When a company raises employees' prescription drug co-payments, it will not realize the savings it expects, according to a study on health care costs at Carnegie Mellon University.

"What most employers don't consider is that increased co-pays on drugs may lead to an increase in other types of health care," said William B. Vogt, associate professor of economics and public policy at Carnegie Mellon. "Not all savings are really savings. They are offset by other types of spending."

Dr. Vogt was on the Carnegie Mellon team whose study, "Substitution, Spending Offsets and Prescription Drug Benefit Design," was published this month in Forum for Health Economics and Policy.

Martin Gaynor, E.J. Barone Professor of Economics and Public Policy, and Jian Li, who recently earned a doctoral degree from the university, were co-authors in the study done at the H. John Heinz III School of Public Policy and Management.

The Rand Corp. awarded the team the first Victor R. Fuchs Research Award "for publishing the best research paper with the potential to spawn new research in an underdeveloped area of health economics or health policy." The award includes a $10,000 prize.

"This paper is the first study to demonstrate the benefits of generous drug coverage in a stable, employed population," said Dana Goldman, director of health economics at Rand and co-editor of Forum.

"It confirms what we all expected but could not demonstrate -- that encouraging people to take their medicine prevents long-term complications and ultimately can save a substantial amount of money."

When co-pays rise, employees react by buying fewer drugs, the study confirms. That saves money for the employer.

But it also prompts employees to rely on health care "substitutions" to counter the effects of less medication. The study found that higher co-pays lead to more outpatient care, such as doctor or emergency room visits.

The findings suggest that increasing co-pays "may not be as effective a mechanism for controlling spending as previously thought."

Dr. Vogt said the team used a national database involving nine national corporations and a half-million people to study effects of health expenditures before and after co-pay increases occurred.

It concluded that 35 percent of corporate savings on prescription drugs "are substantially offset" by increases in other medical spending, including outpatient care.

"Higher drug co-payments save money on drug spending, but they cost money on outpatient and possibly inpatient spending and have smaller effects on overall spending," the study states.

When an employer is considering raising co-pays, it faces trade-offs that could include good employees leaving the company, a less healthy work force and increased absenteeism.

Previous studies, he said, already have proven that negative health impacts occur when people fail to take prescribed medications.

"So employers should think twice about increasing co-pays, or increase them by a smaller amount," Dr. Vogt said.