The University Record, December 3, 2001

FACULTY PERSPECTIVES

Prescription Drug Coverage: Who Gets the Benefit?

Editor’s Note: The Faculty Perspectives Page is an outlet for faculty expression provided by the Senate Assembly. Any member of the University Senate is eligible to submit a Faculty Perspectives essay. Submissions are subject to review by the Committee. Essay lengths are restricted to one full printed page in The University Record, or about 1,500 words.

Riebesell’s statement was developed at the request of the Senate Advisory Committee on University Affairs (SACUA) in an effort to articulate issues and faculty concerns about proposed changes in the pharmacy benefits components of health care programs. It was endorsed by SACUA at its Oct. 22 meeting.

By John Riebesell
Associate professor of natural resources, U-M Dearborn, and SACUA member

In September 2000, provost Cantor and executive vice president Kasdin formed a Prescription Drug Work Group to identify a broad spectrum of solutions that will balance patient needs with the escalating cost to the University of providing prescription drug coverage in University health plans. The Rx 2002 Work Group’s report was completed in April, and the executive officers will act on its recommendations shortly.

The proposals favored by the Rx 2002 Work Group and the administration will have the following impacts on faculty and staff members:

  • Prescription co-payments in the HMO plans will change from the current $7 generic/$14 non-generic structure. Under the middle alternative of three plan design options, the co-pays will be $7 for generic drugs; $14 for drugs on a University-approved formulary list; $24 for single-source drugs not on the formulary list and when a physician directs that a non-generic, non-formulary drug be dispensed; and $7 plus the difference between the generic and non-generic price when a patient requests a non-formulary brand-name drug in place of its generic equivalent. This change is projected to save the University administration $1.62 million (43 percent of total projected savings) during the first year.

  • The University will no longer provide HMO prescription drug coverage for employees who receive separate University-funded Blue Cross-Blue Shield (BCBS) drug coverage under union contracts. This change is incorporated in the 2002 benefit program, and it is projected to save $1.35 million (36 percent of total savings) in the first year.

  • Catastrophic coverage will be added to the HMO drug plans for active employees, so that each covered individual will pay no more than $1000 out-of-pocket for prescription drugs during a single year. The $1000 cap is per individual; not per family. The Rx 2002 report does not extend this benefit to retired employees, but SACUA has recommended that an out-of-pocket maximum (perhaps with a $2000 or $3000 limit) be added to the retiree plans as well.

  • The various prescription drug plans will be standardized, so that all employees will have similar coverage. There are several differences in the current plans. For example, M-Care and HAP cover oral contraceptives, while Care Choices and BCBS/United of Omaha do not. M-Care, Care Choices, and HAP include psychiatric drugs, which are not covered for dependents and retirees under BCBS/United of Omaha. It will cost $689,000 to upgrade the Care Choices and BCBS/United of Omaha coverage during the first year.

  • The University will self-fund its prescription drug plans. This will circumvent State law that limits HMO co-pays to 50 percent of actual drug cost. Currently, the co-pay on an $8 generic drug is limited to $4. With self-funding, the regular $7 co-pay will be charged, but the co-pay will never exceed the cost of the drug. Projected savings are $818,000 including $548,000 from increased co-pays during the first year.

    Faculty governance action

    Senate Assembly, SACUA, the Committee on the Economic Status of the Faculty and the Financial Affairs Advisory Committee have devoted considerable time to examination and discussion of the Rx 2002 report and recommendations. SACUA has asked Vice President Kasdin to consider the following options:

  • Do not charge higher (brand-name) co-pays when generic equivalents are not available or when a physician specifies that a brand-name drug be dispensed. It is important to understand that the term “generic” applies to drugs in a similar chemical family, which are not necessarily chemically identical to the brand-name product. Professor Charles Koopmann of SACUA has cited several reasons why brand-name drugs may be more effective for pediatric patients. For example, a non-generic drug may taste better; or it may be available in once-a-day doses, while its generic substitute requires three-times-a-day administration. It is also potentially inequitable to provide a lower level of prescription drug support to patients whose medical problems cannot be treated with generic drugs.

  • Include a cap on annual out-of-pocket expenditures in all plans, including retiree plans.

  • Provide an array of plans sufficient to accommodate employees, dependents, and retirees who work, travel and live outside of the Ann Arbor area.

  • Preserve reasonable cost choices.

  • Provide opportunities for continuous involvement by elected faculty governance during the development of the final plan(s).

    Some concerns and ideas

    I have several concerns and unanswered questions about the prescription drug proposals.

  • To what extent do the projected “savings” merely shift prescription drug expenditures to staff members?

    The Rx 2002 report indicates that the January 2001 co-pay increase ($5 to $7/$14 for staff members with HMO coverage) has shifted $2 million to member costs. The co-pay shift is the largest component in a 50 percent member-cost increase ($6.6 million/year to $9.9 million/year) that has boosted the out-of-pocket proportion of prescription drug costs borne by staff members from 17.7 percent to 22.1 percent.

    I am concerned that the current proposals may potentially shift another $2.17 million ($1.62 million from changes in co-pay structure and $548,000 from self-funding) to staff members and retirees. If the changes become effective in 2003 (it is too late to implement them in 2002), they could cause a total increase of $5.47 million (83 percent) over three years—considerably more than the projected percentage increase in the institutional budget share of prescription drug coverage.

    Some of the $2.17 million/year in Benefits Office savings are projected to come from behavior modification. Patients will be less likely to demand heavily advertised brand-name drugs if the co-pay is $50 instead of $14, and HMOs will encourage their physicians to prescribe generic and formulary drugs in place of brand-name drugs. If these behavioral changes materialize, the amount shifted to staff members and retirees could be less than $2.17 million/year. However, the Work Group report does not identify any such behavioral savings from this year’s co-pay increase: the entire $2 million associated with the co-pay increase is shifted from the University Benefits Office to member out-of-pocket costs.

  • Will projected savings materialize?

    The Benefits Office has already learned that one of the recommendations in the Rx 2002 report is unworkable. The report projects that $562,000 could be saved annually by limiting BCBS/United of Omaha reimbursement to 80 percent of the discount price for prescription drugs. BCBS members who fail to use their discount cards currently receive 80 percent of the full price. United of Omaha has informed the Benefits Office that it cannot administer this option.

    Other projected savings may also fail to materialize:

    The projected $1.35 million annual savings from elimination of duplicate coverage may be vaporous. Unionized employees currently collect benefits from only one of the vendors that provide duplicate coverage. The cost of those benefits will not decrease when unionized employees lose M-Care drug coverage in 2002. M-Care currently collects premiums for the duplicate coverage but does not provide benefits; it might therefore increase its rates for other U-M participants in order to make up this $1.35 million loss in income.

    The Rx 2002 report projects behavioral modification savings from the increased use of generic and formulary drugs. If HMOs already require that generic drugs be substituted whenever they are available and medically acceptable, there may be little opportunity for additional savings from generic drugs. The formulary drug savings are also problematic: Will a physician who sees only one or two U-M employees a week remember which drugs are on the U-M formulary list? If pharmacies are asked to substitute formulary drugs when they fill prescriptions, will they be willing to absorb the administrative costs associated with monitoring the U-M formulary list and tracking customers covered by

    U-M health plans?

    The Committee on the Economic Status of the Faculty has expressed concerns about a proposal to replace the current HMO prescription drug plans, which are operated by pharmacy benefit managers hired by each HMO, with a single plan operated by a University-appointed pharmacy benefit manager. The Rx 2002 report predicts that the University will be able to leverage lower prices for pharmaceuticals if it combines the 15,255 enrollees not currently in M-Care with M-Care’s 155,914 members. However, the resulting group will be smaller than Health Alliance Plan’s 509,613 members. My guess is that it would be cheaper for Health Alliance Plan to manage pharmacy benefits for its members. There are additional advantages in having the pharmacy plans managed by the individual HMOs: they are in a better position to monitor and influence the prescription-writing policies of their physicians.

  • Are other savings possible?

    The proposed elimination of duplicate coverage for unionized employees suggests that similar savings might be possible in cases where employed spouses and dependents have duplicate prescription drug coverage from non-University employers. Since other employers use the same vendors as the University, the University might require its vendors to issue a credit when individuals covered by another drug plan draw benefits from a University plan.

    There are a couple of complications with this idea. It assumes that the University offers better prescription drug coverage than other employers, so that it is the provider of choice. If non-U-M employers offer superior coverage, there will be no savings. The U-M premiums would be credited to another employer who demands the same reimbursement arrangement from the vendor. Second, this scheme is a shift instead of a savings. The second vendor currently pockets the duplicated premium—this is what M-Care does when unionized employees use their Blue Cross drug cards instead of their M-Care coverage. If the vendor credits this windfall premium to another employer, rates will be increased to make up the difference.

  • Is sufficient attention being paid to potential disadvantages cited in the Work Group report?

    Self-funding is projected to save $818,000 during the first year, but the Work Group report warns that it may increase the need for reserve funds, that there will be little to no short term financial protection if unexpected/uncontrollable events occur, and that sustained oversight and management will be required. The executive officers should carefully weigh the potential down-side of recommended alternatives as they make decisions about prescription drug benefits.