CHAPTER 21 PRESCRIPTION DRUG PLANS

Transcription

1 CHAPTER 21 PRESCRIPTION DRUG PLANS Introduction Expenditures on prescription drugs have been rising steadily over the last several years. In 2005, for example, the United States spent $200.7 billion on prescription drugs, compared with $51.3 billion in 1993 (Catlin et al., 2007). Spending on prescription drugs increased 7.2 percent in 2006, and increased faster than spending on inpatient hospital services (5.1 percent) but more slowly than outpatient hospital services (10.3 percent) or physician services (7.7 percent). Increased utilization remains a primary driver behind the trend in drug spending, in part reflecting the graying of America and direct-to-consumer advertising. Other motivating factors behind the trend include the therapeutic drug mix, inflation, the entry of new drugs, enhancements in the standards of care, and better diagnostic tools. Coverage for prescription drugs encourages participants to complete prescribed drug therapy in order to best manage their disease state and avoid more costly medical complications later. Most prescription benefit plans have similar characteristics: Participants have some form of outpatient drug coverage through their medical provider or a carve-out pharmacy benefit manager (PBM). Participants pay an up-front fee or copayment to help cover the expense of the medication. Participants can fill their prescriptions through a retail network (chain and independent pharmacies) or a mail-order facility for maintenance drugs. Participants may pay varying copayments, depending on whether their drug is brand or generic, mail-order or retail, preferred or non preferred on the formulary. Services Prescription drug plans provide coverage for outpatient prescription medication. Generally, most plans do not cover medical appliances or devices, nonprescription drugs, in-hospital drugs, blood and blood plasma, immunization agents, or any drugs or medicines lawfully obtained without 219

2 Figure 21.1 Drug Plan Incentives, by Plan Type, Firms With 1,000 or More Employees, Indemnity PPO POS HMO Generic Incentive Lower copayment 34% 41% 52% 45% 56% 65% 49% 61% 72% 41% 56% 66% No deductible 2 2 <1 1 < n/a n/a <1 n/a Higher coinsurance <1 Pay difference between generic and brand name Mail Order Incentive Lower copayment No deductible <1 <1 Higher coinsurance Combination of Generic and Mail Order Incentive Lower copayment Higher coinsurance n/a <1 n/a <1 <1 <1 n/a <1 n/a Pay difference between generic and brand name <1 <1 <1 No Generic or Mail Order Incentive Source: Hewitt Associates LLC, various years 220 Fundamentals of Employee Benefit Programs

3 prescription. Some employers may choose to not cover lifestyle drugs or drugs used exclusively for cosmetic conditions. Many plans place limits on the quantity of a drug that may be dispensed at any one time. A typical limitation is a 30-day supply at a retail pharmacy, though 90-day supplies are typical at mail-order pharmacies. In addition, higher limitations often apply to maintenance drugs, or drugs that must be taken on a continuous basis for life. Most plans do not place a maximum on the overall covered quantity of a drug. However, some plans may limit the total dollar cost of prescription drugs that will be reimbursed in a plan year. Prescription drug plans typically require only a co-payment from the participant for drugs provided under the plan. Many plans encourage the use of generic drugs in an effort to contain costs. Cost containment can also be accomplished through employee education and/or plan design. For POS and HMO plans, the percentage of employers allowing lower co-payments for generic drugs increased from 2002 to 2004 (Figure 21.1). In addition, the percentage allowing lower co-payments as an incentive to use a mailorder service increased. Overall, the percentage using no incentive for increased use of generic drugs or a mail-order service decreased for all plans. Cost Controls Employers generally provide pharmaceutical benefits through their health plan or by carving-out the benefit from the general health plan. In addition, the health plan or the employer can offer pharmaceutical benefits by using a prescription drug card plan or mail-order plan, and can also require the substitution of less expensive generic drugs or restrict the number of drugs approved for coverage through the use of formularies lists of a prescription drug plan s preferred drugs. Pharmacy Benefit Managers Employers often offer prescription drug benefits separate from the rest of the health plan in order to control the costs and improve the quality of the benefit. These plans are usually provided through a pharmacy benefit manager (PBM). In 2006, 81 percent of employers offered drug coverage through their primary medical plans, while 19 percent carved out the benefit and engaged a PBM to administer the benefit under a separate contract. Even among the 81 percent that did not offer a stand-alone drug plan, most employers used a PBM to administer pharmacy benefits as well (Mercer, 2007). PBMs currently provide managed pharmacy benefits for almost threequarters of the insured population in the United States. Medco Health Solutions, Express Scripts, and Caremark Rx are the largest of about 60 PBMs operating in the United States and collectively account for 52 percent 221

4 of the market, leaving 48 percent to be covered by other and smaller PBMs (Consumers Union, 2005). PBMs originally provided only prescription claims processing and mail-order services. However, in recent years PBMs have expanded their services into the development and management of formularies, the negotiation of drug rebates with manufacturers, the establishment of pharmacy networks, the proper substitution of generics, and the utilization review of drug use, among other areas. Some PBMs have even instituted disease management programs that attempt to provide the most cost-effective treatments of specific diseases. Many managed care plans also contract with PBMs or provide the same services within their plan as those offered by PBMs. Under these arrangements, PBMs (or health plans) can monitor all the prescription drugs that an individual receives. This allows the PBM to check for appropriate drug therapy. This check would not be possible if the drug benefit was not integrated into the entire health care plan. In addition, the PBM can suggest more appropriate drug treatments for various ailments, since it focuses on utilizing the most cost-effective and quality-enhancing drugs, though PBMs access to health care data has been questioned. In particular, patient privacy concerns have been raised due to PBMs practice of suggesting additional treatments or influencing the medication choice for plan participants. A PBM s practice of enrolling individuals in (or suggesting individuals enroll in) group therapy or other types of treatment designed for those who are taking a drug associated with a particular mental illness has provoked media attention. Despite the potential benefit of this type of treatment, patients may not want their employer or others to know or discover that they have a mental condition requiring medical attention. Most employers choose not to receive this type of information, and PBMs say they have procedures in place to limit access to information. Another issue with PBMs is the fact that some discuss with physicians the medications their patients are receiving and suggest alternative treatments or drugs that might be better suited or less costly with near-equal or equal efficacy for the patient. Many physicians are reluctant or refuse to discuss their prescribing patterns with PBMs because of ethical considerations and concern for their patients privacy. In contrast, some physicians welcome the discussions and use them to learn about new or alternative treatment options. PBMs also offer benchmark data to physicians, allowing them to compare their prescription patterns with those of physicians who have similar patient loads. A PBM can also provide the physician with outcome data not otherwise available to him or her. For example, an allergist might find it very informative that many of his patients on asthma inhaler medications end up in the emergency room or urgent care center with acute asthma attacks. 222 Fundamentals of Employee Benefit Programs

5 Recently, PBMs have come under scrutiny over the concern that they negotiate rebates with pharmaceutical companies to promote the use of their particular drugs. Thus, the PBM may encourage the use of a particular drug not based on its therapeutic appropriateness but because it is less expensive to the PBM as it generates rebate income for them. It is unclear how extensive rebate income is for PBMs, but it is thought to be considerable. While these PBM activities can irritate both patients and physicians and raise important questions, they also can have beneficial effects. Patients may discover new or additional therapies that they may not know were available. Because new medications are always coming on the market, it is difficult for physicians to keep up with all drugs for treating all illnesses. Thus, PBMs can provide easily accessible education for physicians. Furthermore, close monitoring by PBMs can screen for allergies and potential interactions among the multiple prescriptions that patients may receive. Consequently, while there are potential benefits to enrollees when PBMs undertake such activities, these benefits need to be weighed against individuals rights to or desires for privacy. Cost Containment and Quality-Enhancing Techniques In providing drug benefits, health plans and PBMs typically employ certain techniques that allow them to contain the costs and improve the quality of the benefit. First, the use of a drug card by an enrollee allows a participating pharmacy to verify enrollment and easily submit claims for payment. It also allows the pharmacist to charge the correct copayment or coinsurance, which reduces fraud and billing errors and thereby lowers reimbursement costs for all parties. Second, mail-order drug plans are often used because health plans and PBMs can negotiate better prices from one mail-order pharmacy to provide drug benefits to the entire membership of the plan, due to volume discounts and efficiency gained by making payments to only one company. This benefit is offered concurrently with a standard drug benefit, since it is only practical to use the mail-order feature for the delivery of maintenance drugs. Sometimes the mail-order feature is required for enrollees, but generally enrollees are offered an incentive to use this feature voluntarily such as a lower copayment or coinsurance or a higher quantity of drugs for the same copayment. Another feature that health plans and PBMs use to contain costs is the use of generic substitution for brand-name drugs. Generic drugs are often less expensive than brand name drugs because of lower marketing and research costs. Individuals typically pay lower copayments for generic drugs. Consumers may also be encouraged to use less costly generic drugs by the drug plan s use of deductibles and coinsurance. 223

6 In general, pharmacists are allowed to make a generic substitution unless the physician specifies that no substitution be allowed. Some states allow therapeutic substitution, where a pharmacist can substitute an entirely different drug from the one prescribed by the physician, if it has the same therapeutic effect. Prescription drug plans also frequently use formularies, which are lists of preferred drugs in various dosages and forms. Formularies generally indicate which drugs are covered by a particular health plan and are categorized as follows: Open formularies include all FDA-approved drugs and drug products (with some rather limited exceptions). Managed (incentive-based) formularies are essentially open formularies that contain preferred drugs, the use of which is encouraged by financial incentives to physicians, pharmacists, and patients. Closed (restricted) formularies contain a specific list of approved drugs for coverage. Many plans with closed formularies allow coverage for drugs outside the formulary on a limited basis through pre-authorization by the plan, and the patient is likely to face an additional cost. Many employers have also adopted three-tier copayments for prescription drug benefits. Employers generally structure three-tier copayment benefits in the following way: the lowest copayment is for generic drugs, the second highest copayment is for preferred brand drugs, and the highest copayment is for non preferred or non formulary drugs. The third tier may also include brand name drugs no longer on patent and available with a generic alternative. Employers generally provide benefits including prescription drug coverage in order to keep their employees healthy and productive, as well as to help recruit and retain valued workers. Consequently, a restrictive drug benefit design such as a formulary that is very limiting could counter the goal of providing coverage in the first place. In addition, in some cases, expenditures for drugs may prove to be small if they achieve a significant reduction in sick leave and lost productivity. For example, a study by Legg et al. (1997) showed that a new migraine drug reduced losses in productivity and labor costs. While the cost of the medication was valued at $43.78 per employee per month, the savings attributable to reduced loss of productivity and labor costs was valued at $435 per employee per month. Careful design of prescription drug benefits is critical if employers are to take advantage of their potential cost savings, both for overall health care spending and for labor expenses. 224 Fundamentals of Employee Benefit Programs

7 Bibliography Betley, Charles. Prescription Drugs: Coverage, Cost, and Quality. EBRI Issue Brief, no. 122 (Employee Benefit Research Institute, January 1992). Catlin, Aaron, et. al. National Health Spending in 2005: The Slowdown Continues. Health Affairs (January/February 2007): Consumers Union. Disclosing Relationships Between Pharmacy Benefit Managers and Drug Companies 2005: Copeland, Craig. Prescription Drugs: Continued Rapid Growth. EBRI Notes, no. 9 (Employee Benefit Research Institute, September 2000): Prescription Drugs: Issues of Cost, Coverage, and Quality. EBRI Issue Brief, no. 208 (Employee Benefit Research Institute, April 1999).. Prescription Drugs Utilization and Physician Visits. EBRI Notes, no. 10 (Employee Benefit Research Institute, October 1999): 1 4. Fronstin, Paul. Employment-Based Health Benefits: Trends and Outlook. EBRI Issue Brief, no. 233 (Employee Benefit Research Institute, May 2001). Henry J. Kaiser Family Foundation. Understanding the Effects of Direct-to- Consumer Prescription Drug Advertising. Publication #3197. Menlo Park, CA: Henry J. Kaiser Family Foundation, November Hewitt Associates, LLC. Salaried Employee Benefits Provided by Major U.S. Employers: , , Lincolnshire, IL: Hewitt Associates, 2001, 2002, Legg, R.F. et al. Cost Benefit of Sumatriptan to an Employer. Journal of Occupational and Environmental Medicine (July 1997): Mercer Human Resources Consulting. National Survey of Employer- Sponsored Health Plans: 2006 Survey Report. New York: Mercer Human Resources Consulting, McDonnell, Ken, and Paul Fronstin. EBRI Health Benefits Databook. Washington, DC: Employee Benefit Research Institute, Rosenbloom, Jerry S., ed. The Handbook of Employee Benefits: Design, Funding, and Administration. Sixth edition. New York, NY: McGraw- Hill,

8 Sethi, Rachel Christensen. Prescription Drugs: Recent Trends in Utilization, Expenditures, and Coverage. EBRI Issue Brief, no. 265 (Employee Benefit Research Institute, January 2004). U.S. General Accounting Office. Pharmacy Benefit Managers: FEHBP Plans Satisfied with Savings, but Retail Pharmacies Have Concerns. GAO-HEHS Washington, DC: U.S. General Accounting Office, February Additional Information American Pharmaceutical Association 2215 Constitutional Avenue, NW Washington, DC (202) Aon Corporation 200 East Randolph Street Chicago, IL (312) Consumer Reports Best Buy Drugs 101 Truman Avenue Yonkers, NY (914) Hewitt Associates LLC 100 Half Day Road Lincolnshire, IL (847) Mercer 1166 Avenue of the Americas New York, NY (212) Fundamentals of Employee Benefit Programs

9 National Pharmaceutical Council 1894 Preston White Drive Reston, VA (703) Pharmaceutical Research and Manufacturers of America th Street, NW Washington, DC (202)