News Release

Model helps patients, clinics, & drug manufacturers cope with health insurance cutbacks

Peer-Reviewed Publication

Institute for Operations Research and the Management Sciences

Faced with growing concern that patient care may suffer from strict insurance policies meant to contain rising drug costs, a new model helps patients, clinics, and drug manufacturers find a mutually beneficial strategy, according to a study published in a journal of the Institute for Operations Research and the Management Sciences (INFORMS®).

The study, "Modeling the Impact of an Outcome Oriented Reimbursement Policy on Clinic, Patients, and Pharmaceutical Firms," by Kut C. So, University of California Irvine, and Christopher S. Tang, The Anderson School, UCLA, appears in the current issue of Management Science, an INFORMS publication. The study is a response to the new outcome-oriented reimbursement policies, such as those adopted by Medicare and several HMO's. Outcome-oriented reimbursement policies seek to rein in spiraling health costs by curtailing payments for drugs that clinics prescribe for patients. The policies are often seen as pitting government and insurance companies, on the one hand, against, on the other, health care providers, drug manufacturers, and patients. Using the mathematical techniques of operations research, the model analyzes how the patient's initial condition, cost parameters, fluctuation of the patient's health score, and health insurance reimbursement guidelines affect the preferred patient care plan, as well as the clinic's profit and the drug manufacturer's revenue.

The model identifies a clinic's risk of being denied reimbursement if a patient's health score after treatment exceeds a predetermined reimbursement threshold.

The model can provide a clinic with important information about how different factors will affect the optimal drug regimen for individual patients. In particular, the model shows that clinics will be pressured to reduce prescription care where: (1) there are patients with worse initial conditions, (2) there is a lower profit margin associated with a particular drug treatment, (3) there is substantial fluctuation in a patient's condition, or (4) there is a lower insurance reimbursement threshold. The results suggest that to avoid denied claims, clinics will have to set more modest individual drug care targets as health insurance reimbursement thresholds decrease.

Because a lower target means lower drug usage and lower drug usage in turn hurts pharmaceutical companies, the authors suggest that drug manufacturers provide clinics with incentives to increase the target - within clinical guidelines - for patients.

Among the possible incentives are lowering drug prices, sharing the risk with clinics threatened by denial of reimbursement, and providing health education materials encouraging patients with volatile conditions to manage their state of health through diet and exercise.

Risk to Desperately ill

Critics charge that outcome-oriented reimbursement policies could hurt health care providers and lead some to refuse care to the desperately ill. "There is a fear that clinics and nursing homes affected by outcome-oriented reimbursement policies will refuse admission or, in the most egregious cases, actually allow patients to die rather than provide costly treatment that isn't reimbursed," explains Prof. Tang, one of the authors. "This was on our mind when we focused on the problem.

"Our model goes a step further than previous models, which only looked at the affect of a policy on a single group - health care providers, pharmaceutical companies, or patients. We feel that all three groups will benefit if the effect on each is examined simultaneously."

Prof. Tang began developing the operations research model while consulting to the pharmaceutical company Amgen. Amgen manufactures Epogen, a drug that boosts red blood cell counts for patients with chronic kidney disease.

The authors tested their model with a data set from a local clinic administering Epogen. The data set contains 1,012 patient records over a four-month period in 1997.

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The Institute for Operations Research and the Management Sciences (INFORMS®) is an international scientific society with 10,000 members, including Nobel Prize laureates, dedicated to applying scientific methods to help improve decision-making, management, and operations. Members of INFORMS work in business, government, and academia. They are represented in fields as diverse as airlines, health care, law enforcement, the military, the stock market, and telecommunications. The INFORMS website is at http://www.informs.org


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