Mental Health Parity

Mental health parity—equal insurance benefits for mental and medical disorders—is, in part, the result of years of work by groups such as the National Alliance for the Mentally Ill, government advocates, and thousands of other supporters to erase the stigma society attaches to mental illness—to bring it out of the dark shadows and acknowledge it as a disease as painful and often as life threatening as physical illnesses.

The Mental Health Parity Act

The Mental Health Parity Act (MHPA) was signed into law on September 26, 1996 and took effect January 1, 1998. This federal law is subject to concurrent jurisdiction by theDepartments of Labor, the Treasury, and Health and Human Services and prevents group health plans, insurance companies and HMOs from placing lower annual or lifetime dollar limits on mental health benefits than for medical and surgical benefits offered under the plan. For example, if a health plan has a $1 million lifetime limit on medical and surgical benefits, it cannot put a $100,000 lifetime limit on mental health benefits.

The MHPA, which expired on September 30, 2001 but has been extended each year since, has many loopholes. The law applies only to groups that offer mental health benefitsand have more than 50 workers; however, it does not require them to include mental health benefits in their benefit packages. It does not apply to health insurance coverage inthe individual market, and it does not address substance abuse or chemical dependency treatment. The law does, however, allow for limits on inpatient days, prescription drugs, outpatient visits, and raising deductibles which, in fact, has the effect of subjecting benefits to dollar limits. The United States General Accounting Office in May 2000 found that 87 percent of complying health plans evaded the spirit of the law by using day and visit limits to maintain unequal benefit levels for mental versus medical disorders.

Federal and State Parity Legislation

Since the passage of the 1996 law, new federal parity legislation has been put before the legislature, the most notable being the Mental Health Equitable Treatment Act of 2001 proposed by Senators Pete Domenici (R-NM) and the late Paul Wellstone (D-MN), the MHPA's original authors. Each year, permutations of this new federal law have been proposed and consequently shelved. As of May 2004, 35 states have passed their own form of mental health parity legislation. These state laws incorporate more inclusive parity coverage than the MHPA, and some include parity coverage for the treatment of substance abuse/drug and alcohol dependency.

The Mental Health Parity Controversy

The basis of mental health parity does not appear to be controversial, and there is evidence that treating psychiatric disorders contributes to lower medical costs and higher productivity. But opponents of mental health parity are generally opposed to mandated benefits of any type and are concerned about health care cost increases that can result from unlimited benefits. Lobbying groups representing insurance industry and business groups are staunch opponents. Proponents argue that cost increases will be minimal and that the real issue is discrimination against people with mental illnesses.

Psychotropic Medication Management

Psychotropic medications—drugs that affect psychic function, behavior or experience—are part of the medical benefit and are generally administered by companies contracting with health plans called pharmacy benefit managers (PBMs). Psychotropic medications account for a significant part of the overall cost of health care because of the chronic nature of many mental illnesses, but a fractionalized system currently exists that prevents optimum management of these medications. Although behavioral specialists contracting with MBHOs routinely prescribe psychotropic medication to their patients, approximately 70 to 80 percent of psychotropic medications (primarily antidepressants) are prescribed by family physicians, internists, and pediatricians, who have little training in mental health issues. Because MBHOs do not manage the prescription drug benefit but bear theresponsibility for managing the behavioral care for their members, they are often unaware if psychotropic medications prescribed to their members are of the appropriate types and dosages, or if there are appropriate interventions during treatment to ensure their members are medication-compliant. Even if the "silos"—MBHOs, health plans, PBMs, primary care physicians, and behavioral specialists—are bridged through coordination-of-care protocols, the situation is further complicated by the Health Insurance Portability and Accountability Act (HIPAA) privacy legislation, which adds another layer of difficulty in sharing prescription information.

History and Industry Overview | Managed Behavioral Health Care Benefits

The Early Years

Today, managed behavioral health plans are widely adopted, but that was not always the case. Prior to the 1940s, treatment for mental disorders was usually only provided in state mental hospitals. After World War II, general hospitals opened onsite psychiatric clinics and added psychiatrists to their staffs, which prompted commercial insurance carriers to include hospitalization coverage for mental illness. Initially, this coverage provided the same level of benefits as for nonpsychiatric benefits. Soon, however, insurers placed limits on outpatient mental health care because treatment often continued for indefinite lengths of time, and there was much subjectivity surrounding mental disorders and treatment methods.

Growth of Managed Care

The Health Maintenance Organization (HMO) Act of 1973 promoted and set minimum standards for health maintenance organizations and required managed care plans to include an outpatient mental health benefit consisting of 20 visits annually for emergency assessment and crisis intervention. While HMOs proliferated in the 1980s as a response to rapidly rising health care costs, their coverage for mental illness was extremely limited and differed significantly from coverage for physical illness. Hospital coverage was restricted to 30–45 days per mental illness, or 30 or 60 days per year. For medical illnesses, the number of days was usually unlimited. And for outpatient services—care received in the outpatient department of a hospital or in a clinician's office—coverage limitations were dramatically lower for mental health treatment than for medical treatment.The most common limitations for mental health outpatient treatment were a maximum dollar limit of $1,000 per year and a maximum reimbursement per visit ranging from $25 to $40. Coinsurance rates also varied dramatically between medical and mental coverage.

Advent of the Behavioral Healthcare Carve-Out

Because of the limitations of HMO coverage for mental health disorders, a new opportunity paved the way for behavioral health "carve-outs." A behavioral healthcare carve-out is a program that separates—or carves out—mental health and chemical dependency services from the medical plan and provides them separately, usually under a separate contract and from a separate company known as a managed behavioral healthcare organization (MBHO). MBHOs offer mental health and chemical dependency plans that fillthe coverage gaps in medical plans—many MBHOs also offer employee assistance programs. They are able to offer enriched, flexible and affordable behavioral healthcarebenefits along with sophisticated administrative, operational and care management capabilities. MBHOs focus on matching appropriate levels of specialists and treatment settings with the behavioral treatment needs of members to most cost-effectively provide care and maximize treatment effectiveness. Behavioral healthcare carve-outs have thepotential to produce significant savings because (1) they are usually managed by firms that specialize in behavioral health treatment; (2) they allow large, self-funded employers to offer the same behavioral health benefits across all health plans offered; and (3) they allow a health plan to minimize adverse selection, which may occur when employees who utilize high levels of behavioral treatment opt for an indemnity medical plan instead of an HMO.

Growth of the Employee Assistance Program

An employee assistance program (EAP) is a confidential resource for information and referral to emotional counseling, covering such matters as relationship issues, family conflicts, job-related stress, alcohol abuse, drug addiction, financial hardships, and other personal problems. The first EAPs arose in the 1950s and focused on early intervention for alcohol and drug abuse. Since the 1970s, EAPs have evolved into an industry of their own. In the mid-1980s, EAPs began diversifying their services to include a wide rangeof work/life services along with human resource support, and the EAP is now considered a low-cost, high-return tool for enhancing workplace productivity.

Managed Behavioral Health Care

The term "behavioral health" refers to mental health and substance abuse services provided by behavioral health specialists. Managed behavioral health benefits are subject tothe general forces of managed care while also facing unique issues and challenges of their own. In recent years there has been a heightened focus on behavioral health benefitsbecause they are a key contributor to increased employee productivity and lower medical costs. Of an estimated 250 million Americans with health insurance, 66 percent are enrolled in some type of specialty managed behavioral health program.

Mental Illnesses and Other Behavioral Disorders

The most severe mental illnesses such as schizophrenia, bipolar disorder and major depressive disorder are generally considered biologically based disorders that affect thebrain, profoundly disrupting a person's thinking, feeling, mood, ability to relate to others and capacity for coping with the demands of life. They cannot be overcome through "will power" and are not related to a person's character or intelligence. Nonbiologically based mental disorders can also severely impact an individual's functioning. Early identification and treatment is of vital importance; according to Dr Thomas Insel, Director of the National Institute of Mental Health, between 70 and 80 percent of individuals suffering from depression experience significant reduction of symptoms and improved quality of life through psychotherapy and/or medication.

Mental disorders can loosely be categorized into the following categories:

1. Adjustment disorders (e.g., situational stress).
2. Anxiety disorders (e.g., panic disorder).
3. Childhood disorders (e.g., autism).
4. Eating disorders (e.g., anorexia).
5. Mood disorders (e.g., major depressive disorder).
6. Cognitive disorders (e.g., dementia).
7. Personality disorders (e.g., antisocial personality disorder).
8. Psychotic disorders (e.g., schizophrenia).
9. Substance-related disorders (e.g., alcohol/drug dependence).

The most serious and disabling conditions such as major depression, schizophrenia, bipolar disorder, panic disorders and obsessive compulsive disorders affect five to 10 million adults (2.6 to 5.4 percent) and three to five million children ages five to 17 (5 to 9 percent) in the United States.

The Need for Behavioral Benefits

Behavioral disorders can have a devastating impact on affected individuals, their families and society. Mental illness is the number one cause of disability in the United States, Canada and Western Europe, according to a 2001 study by the World Health Organization. It has now surpassed heart disease, which was the leading cause of disability as recently as 1996. Alcohol consumption accounts for up to 40 percent of industrial fatalities and 47 percent of industrial injuries. A study published in the American Journal ofHealth Promotion found that workers experiencing high stress are more than two times more likely to be absent more than five times per year. Given these alarming statistics, it stands to reason that health care benefit purchasers gain from providing their workforces with relatively inexpensive mental health, chemical dependency and employee assistance programs that cover the full spectrum of behavioral needs. Unfortunately, behavioral benefits are the least understood and most poorly compensated of all thepossible components of a health benefits package.

Common Misperceptions

Most people are unaware of the possible inadequacy of behavioral health benefits found in insurance plans, since it is falsely assumed that mental health and chemical dependency treatment needs are fully covered under medical plans, and in addition, that employee assistance programs fill in the gaps. Unfortunately, these are common misconceptions. The mandated behavioral benefits in a medical plan are limited to emergency assessment and crisis coverage. Mental health "parity" riders—legislatively mandated add-ons to medical benefit plans—are limited in the scope of disorders they cover. Employee assistance programs focus on workplace productivity, and offer only a limited number of visits for emotional counseling. To fully understand behavioral health benefits and the multitude of ways they are structured, it helps to take a brief look at thegrowth of the managed behavioral health care industry.

Other Factors Driving Plan Costs | Alternative Prescription Drug Plans

While all the factors discussed in this chapter impact the cost of pharmacy benefits, no analysis of today's PBM marketplace is complete without an examination of some ofthe external factors driving plan costs.

High-Cost Injectable Drugs

One of the most significant trends affecting employers is the growth of biogenetic drugs, also known as injectables or specialty pharmaceuticals. The primary goal of an employers' specialty pharmacy program must be to improve the organizations' health and economic outcomes and most importantly, the medical outcomes and quality of life ofplan members. Specialty pharmacy programs are currently evolving to assure appropriate use and positive outcomes for millions of employees today who need these powerful and very expensive pharmaceuticals.

However, as utilization of specialty pharmaceuticals increases, so too do the challenges and costs for employers. Injectable medications are now a $35 billion a year market and are projected to double within the next decade. Often these drugs cost more than $1,000 per dose, up to 100 times the cost of many oral agents. In most plans, members taking specialty pharmacy drugs will represent one to five percent of a health plan's population, yet account for up to 50 percent of medical costs. Early studies indicate that specialty pharmaceuticals have tremendous potential to improve productivity and quality of life for millions of Americans. Therefore, employers who do not cover specialty pharmaceuticals or who limit coverage may be diminishing the ability of the pharmacy program to provide real value to their organization and plan members.

However, while promising, specialty pharmacy drugs are not clinically indicated for all plan members. Because of their high cost, the utilization of specialty pharmaceuticals must be tightly managed. Some of the more widely used specialty pharmacy medications include those to treat multiple sclerosis (MS), rheumatoid arthritis (RA), infertility, cancer and hepatitis. A review of pharmacy and medical data can identify the current drug utilization patterns for plan members and indicate the percent of the plan population with specific diseases that are candidates and can best be treated with specialty pharmacy drugs.

To ensure that members who will secure the most value from specialty pharmaceuticals can access those drugs, plan sponsors need a multifaceted and multidisciplined approach to the development of guidelines that will help to validate these drugs' use for appropriate members. One important component of a comprehensive specialty pharmacyprogram is the use of guidelines, which are typically developed by pharmacy & therapeutic, and/or guideline committees. These committees consist of practicing physicians, pharmacists and other professionals who use the expertise of consultants and health outcomes researchers. The guidelines developed should be provider-oriented, member-focused and condition specific. For example, guidelines for initiation of therapy for rheumatoid arthritis might include age, severity of disability, non-response to previous therapies and physician recommendation. Guidelines also play a key role in ensuring appropriate duration of therapy, dosage, titration and that the desired results of the drug therapy are being achieved.

As more high-cost specialty pharmacy drugs are introduced, there will be more evidence as to which drugs work best with which patients (e.g., genetic testing to identify individuals for whom the drug is most likely to be successful). Comprehensive programs that are integrated with the pharmacy and medical benefit, and that include managed care principles, such as prior authorization, formulary development and case management will more effectively ensure that employers and their employees get the maximum value from these promising new drug therapies.

Role of Pharmaceutical Marketing

Pharmaceutical manufacturer marketing efforts to both consumers and physicians has garnered widespread attention over the past few years. While there are issues to explore with regard to direct-to-consumer (DTC) advertising, an equally important concern for employers should be the products being advertised. For example, a growing trend among pharmaceutical manufacturers is "niche" marketing for products, such as over-active-bladder, nail fungus, dry mouth, and so on. While certainly there are instances where these ailments require medical intervention, the key goal of advertising appears to be to create demand where there has historically been little interest.

Of course, pharmaceutical manufacturers also spend significant sums of money directly marketing to physicians. While product marketing in itself is certainly an appropriate tactic within a free market, employers must be aware of the tremendous influence such advertising has on physicians and ultimately consumers.

A 2003 report from Tufts University noted that prescribing newer, more expensive drugs, rather than older, generics contributed to an estimated 24 percent increase in drug spending over a one-year period. A 2003 FDA report noted that patients who are subject to DTC advertising are more likely to request and secure a prescription for a specific drug. A primary concern for employers should not only be the excess costs such marketing can generate because of increased demand, but also the potential for side effects and medication errors from consumers demanding unnecessary medications that could further increase costs.

The message for the employer is to work carefully with its PBM to implement benefit design features that ensure that the most cost-effective, and not the most heavily promoted drugs, are used by their plan members.

Formularies, prior authorization, and strong member and physician education programs are excellent tools to address the issue of DTC advertising.

Impact of an Aging Population

There are now an estimated 76 million "Baby Boomers" approaching retirement age. However, many show no real signs of wanting to slow down or retire. As this generation surges ahead, steadfast in its belief that age is little more than a number, employers and plan sponsors will find themselves needing to provide health care benefits to an increasingly aging workforce. But the Boomers are not your average employees.

According to the Alliance for Aging Research, Baby Boomers refuse to believe that "aches and pains" are the price to pay for getting older. They tend to be less sedentary than past aging generations. To help accomplish their many life goals, Boomers are looking to health care, including prescription drugs, to help them stay active. From lifestyle drugs to those that help them manage chronic illnesses, Boomers look to health care services and products to help them successfully defy the aging process.

Boomers are also much better informed than their parents were about a variety of health care topics, and they expect to be given all the necessary information with which to make medical decisions. Unlike their parents, Boomers do not always take the word of medical "authority figures" who try to tell them what is best—they want to decide for themselves. According to the book Selling to the Generations by Robert Brenner, overall, Boomers are more likely to question authority and expect instant gratification. Atthe same time, particularly as they age, they are "brand loyal" and are strongly influenced by the brand building efforts of pharmaceutical companies to create this loyalty.

What does this mean for plan sponsors? First, the health care needs of an aging workforce will have a long-term and significant impact on the utilization of prescription drugs and on health care services. Many of today's workers will continue to work beyond the traditional retirement age and will want (and expect) to remain healthy and productive as they age. They are likely to expect to have these services and products available to them, including the brands that they have come to know and trust.

In addition, they are not likely to be automatically accepting of substitutions and especially, the unavailability of the goods and services that they perceive are necessary for them to remain healthy. According to the AARP study, Baby Boomers Envision Retirement II—Key Findings, about half of all Boomers expect their insurance to cover healthcare expenses. They will be well informed and will expect to be participants in their own health care. They will welcome options, but will resist ultimatums.

All these factors must be taken into consideration as plan sponsors seek to balance costs and access in their pharmacy benefit programs.

The Role of PBMs and Government Programs

Medicare

PBM executives, analysts, and employers agree that the Medicare Act of 2003 has dramatically increased the nature and intensity of the relationship between PBMs and government-sponsored pharmacy benefit programs. Medicare Part D, the prescription drug component of the Medicare act, which was approved in December 2003 and becomes effective January 1, 2006, creates significant issues for employers to examine as well. The current legislation is expressly written to encourage employers to continue to offer drug benefits to retirees.

In addition to tax savings, the Centers for Medicare and Medicaid Services (CMS) estimates that an average subsidy for employers who offer drug coverage to their retirees will be around $611 per retiree in 2006 costs. Medicare premiums are about $35/month and will be paid by either the employer or the beneficiary. According to Aon Consulting, employers have three primary options when it comes to Medicare Part D:

1. Do nothing and take the government subsidy.
2. "Wrap-around" Medicare which is how most post-65 medical plans currently coordinate Medicare "Part A" and "Part B".
3. Eliminate the Rx benefit and pay the Medicare "Part D" premium for the retiree.

Employers that opt to offer a drug plan will need to do much more than simply provide the benefit. There are a number of regulations and guidelines employers will have to meet. For example, employers must adhere to formulary guidelines developed by Medicare, offer access to certain drugs, ensure access to generics, and provide detailed reports on their programs to CMS. Employers that self-fund their retiree benefits are at risk not only for costs, but also for costs associated with overseeing the entire pharmacymanagement process and for potential challenges that may arise. Retirees can be a demanding group and when there are changes made to their benefit, they will voice their concerns and may fight those changes that affect their pocketbook or their coverage. To meet the demands and challenges of this population, employers will need to ensure utilization and costs are closely managed. They will also need to be more creative in their approaches to program development and benefit design.

Employers that work with PBMs experienced in formulary development, disease management, and member education will be much better able to implement creative programs that adhere to guidelines and minimize risk. For example, a good PBM or pharmacy benefit consultant will be able to sit down with an employer and target areas of weakness and need, such as where drugs are being used inappropriately or areas where there are significant outliers or disease states that affect a large population of retirees. The PBM can then develop targeted programs specifically for that population. This approach is critical for at-risk employees. It is especially important where there are large populations ofemployees with high cost, high impact diseases, such as diabetes, heart disease or cancer. Left unmanaged, such diseases will only escalate in severity and further increasethe cost of the pharmacy and medical benefits to plans and their members.

While the government seems to have high hopes for PBMs and the private sector to control costs, there are areas of concern. A few larger PBMs have come under investigation over the past few years for some of their business practices.

Recognizing that knowledge is power, employers and consultants have begun to more thoroughly study PBM business practices so that they can better ensure they are securing value for their benefit dollars. As consultants and employers become more knowledgeable and sophisticated regarding PBMs, there has been a clear market correction. They are requiring PBMs to more fully disclose information as part of the RFP process. They are asking questions about revenue sources, how income is reported, administration fees, and other pricing policies. As a result, employers have a much better idea of exactly how and where their PBM secures revenue. As a result of this knowledge, those PBMs that have consistently shown a commitment to openness with their customers and that have not been subjected to lawsuits are securing business; those who are less transparent are finding it increasingly more challenging to secure new business.

The market correction the industry has spearheaded on its own accord has led the government to have further confidence in the ability of PBMs and private industry to help control costs. In a recent report from the Federal Trade Commission and Department of Justice, the government stated that when PBMs are allowed to operate in a competitive marketplace, and to use principles such as closed networks and mail service, they could play a significant role in helping plan sponsors manage costs.

Drug Reimportation

One of the most hotly contested topics over the past few years has been the issue of reimportation of drugs from countries where they are less expensive. Several states, including Massachusetts, Illinois, Minnesota, Rhode Island, and Wisconsin have begun to import drugs from other countries, most notably Canada, in addition to Australia and Europe.

Congress has clearly noted the demand for lower cost drugs and therefore several bills have been introduced to allow reimportation. Political analysts believe that strong public sentiment may force Congress to allow some level of drug reimportation. Not surprisingly, pharmaceutical manufacturers are fighting any efforts to allow reimportation, pointing out that current pricing allows companies to invest in research to create new drugs.

Many employers, unions, and health plans have explored reimbursement for foreign prescriptions as a component of cost reduction. While reimbursing health plan members for prescriptions filled while traveling is commonplace, extending payment to foreign source drugs ordered by the member has significant risk. The plan may assume significant liability if their member is harmed by a drug from an illegal distribution system which the plan has endorsed.

While some states view reimportation as a solution to higher drug costs, there are concerns that must be closely examined. For example, current payer reimbursement strategies are based on the average wholesale prices (AWP) of distributed prescription drugs and their corresponding National Drug Code (NDC) numbers. Imported drugs may not have an NDC code, or the NDC code may not be recognized by the established U.S. data companies. If an NDC is not recognized by the adjudication system, that prescription drug claim will be rejected by most of the U.S.-based reimbursement systems.

Reimportation may also pose some challenges for the Medicare system. The government will have to decide whether to credit drugs reim-ported from other nations as part of theout-of-pocket amount for purposes of calculating the beneficiary drug coverage. Lastly, the primary concern related to drug reimportation is safety. The FDA has reported numerous instances of tainted and even counterfeit drugs, primarily those purchased from unlicensed Web-sites located outside of the United States. However, there clearly remain safe sources of medications and unless American consumers and state and city governments experience significant and potentially life-threatening events due to reimportation, they will continue to view it as a viable alternative. Until legislation is passed, employers or states considering reimportation would be well served to work within existing legal channels.

Mandated Benefits

State governments, often using Federal guidelines and rulings, and supported by the courts, have become increasingly involved in mandating benefit coverages. Mandatedbenefits take the decision-making process out of the hands of the PBM and payer and place it into the hands of elected officials who may or may not have a strong grasp of theimplications of their actions.

One of the more common mandated benefits involves contraceptives. Plan sponsors and employers that offer drug therapies for male sexual dysfunction may be challenged with legislative mandates that require parity by providing contraceptives to female members. Special interest groups are also influencing coverage for other therapeutic categories including AIDS and antipsychotics. For example, groups representing the mentally ill have successfully lobbied in many states to ensure coverage of drugs for depression. Still other states are requiring that plans that cover diabetes medications, must also cover supplies. California has mandated that all drugs for chronic or debilitating illnesses (which in theory could include virtually any disease or illness) be covered. The result is a patchwork of laws that make it difficult for multistate employers to develop effective and compliant pharmacy benefit programs.

Desiring greater autonomy over how their money is spent, some employers have chosen to carve-out their pharmacy benefit. In effect, this creates a self-funded benefit. Thepharmacy benefit is then regulated by the Employee Retirement Income Security Act (ERISA), which provides greater freedom and flexibility by allowing employers to cover medications they deem necessary and appropriate for their employees and beneficiaries.

While there are benefits to self-funding the pharmacy benefit, there are some issues to examine—most of which can be readily addressed through an experienced PBM. For example, it may be difficult to integrate pharmacy programs with the medical benefit if they are administered by separate companies and if the PBM does not have experience in working with health plans and with data collection and analysis. If the employer group does not have ready access to the medical data, that too can present challenges. A number of PBMs have experience in working with employers and their medical plans to obtain and integrate data, however. Therefore if an employer wants to pursue that option, it should proceed.

Mail Service

Over the past decade, states and the federal government have been asked by retail pharmacy organizations to examine PBMs use of mail service. One of the arguments made by retail pharmacy is that when PBMs are allowed to provide a 90-day supply of drugs for 30-day copay, it gives the PBM an unfair pricing advantage.

The Pharmaceutical Care Management Association (PCMA) estimates that mail service discounts are 11 percent deeper than discounts on retail drugs and that currently mail service spending represents 16 percent of total prescription drug spending. That figure is expected to increase to 20 percent in 2014, representing millions of dollars in potential savings for plan sponsors. Conversely, PCMA estimates that provisions to increase regulations and limit mail service practices would increase costs by $97 billion between 2005 and 2014. This increase in costs would likely lead to hundreds of thousands of individuals losing prescription drug coverage.

Recent efforts to limit mail service appear to be failing in many areas. For example, in Michigan in 2004, the once widely touted Michigan's Consumer Prescription Protection Act failed after analysis from employers indicated that the law would increase costs to consumers significantly.

Employers should recognize that mail service should be more than a cost-saving strategy or prescription delivery mechanism. Through education programs such as refill reminders, information on the importance of persistency and compliance programs, as well as newsletters and brochures with articles regarding commonly asked questions about popular drugs, mail service has the potential to insure both the plan sponsor and plan member will secure maximum value from the pharmacy benefit.

Medicaid

While mail service has been an active area for government involvement for several years, clearly the area where government and PBMs have the most interaction is with Medicaid and Medicare. It is estimated that Medicaid programs will see the most significant increase in prescription drug expenditures over the next decade. CMS projects that, by 2011, Medicaid will be paying for almost 20 percent of all U.S. prescriptions. To help manage these costs, many states are turning to PBMs.

There are considerable implications for employers as Medicaid coverage grows. Employers can learn valuable lessons from the research conducted and programs implemented by state Medicaid programs. According to a 2004 study by Atlantic Information Services, a leading publisher of healthcare data, managed care PBMs could save some states up to 50 percent in Medicaid costs through strategies such as pharmacy networks, closed formularies and prior authorization.

Before implementation, Medicaid programs are subject to intense scrutiny. In particular, states are spending considerable resources to ensure that formularies, prior authorization and disease management programs provide adequate and fair coverage. Employers seeking new ways to manage costs might consider some of the tactics approved by state Medicaid programs as applicable to their own pharmacy benefit.