drugs change. This is not a trivial problem, since such switching can occur frequently, even annually, depending on new discounts negotiated with drug manufacturers. Formulary exclusion. Finally, certain drugs or classes of drugs that arguably possess genuine medical value may be targeted for exclusion from formularies for noncost but value-laden reasons. For example, many organizations exclude all smoking-cessation products, despite their considerable preventive value. Similarly, the designation "lifestyle drug" does not simply express an objective and uncontroversial scientific fact but, rather, embodies subjective and disputable value judgments that are used to keep drugs off of formularies, raising ethical concerns as well.15
Indirect methods for limiting drug use include the following. (1) Physician capitation for prescription drug costs passes financial incentives to control drug spending on to physicians. They are paid a set allowance for each patient that must cover the patient’s yearly prescription drug costs, with any excess coming out of the physician’s own pocket. (2) Patient copayments pass financial incentives on to patients. In tiered systems, the amount of the copay varies. Typically, patients might pay $5 for generic drugs; $10 for brand name equivalents; and $25, or a percentage of retail costs, for medications that are not included on an insurer’s approved formulary. (3) Caps on pharmacy benefits require patients to pay the full cost of all medications once their drug spending exceeds a set amount per quarter or per year. These methods are not mutually exclusive; they may be used in various combinations. For example, tiered copayments may be imposed within formularies.
Indirect controls address the problems of autonomy and administrative burdens related to direct controls through the use of incentives and financial limits within which patients and physicians exercise free choice (Exhibit 2
Align financial interests. By providing an incentive—but not a mandate—to reduce costs and opt for cheaper medications, indirect controls tend to align the financial interests of patients and physicians with those of the MCO or PBM. Physician capitation gives physicians an incentive to resist excessive consumer demand for expensive or over prescribed drugs. This is no small feat; studies have shown just how hard it is to get physicians to focus on drug costs in prescribing decisions, how susceptible they are to drug detailing, and how readily they yield to patients’ demands.16 Similarly, tiered copayments and benefit caps can make patients more appreciative of the virtues of generic drugs and less heavily advertised medications because these drugs make a difference to their own budgets. For example, patients with strep throat can decide whether the convenience of a single daily dose of a brand name antibiotic for five days is worth the extra cost compared with taking a generic four times a day for ten days. Also, because the patient is the ultimate decision maker, tiered copays and caps avoid the appearance of an unethical conflict of interest and pose less of a threat to trust in the MCO and PBM than direct controls do. To the extent that capitation, tiered copays, and benefit caps control overall costs, they can serve the cause of distributive justice. Disrupt physician-patient relationship. While respecting autonomy and reducing hassles, indirect controls raise different problems. First, if the organization’s financial incentives are passed along through physician capitation, the problem of distrust resurfaces in the relationships between physicians and their patients.17 More importantly, indirect controls are a blunt, nondiscriminating instrument of cost control. The incentives exert pressure on use in proportion to cost, regardless of medical necessity, threatening patients’ well-being, especially that of poorer patients. Ideally, physicians and patients would respond to these incentives by focusing resources on the most medically necessary drugs. But in reality, physicians see patients one at a time and do not have the resources to determine which drugs for which patients will achieve optimal health outcomes. Also, medically irrelevant factors could be influential in physicians’ prescribing decisions. They might be influenced by how demanding patients are, putting sicker but meeker patients at risk of receiving less treatment.18 In addition, worrying about exceeding their capitation, physicians might stint on preventive medications, such as expensive cholesterol-lowering statins, because the health benefits lie in the future when the patient could easily be with a different health plan or physician. Target the worst-off patients. Tiered copays and budget caps target patients, not physicians. While patients may be knowledgeable about the trade-off of convenience and cost and about the comparative tolerability of side effects, they lack professional training in the appropriate use of medications for particular illnesses, drug interactions, how drugs might affect other illnesses, and especially about the consequence of forgoing medications because of expense. To the extent that they are less qualified than physicians are to make well-informed decisions about use, health can suffer. Recognizing this, some health plans and PBMs offer decision tools and advice about drugs directly to patients. What is worse, tiered copays and caps may deter patients in proportion to their ability to pay rather than their medical need. In this regard, budget caps are much more worrisome because they amount to a 100 percent copay once expenditures exceed a certain level. Recent studies have shown that copays are effective in reducing pharmaceutical use.19 But this is cause for celebration only if the reductions come primarily from those who might be tempted to use drugs unnecessarily or irresponsibly, rather than from patients who need them but cannot afford them. Indeed, tiered copays and especially benefit caps target the sickest; the sicker a person is and the more medications he or she needs, the higher the costs. A 1998 Harvard Pilgrim Health Care study found that 14 percent of its Medicare patients would exceed a proposed annual pharmaceutical cap of $800.20 It is precisely these patients who are sickest, most in need of medication, who would be harmed the most by caps. Create incentives to accept only the healthiest. Finally, these indirect controls create adverse selection incentives. Physician capitation creates an incentive to accept only the healthiest patients, who are least likely to exceed their set allowance, while refusing the elderly and the seriously or chronically ill. Unless payments are risk-adjusted, capitation threatens to limit the health care options of the medically worst-off patients. Similarly, systems using benefit caps and tiered copays create an incentive for a "race to the bottom" among MCOs and PBMs. If higher benefit caps or smaller copays are likely to attract high-risk, high-cost patients with expensive pharmaceutical requirements, health plans will have the incentive to alter their benefits to deter the riskiest and most costly members from enrolling. Because of adverse selection when offering an un-limited drug benefit, Harvard Pilgrim has instituted a drug benefit cap. This forces competing MCOs and PBMs to do the same. Tragically, then, high copayments and low benefit caps can harm not only the most vulnerable members of one MCO or PBM, but the sick patients in an entire marketplace. Tiered copays have one unique problem: MCOs and PBMs may end up subsidizing drugs whose higher prices are not, in their judgment, justified by corresponding therapeutic superiority. Even the highest tier of a typical three-tier copay system may represent only a nominal contribution to the cost of marginally beneficial, but highly expensive, drugs. For example, patients who are willing to pay a $25–$35 copay for Cox-2 inhibitors in preference to standard anti-inflammatory medications will incur an additional bill for thousands of dollars over a typical course of treatment. This cost is borne not just by the insurer but by the purchaser and fellow patients.
Which pharmaceutical benefit management policies are ethically the most defensible? Which are the least so? Tiered copayments. If emphasis is placed on physician and patient autonomy as well as administrative simplicity, then indirect controls are preferable. Among these, tiered copayments can be carefully structured to be ethically justifiable. To minimize their threat to patient welfare, the tiers should be structured primarily according to medical benefit rather than cost. The lowest tier should include expensive drugs when they are medically necessary, while the highest tier could be reserved for drugs with cheaper alternatives and nonessential "lifestyle" drugs. Because designating these latter types of drugs will be controversial, it is best to create an inclusive decision-making process, with patient representatives on pharmacy and therapeutics (P&T) committees and other relevant decision-making bodies. Such ethical considerations are likely to necessitate changes in the design of tiered copay systems. Tiered systems now tend to charge more for brand-name medications, even when there is no generic alternative, and more costly medications, even when they are judged medically necessary.21 According to a recent survey, 27 percent of MCOs charge a higher copayment even when they approve a medical exception for a third-tier drug.22 No caps on pharmacy benefits. Conversely, caps on pharmacy benefits should be ruled out under all circumstances. They raise clear and seemingly irresolvable ethical problems. They are directed at the sickest and poorest patients, not at medically inappropriate use of drugs; they empower the least qualified to make drug decisions; and they strongly encourage adverse selection among MCOs and PBMs. Pharmacy benefit entitlement? This would seem to imply that insurers and employers have an ethical obligation to provide a pharmacy benefit. That is, if benefit caps are unethical, then surely no drug benefit—a cap of zero—is unethical. While this is not the place for a comprehensive defense, we believe that there is a persuasive argument for a universal entitlement to some health care.23 The failure of the U.S. government to provide it is an ethical lapse, not an ethical argument against such an entitlement. In weighing what health care services people should be entitled to, drugs would surely be included. Their effectiveness in preventing and curing diseases and relieving debilitating symptoms and disabilities makes their contribution to health outcomes comparable to or better than other services that are routinely considered essential and covered by insurance, such as office visits, surgical procedures, and some screening tests. While some limit on drug benefits is reasonable, a zero drug benefit is unjustifiable. Such a view seems implicit in the discussion of a Medicare drug benefit. Physician capitation. Like tiered copays, physician capitation can be structured to be ethically justifiable mainly by minimizing the threat to trust. As we have argued regarding other forms of physician capitation, safeguards exist that can minimize these threats, including risk adjustment, stop-loss provisions, spreading the capitation among a large group of physicians, combining the capitation with guidelines, and monitoring underuse.24 Ethical considerations suggest the need to restructure current pharmacy capitation policies to make them justifiable. In general, the ethical risks of direct controls on pharmaceutical use may be more easily addressed, but the administrative hassles may be more difficult to overcome. The concern that MCOs and PBMs focus solely on cutting costs can be addressed by an inclusive decision-making process. If decisions about the establishment and structure of formularies are made on purely medical grounds with the genuine participation of both physicians and patients, potential threats to patient welfare, autonomy, and community can be minimized. MCOs and PBMs can be held accountable.25 Such participation in the decision-making process is desirable, whatever policies are ultimately chosen. This gives representation to the values of those who must live with the decisions made and can educate physicians and patients about the reality of the trade-offs involved and the need to choose wisely and fairly among them. But not all of the direct controls are equivalent. Prior authorization and utilization review create more administrative hassles for physicians and alienation of physicians and patients. They seem more intrusive and punitive, explicitly designed to catch overuse. In contrast, formularies and step therapies establish parameters and allow physicians and patients to work within them. To overcome the problem of physicians’ having to contend with multiple formularies, it may be worth exploring the possibility of having different MCOs and PBMs in one marketplace collaborate on a formulary or an agreed-upon set of step therapies. While this cooperation might raise antitrust concerns, it also can present significant advantages. Every decision to allocate scarce medical resources raises ethical as well as economic considerations. Too often ethical considerations go unrecognized or even ignored, in part because the ethical values and trade-offs have not been explicitly delineated for policymakers. This seems to be what has occurred as MCOs, PBMs, and employers scramble to implement policies to control exploding pharmacy costs. But ethical analysis can illuminate which policies best reflect specific ethical values and ways of structuring policies to avoid certain ethical problems or realize other ethical values. Our analysis suggests that benefit caps are unethical; that if autonomy is emphasized, properly structured tiered copays are reasonable; and that if drugs are used to optimize health outcomes, especially for the vulnerable, then step therapy or restrictive formularies are most justifiable.
Stephan Burton is a private consultant in Flint Hill, Virginia, on issues concerning the compatibility of business and medical values and the ethical structure of pharmaceutical benefits. Lauren Randel is an assistant professor in the Department of Psychiatry, Georgetown University Medical Center. Karen Titlow is a project manager at Aetna U.S. Healthcare. Ezekiel Emanuel is chair of the Department of Clinical Bioethics at the Warren G. Magnuson Clinical Center, National Institutes of Health. He is also a breast oncologist. At this writing, Burton and Titlow were fellows and Randel was a special expert at the Magnuson center. The authors thank Stephen Green, Steven Pearson, Paul R. Wernick, and two anonymous reviewers for their critical reviews of the manuscript. The opinions expressed are those of the authors and do not necessarily reflect the policies or views of the National Institutes of Health or the Department of Health and Human Services.
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