The cost of prescription drugs is approaching 15 percent of all medical expense claims, and the percentage continues to grow. This increase results from several factors. One is the availability and prescribing of high-priced new pharmaceutical products. Another factor is increased use arising from several sources: the aging population, which uses more prescription drugs, and the shift from inpatient to outpatient treatment, resulting in more intensive pharmaceutical treatments. Finally, new drugs have been found for many previously untreatable conditions. As a result, prescription drug benefits are often carved out in an attempt to control costs.
While separate prescription drug plans have existed for many years, the initial focus was on obtaining lower costs through discounts with participating pharmacies and mail-order suppliers of drugs. However, the situation changed significantly in the early 1980s when pharmacy benefit managers (PBMs) appeared in the marketplace. It is estimated that over 75 percent of prescription drugs are provided through PBMs, and that fewer than 10 large PBMs cover more than 80 percent of the health plan participants who received drugs in this manner. PBMs may be affiliated with pharmaceutical companies or health care providers such as insurance companies. They may also be independently owned.
Pharmacy Benefit Managers. PBMs administer prescription drug plans on behalf of self-funded employers, HMOs, PPOs, insurance companies, Blue Cross-Blue Shield plans, and third-party administrators. The on-line capabilities of PBMs enable them to offer considerable flexibility in designing a prescription drug program for a specific employer or benefit plan provider.
In addition to developing networks for the dispensing of prescription drugs, PBMs typically also do the following:
Drug utilization review. This practice compares information gathered from a patient's medical and prescription drug records to determine such factors as overutilization, underutilization, drug-to-drug interactions, improper drugs for pregnant patients, early refills, and therapeutic duplication.
Physician profiling and education. For example, physicians whose prescribing patterns lie outside acceptable variations from established benchmarks can be identified and counseled.
Pharmacy profiling and education. For example, pharmacies that recommend large amounts of brand-name drugs might be contacted about making more use of generic substitutions.
Patient profiling and education. For example, patients treated for hypertension can be identified and sent educational materials on their condition. This material focuses on the risks associated with the condition, safety issues associated with drug treatment, and the importance of complying with prescribed drug regimens. Patients who fail to refill needed medication can also be identified and contacted.
PBMs are also increasingly developing disease management programs that focus on diagnostic aids identification, treatment guidelines, education, and outcomes measurement for specific diseases. PBMs may also be involved in the overall case management of a patient.
PBMs have been leaders in the integration of formularies into prescription drug plans. A formulary is a list of preferred medications for a specific medical condition developed by a committee of pharmacists and physicians. This list is provided to physicians with the hopes that it will positively affect their prescribing behavior. A formulary, for example, will let physicians know of approved uses of new drugs on the market, appropriate uses for existing drugs, and appropriate times to use generic and therapeutic substitutions. A therapeutic substitution is a drug with a therapeutic effect similar to that of the prescribed drug. Unlike generic substitution, which can often be made by patients or pharmacists, a physician's permission is needed for a therapeutic substitution.
Many prescription drug plans do not have a price differential for a patient if formulary drugs are not prescribed. However, PBMs will offer plans that either cover formulary drugs only or provide a financial incentive for patients to use them.
Nature of Plans. The typical prescription drug plan covers the cost of drugs (except those dispensed in a hospital or in an extended-care facility) that are required by either state or federal law to be dispensed by prescription. Drugs for which prescriptions are not required by law are usually not covered even if a physician orders them on a prescription form. One frequent exception to this general rule is injectable insulin, which is generally covered despite the fact that in many states it is a nonprescription drug. No coverage is provided for charges to administer drugs or the cost of the therapeutic devices or appliances such as bandages or hypodermic needles. It is also common to exclude benefits for a quantity of drugs in excess of a specified amount. In some plans, this quantity is expressed as the amount normally prescribed by physicians; in other plans, it is expressed as a supply for a certain time period, often 34 days. However, refills are considered new prescriptions.
Contraceptive drugs may be covered or excluded. Some prescription drug plans take a middle approach by covering these drugs only when they are prescribed for treating some medical condition rather than for preventing conception. Drugs for treatment of infertility or sexual dysfunction, such as Viagra, may or may not be covered.
Drug plans are increasingly requiring precertification for the use of certain expensive drugs.
Most prescription drug plans have a copayment that must be paid by a covered person for any prescriptions filled. In most cases, this is a flat amount that usually varies from $5 to $10 per prescription. Some plans have two copayments—one for generic drugs and a higher one for brand-name drugs. It is also becoming increasingly common to see a three-tier structure, such as a $5 copayment for generic drugs, $10 for brand-name formulary drugs, and $15 for brand-name nonformulary drugs. Some plans also provide financial incentives for prescriptions to be filled by mail-order pharmacies or on the Internet. A few plans have quarterly, semiannual, or annual spending caps. For example, benefits might be limited to $500 per person per quarter or $3,000 per year per family.
Two basic methods are used to provide prescription drug coverage: a reimbursement approach and a service approach. Under plans using a reimbursement approach, a covered individual personally pays the cost of prescription drugs. The person may be able to use any pharmacy he or she chooses or may be required to use a participating pharmacy. A claim for reimbursement is then filed with the provider of benefits, either by the employee or electronically by the pharmacy. Reimbursement (subject to any copayments) is made to the covered person on the basis of either billed charges or reasonable-and-customary charges.
While coverage for prescription drugs under major medical plans is often on a reimbursement basis, the majority of prescription drug plans use a service approach. Under this approach, drugs are provided to covered persons by participating pharmacies upon receipt of prescriptions, proper identification (usually a card issued by the plan), and any required copayments. The pharmacy then bills the provider of coverage (usually electronically) for the remaining cost of any prescription filled. This provider may be a PBM, a Blue Cross-Blue Shield association, an HMO, an insurance company or, a third-party administrator acting on behalf of either an insurance company or an employer with a self-insured plan. Because of the specialization that can be used in handling many small claims and the need to establish a system of participating pharmacies, most insurance companies, except for a few large ones, use PBMs for their prescription drug plans.
Under virtually all service plans, the provider of coverage or the third-party administrator negotiates a contract with participating pharmacies to provide the drugs at a reduced cost, usually equal to the wholesale cost of the drug plus a flat dispensing fee, such as $3 for each prescription. Prescriptions filled at nonparticipating pharmacies are often covered but handled on a reimbursement basis. In addition, reimbursement in these cases is typically less than the cost of the prescription. In some cases, the plan will pay up to the amount that would have been paid to a participating pharmacy. In other cases, benefits may be limited to some percentage (for example, 75 percent) of the cost of a prescription purchased at a nonparticipating pharmacy, minus any copayment.
Vision BenefitsCarve-out vision benefits may be provided by insurance companies, Blue Cross-Blue Shield plans, plans of state optometric associations patterned after Blue Shield, closed-panel HMO-type plans established by local providers of vision services, vision care PPOs, or third-party administrators.
More than half of the persons covered under employer-provided medical expense plans have some type of vision coverage, and the majority of this coverage is provided under some type of carve-out arrangement. Despite concerns with rising benefit costs in recent years, vision care is one type of benefit that employers continue to add. Routine eye exams can result in better overall health care because certain other types of health problems—such as high blood pressure, diabetes, and kidney problems—are first discovered during the course of such exams. Proper vision correction can also result in fewer accidents and greater productivity by minimizing eyestrain and headaches.
Benefits are occasionally provided on a reasonable-and-customary basis or are subject to a flat benefit per year that may be applied to any covered expenses. Normally, however, a benefit schedule will be used that specifies the type and amounts of benefits and the frequency with which they will be provided. Table 11-4 is an example of one such schedule. If the plan is written by a provider of vision services, it is common for a discount, such as 20 percent, to be available for costs incurred with the provider that are not covered by the schedule of benefits. Under some plans, most benefits are provided on a service basis rather than being subject to a maximum benefit. However, these plans usually cover only the cost of basic frames, which the covered persons can upgrade at an additional expense.
Exclusions commonly exist for any extra charge for plastic lenses or the cost of safety lenses or prescription sunglasses. Benefits are generally provided for eye examinations by either an optometrist or an ophthalmologist, and larger benefits are sometimes provided if the latter is used. Vision care plans do not pay benefits for eye surgery or treatment of eye diseases because these are covered under the regular coverage of a medical expense plan.
Behavioral HealthThe providing of behavioral health benefits has always been an area of difficulty for medical expense plans. There is less uniformity in treatment standards for mental health, alcoholism, and drug addiction than for most other medical conditions. This, and the difficulty of monitoring treatment, has often led to unnecessary, expensive, and dangerous treatment by less-than-scrupulous providers of behavioral health care. Historically, benefit plans addressed these problems by having very limited benefit levels. But even these benefit levels still had a tendency to encourage more expensive inpatient care over outpatient treatment, which in most cases appears to be as clinically effective. In addition, there was little follow-up care after treatment. With rapidly increasing costs for behavioral health, employers and providers of benefit plans are increasingly carving out this benefit by contracting with vendors that use managed care techniques. However, even with the use of carve-outs, benefit plans still continue to limit behavioral health benefits to a level significantly below that for other medical conditions.
Characteristics of a successful behavioral health program, whether it be a carve-out arrangement or not, should include the following:
The use of case management to design and coordinate treatment plans and to monitor the need for follow-up care.
A mechanism for referring a patient to the program. In many cases, this is through a gatekeeper who is a primary care physician. However, there is also increasing coordination of behavioral health programs with employee-assistance programs.
The development of a provider network that specializes in behavioral health. In addition to physicians, the network will include psychologists and therapists. It will also include alternatives to hospital treatment, such as residential centers, halfway houses, and structured outpatient programs. Benefits may or may not be provided if nonnetwork treatment is sought. If it is covered, there is usually a lower benefit level than for network treatment.
Patient access to care on a 24-hour basis. Persons who have behavioral health problems often need immediate crisis intervention. Of course, the availability of such care needs to be well communicated to patients.
Disease ManagementTraditionally, medical expense plans have focused on the treatment of sickness rather than prevention and education. Even though this philosophy changed with managed care, there has often been less-than-complete attention paid to controlling chronic conditions that can lead to frequent and often expensive medical intervention. The list of chronic conditions is lengthy; a few of the conditions on this list are asthma, diabetes, heart disease, high blood pressure, arthritis, allergies, back pain, and multiple sclerosis. Many chronic conditions are high maintenance, and most are not curable. However, with proper control, hospitalization for the condition and related complications can be reduced. In addition, the patient's longevity and quality of life can be increased. As managed care has evolved, the concept of disease management has taken on increasing importance, sometimes through the use of carve-outs for certain chronic conditions. The two most commonly carved-out chronic conditions are probably diabetes and asthma.
Traditional case management begins with an episode of illness, whereas disease management begins prior to it. Disease management programs attempt to identify persons with chronic conditions as early as possible so that proper treatment can minimize future spells of illness. In this regard, it is important to work with primary care physicians so that they can steer patients toward the disease management program.
Disease management programs have a network of providers who deliver the needed care and prevention. These include physicians as well as nurses who provide patient counseling and education and who may even make home visits. Education about a chronic condition is crucial in that a disease management program is much more effective if a patient understands how to manage his or her lifestyle in light of the condition. It is also important for a disease management program to involve pharmacists, because patients with chronic diseases are often on maintenance drugs, the effectiveness of which can be influenced by prescription drugs that might be prescribed for other illnesses. A disease management program also has procedures for reacting to emergencies and providing ambulatory care following a hospitalization.
Maternity ManagementThe identification of high-risk pregnancies and proper medical treatment can result in significant cost savings to a benefit plan. For example, the expenses associated with premature birth can amount to several hundred thousand dollars. As a result, many plans have begun to incorporate maternity management, which focuses on low-frequency, high-cost claims, in contrast to many cost-containment efforts. Although there is a cost in providing this coverage, this cost will usually be more than offset if only one large claim is avoided. Some providers of medical expense plans provide maternity management with their own staff, while others carve out the benefit.
A maternity-management provision requires a patient or her primary care physician to notify the maternity management program within some prescribed time period after confirmation of pregnancy. Failure to obtain this precertification may result in a reduction of benefits. A case manager, usually a registered nurse, works closely with the expectant mother and her physician throughout the pregnancy to see that a complete assessment of the mother's health is made so that unfavorable risk factors can be monitored. Individualized maternity education is provided through brochures and telephone contact. This education focuses on such aspects of prenatal care as nutrition, alcohol use, and smoking.
