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Prescription Drug Coverage For Employees of Self-Insured Employers


Guest Dan NMHC
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Guest Dan NMHC

Priscription Drug Coverage is increasing in cost at an alarming rate. There are many new programs that have been started to try to control these rising costs. Formulary Management, Cost Shifting, Prior Authorization for high dollar drugs. I would like to start this message board to share and identify new and successful programs to control costs. If you have any suggestions, or questions, please contribute

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Dan:

I think that your idea is a good one, but what do you think about expanding it to cover all aspects of self-funded medical plans? It seems to me that there are many nuances that are peculiar to of self-funded plans, so that a place where people could share ideas and experiences would be worthwhile.

Kirk Maldonado

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Guest Dan NMHC

Kirk,

I think that is a good idea for a new topic. The reason that I thought a message board specifily looking into priscription would be a good idea is because that is the area that I specialize in. However if a new message board is ceated regarding self insured cost saving stratagies, I would be happy to contribute.

I am drafting a topic for this message board right now.

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Yes, the cost of prescriptions is rising at a fast pace, but I believe many companies with self-funded medical plans have made a huge mistake by moving from prescription drug coinsurance to flat copays. By retaining drug coverage based on coinsurance, all cost increases are shared by both employee and company. Under copays, unless you are willing to change them every year, they lose pace with inflation quickly.

[This message has been edited by EMK (edited 06-16-2000).]

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Guest Dan NMHC

I agree that having a set dollar copay reduces the cost sharing between the employee and the fund. As the priscription drug price increases, there is no increase contribution from the member. The entire ingredient cost increase is absorbed by the fund.

As new "Block Buster" drugs are made availiable, how can an employer (fund) attempt to control the costs on these drugs?

One suggestion is have a 3 tier copayment stratergy, whereby the third teir is for new drugs that recive certification. The third teir would have the highest cost sharing. Either set dollar or % copay.

Any other suggestions?

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Dan:

The three tier drug plans are already being semi-mandated by the HMOs in upstate NY. However, their plans are still using co-payments such as $5/$15/$30 or $10/$20/$35 for the different tier drugs. My suggestion would be to have the 3 tiers, but use % payments such as 90%/75%/50% then you will see some people being more discriminating in their purchase of generics or second tier drugs rather than the high price spread. Who knows, it might even cause some concern among the drug companies, but I doubt it.

Of course I could get started on the drug companies and how they continue to to have the some of the highest profit margines in American industry, while continuing to gouge the American health care consumer. But I don't want to hurt anyones feelings.

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Guest Dan NMHC

Great suggestion. Unfortunitly, in my experiance, most employer groups if given the choice will stay with the set dollar copay and not go to the %. I have the capability to administer both the set dollar as well as the % copay, and most of my clients (Over 90%) choose the set dollar. The common objection is that the employer group "Does not want to upset their employees".

What would you think about a combination on the two? Say $5 generic/$10 Brand/ 50% for new drugs patented after the plans effective date?

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another way to reduce costs (at least temporarily) is to do away witht he prescription card and handle prescriptions as you would any other medical expenses (assuming an indemnity plan) - subject to deductible and coinsurance.

the offset may be additonal administrative expenses handling what used to be relatively small dollar amounts.

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Guest Dan NMHC

Larry, I disagree. If you get rid of the Rx card (Self insured) and process the drug cost through the major med side of an indemity plan, you will not have access to the discounts that a PBM is providing.

If John Q Public goes to a pharmacy and buys a priscription with out an Rx card, that pharmacy would proberbly mark up the ingredient cost by 10% (AWP+10%). If Jane Q Public goes to the same pharmacy that has a prenegotated contract with a PBM, the ingredient cost will be discounted based on the contract with the PBM (AWP-13%).

For the same priscription, the ingredient cost will be lower through a PBM that over the counter. In very rare circumstances the U&C cost can be less. In these cases most PBM's will offer their clients with the lower of contracted & U&C.

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Interesting commentaries.

I'm currently sourcing a whole new administrator for my self-funded plan, and one of our hot areas is Rx coverage. We're trending at about 16%. We have a 2-tier copay in place right now - $8G/$20B and brand is brand, regardless of single- or multi-source.

I had my Rx vendor model out for next year two scenarios - 3-tier copay of $10/$20/$35 as well as coinsurance of 10%/20%/30% (with a cap of $100 per Rx). Interestingly enough, with our experience we actually have a larger participant cost share ratio using the 3-tier COPAY. I would be quick to point out that 70% of our Rx claims are for retirees, so this may not hold true for active-only populations.

Even with the 2-tier copay structure we currently have, the participant cost share ratio is about 25%, which is always surprising.

There's a lot of good arguments for a coinsurance as opposed to copay - the largest of which is that participants get a reality check on the true cost of their Rx's. I'm a fan of it myself, looking at long-term costs. The downside to it, though, is the perception that those people who need the drugs the most are being penalized. It's not logical; on the medical plan side, the sicker you are the more it costs - and people accept that as a fact of life. I think that we, as plan sponsor, have shot ourselves in the foot by making cheap Rx's an entitlement.

We're also looking at a mixed structure, much like Dan suggested - putting "non-preferred" drugs into a 50% coinsurance while using copays for generic and brand-preferred. This is kind of a middle-of-the-road approach, starting to make participants aware of the true cost of Rx's.

Of course, one of the biggest culprits is DTC advertising - I watch those commercials too - I don't care what the drug's for, just give me some, I want to be as happy as those people!

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Guest Dan NMHC

Well Nac,

I would love the opportunity to discuss these options with you. As I can see from the bulletin Board, you are located in CT. My office is in NY and I am responsible for CT.

Would you be willing to meet and discuss some options?

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Our formulary excludes some prescription medications altogether. We also went to three tier co-pay in April of this year($6/$12/$24). We have a default (mandatory) generic substitution, which means that if an MD prescribes brand name, the generic (if available) is dispensed. The participant can elect at the point of purchase to get the brand name, but pays the applicable co-pay AND the difference in cost between the generic and brand name. Finally, we are moving toward pre-certification for certain medications or classes of medications. Language to that effect ("the purchase of certain drugs or classes or drugs may require pre-authorization before coverage under the plan is extended") has been added to our SPD, although we have not erected the administrative structure needed to do the drug pre-cert at this point.

I'm in Kip's camp when it comes to the pharm. companies. However, many of our participants simply aren't good users of the prescription drug program, and share some of the blame for our costs.

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Dan NMHC:

Why can't You have an Rx card with percentage co-payments and still negotiate the PBM discounts? I like the three tier % payment idea. I contend that if you design the plan this way you can still have an Rx card and avail yourself of the PBM discounts. I could see a plan paying scrips at 90%/70%/25% with a separate maxim out-of-pocket limit on the Rx plan from the medical plan.

Until drug companies are forced into being more competative they will continue to increase the prices of drugs and their high profits. If employees continue to be sheltered from the real cost of drugs, they will continue to demand the newest drugs whether or not the new drugs are infact better than the old drugs. Think about this. There are more than 18 antidepressant drugs on the market, which of the more than 5 highest priced ones is the miracle drug that works better than the 14 or so lower priced ones? Does winning and dinnig the doctors and advertising expense make them better? Maybe so.

One last thought. If the FTC continues to allow pharmaceutical companies to merge into mega-pharmaceutical companies drug prices will only get worse. Maybe the over 190 drug and medical device company lobbiests have something to do with this. Just guessing.

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Guest Dan NMHC

Kip.

I can manage a % copay that you outlined. In fact I feel that is structure is the best way of reducing the impact on the rising cost of priscription drugs have on employer groups. I also feel that the three tier % copay an excellent way of showing employees the cost impact of brand VS Generic and the DTC drugs.

In addition to the % copay structure, I would also suggest implementing a small deductible for the employees ($25-$50). I would also suggest a possible annual max. At fist glance the annual max will rub a few people the wrong way. However, if you know that you have certian amount of money availiable for your Rx drugs, you will naturaly look to strech that dollar amount as far as possible. That will mean looking into generics, Mail order Ect. This is makeing the employee the cost consiance consumer.

Of course, most employer groups are resistant to makeing any major changes to their benefits.

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Very good comments on this topic, however the thought of annual max makes me a little uneasy. I do compliance at a TPA and share an office with our pharmacy benefits manager. Some of our plans are extremely stingy in their annual max. Perhaps I would feel better about this if there were some sort of catastrophic coverage provision for those persons with multiple expensive treatments.

Is there any prohibition on treating Rx coverage as a separate coverage and charging accordingly? Of course, if it is option only you would have adverse selection in those optioning in. I don't know if you could make it part of an unseverable package and still charge an additional premium.

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Guest Dan NMHC

Jeanie,

I appreciate your concerns regarding and annual max for priscription drug coverage. To lessen the impact that an annual cap has on the employees, I would like to suggest the following:

1) After the annual max has be reached, the employee can still use the priscription card as a 100% copay card. For example, an employee who has reached thier annual max, can still recive Rx's at the discounted rate that the PBM offers the group. (AWP-13% opposed to R&C). The employee will be responsible for the entire ingredient cost + dispensing fee + Admin fee. This will allow the member to take advantage of the discount, and also no incur any more costs to the employer group.

2) we provide our clients with the capability to override thier annual max if the employer group wishes. For example, if an employee has a catistrophic illness and has reached thier max, the employer group can decide if they would like to continue payment and at what rate.

Annual maxes, have an upside (lower cost) and a downside (Less benefits). It is up to the employer group to determine what side of the fence they want to go

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  • 2 weeks later...
Guest kclark

Wow.....alot of good information!

I currently manage a self-insured Rx plan for a major S. Calif. Health System which includes 3 hospitals and 2 major medical groups. We are in the process of designing a 3-tier copay Rx plan for 2001.

Currently we have a PBM administering our Rx plan and have developed our own homegrown formulary developed by in-house pharamacists. This is a closed formulary environment.

We are considering the following copays for our 3-tier plan: $8/$16/$30 or 40% of drug cost whichever is greater. With this model it has been determined our savings as compared to our current copay levels of $6/$15 for all entities combined the following: ingred.=$42k, copay = $109k and gross savings = $151k on an annual basis.

We had originally considered placing all drugs not on tier 1 or 2 on tier 3, which would open up our formulary and most likely make employees happier! However, in doing the analysis, this would have increased our current PMPM from $11 (which is very good!) to approx. $21 or $22 PMPM! That changed our minds very quickly!

Our current plan has 11 drugs that require prior authorization which we have just relinquished to our PBM. previously this was done by our in-house pharamacist at 2 hospitals and our HR Dept. at 1 hospital that did not have an outpatient pharmacy. As I said, I have moved the PA process to our PBM eff. 7/1/00 to resolve some issues and legal liabilities from HR.

I would like to know how others handle, in a closed formulary environment, the requests from employees for drugs not on your formulary? Do you have an appeals process that you advise employees of when making this type of request, or do you follow an "as it comes up" process? Do you simply stick to the formulary and say "sorry not on the formulary, not covered".

My dilemma is maintaining consistency in valid medical necessity reasons for allowing exceptions and non-discrimminatory practices. However, I do not want to penalize employees with valid reasons for not using formulary medications.

We do have an appeals process for prior authorized drugs that are denied and in the previous process the same appeals process was used for non-covered drugs and this part of the process was highly abused since one of our hospital's HR Dept. did the authorizing (no pharmacy knowledge so had to approve virtually everything!).

Sorry for the lengthy message!

KClark

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Guest Dan NMHC

When working with a closed formulay, you must walk a very fine line. On one side of the line, a closed formulary is an excellent method to control Prescription costs. On the other side of the line, employees view it as a reduction in benefit.

In my experiance, the majority of the problems with a closed formulary is the tug-of-war that we must make with the drug manufactures Direct to Consumer advertizing (DTC). A member sees an add for a new block buster drug and right away they feel that this block buster drug is right for them. (If it is not the member, then it is the physician who just had the pharmicutical rep in their office selling the new drug)

As soon as the member tries to fill the prescription of a drug that is not on the formulary, there is a mad dash to get a letter from the physican stating medical necessity. In my experiance, obtaining a letter is not difficult.

My recommendation to try and manage appeals or letters of medical necessity, is to look at the Rx history of the employee prior to authorization. You will be very suprized that after looking into the Rx history, you will find that this Rx is the first time that the employee has recived any medication for the illness. If that is the case, I recommend that the appeal be rejected. In order to approve an appeal I would look for an Rx history that shows a attempt to utilize a formulary Rx prior to the non-formulary

Dan

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Guest kclark

Dan:

Thanks for your reply and suggestions!

You hit all the issues right on the head that we are currently dealing with!

I like the idea of a "pre-requisite" type of requirement.

It is very difficult to outline a very specific process to follow in this situation. One problem we have experienced in the past is the threat of lawsuits claiming we are trying to control employees' medical care and having pharmacists vs. medical doctors review the request! This is my BIGGEST problem! It is my understanding that when you insure your Rx plan thru the various carriers, these type of requests are reviewed by medical directors.

If I try to have the same type of process, that could add several days to weeks to the approval/denial process!

To you knowledge is the usual allowable time frame for this type of review 72 hours?

Do you think that the majority of Rx plans have an appeal process in place in a closed formulary environment for requests of this type?

Thanks,

Kathy

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Guest Dan NMHC

Kathy,

In my experience, each self funded plan administers their appeals process differently. Labor groups are usually very loose with appeals, and commercial accounts are very strict. But to answer your question, yes all of the accounts that I manage have an appeal process with their closed formularys.

I think that 72 hours is a very reasonable turnaround for appeals. The most important thing to meet this deadline, is the availiability for claims history from your PBM. If it take 2 days just to get the claim History from the PBM, you have a tuff time making the 72Hours.

My company, National Medical Health Card Systems,(www.nmhc.com) provides to our clients on-line real-time access to the claim history of its members. This way. as soon as you get the appeal, you can look up the prescription histroy of the member to aid in your decision In the future, most PBM's should go this way

The one piece of advise that I will give you is make sure that you are consistant with your appeals as well as communicate the result in detail.

Dan

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Guest kclark

Dan:

Of your clients that are self-insured, do you know who actually reviews the appeals?

It sounds like the 2 requirements, then, are 1) letter of medical necessity for prescribing MD., and 2) Rx history review indicating previously tried a formulary medication for same diagnosis......and that's pretty much what the decision is based on?

Since we are a healthcare system and have on-staff pharmacists, my thought was to have the Pharmacy Director review the medical necessity and perhaps as well the Rx history piece. My only involvement (I hope!) would be to administer the process as far as being the focal point for receiving request and supplying info. to Pharmacy Dir. and final results to MD. I do NOT want to be in the drivers seat as far as approving or denying......legal liability scares me!

My thought was to have an appeals form for the request and an approval/denial form to be faxed to MD.

Since we already have drugs that require prior-auth this process would be the actual "appeal" process for those prior-auths that are denied.

My thinking is that for the non-formulary requests it would not really be an "appeal" but perhaps I would call it "request for non-formulary drug".....something like that. Process would be the same as "appeal" process.

What do you think?

I will check with our current PBM on how available Rx history is!

Thanks for your help!

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Guest Dan NMHC

Kathy,

Depending on the client, appeals or prior authorizations can be done by either the client directly, or by our in house clinical pharmicists. If we do it, we charge for each prior auth. If the client does it then of course it is no charge.

You are correct that the two major items that are looked at for an appeal or prior auth is 1) Rx history to see if a formulary drug was tried 2) letter of medical necessity from the prescribing MD. There are more issues that are looked at by that needs to be adressed by one of our clinical pharmists.

I agee with you in regards to naming the prior auth as differently that a appeal. To address the legal issue, as long as you have 1) communicate to your employees the benefits, 2) communicated the appeal and prior auth process

3) are consistant and non discriminatory in your approvals or denials, You will be protected from Liability. We have managed Closed formularies as well as Preferred Durg listing for some years and our client and us have never been involoved in any litegation.

Dan

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