The University Record, July 22, 2002

Consolidated drug plan begins in January

By Kate Kellogg
Benefits Office

Consistency, efficiency, cost savings and higher overall quality are among the reasons for establishing a single prescription drug plan for all U-M employees.

Faculty, staff and retirees have historically received prescription drug coverage through whichever of the eight University medical plans they have selected. Beginning in January 2003, a single pharmacy benefit manager, AdvancePCS, will manage all pharmacy benefits with University oversight. This “carve-out” structure separates management of prescription drug benefits from the overall health care providers.

Why carve out pharmacy benefits? The new plan will maintain pharmacy coverage while providing opportunities to consider new pharmacy management programs. The plan coordinates prescription drug coverage with the medical care benefit for all health plans. Improvements in pharmacy management are expected to hold member cost sharing to a minimum.

The University’s Prescription Drug Work Group 2002 spent seven months last year examining options that would improve coverage while controlling the escalating cost of prescription drugs. The work group recommended consolidating pharmacy purchasing under a single PBM as the best way to preserve the integrity of the prescription drug benefit and manage costs.

Those costs have risen 15 to 20 percent in recent years. Drug expenditures for U-M employees are projected to total $45 million for 2003. Actuaries from Deloitte and Touche estimate that the new plan will save about $1.6 million in 2003. Savings will result from reduced administrative costs, larger discounts and increased rebates from pharmaceutical manufacturers.

“In the past, we didn’t know what pharmacy discounts were being negotiated by each health plan,” said Keith Bruhnsen, assistant director of the Benefits Office. “With all 70,000 members and dependents now in one prescription drug plan, the greater volume of drugs we use will result in more competitive discounts.”

Increased volume also will give the University the purchasing leverage it needs to obtain good rebates from pharmaceutical manufacturers. The rebate advantage is linked to the new plan’s use of a single Preferred Drug List (PDL).

Under the current plan, employees’ prescription drugs are managed by a variety of pharmacy benefit managers, who don’t all use the same PDL. Consequently, physicians may prescribe various drugs within a therapeutic class (such as gastrointestinal drugs), explained Patrick McKercher, director of the College of Pharmacy Center for Medication, Use, Policy and Economics.

“We hope the use of a single, standard PDL will encourage physicians to prescribe the preferred drugs within each class. That greater volume of use will make it easier to negotiate rebates on preferred drugs.”

He added that employees will still have access to the same prescription drugs currently available but at different co-pay levels. AdvancePCS will provide new pharmacy ID cards and packets of information about the plan to all members in December 2002.

The newly formed Pharmaceutical Benefit Advisory Committee (PBAC) will develop the University PDL and take an advisory role in its administration. The Prescription Drug Program Oversight Committee, of which Bruhnsen and McKercher are members, will conduct the final review of the PDL and recommend changes as needed.

One of the most compelling reasons for consolidating employees’ prescription drug benefits is to ensure a consistent, well-managed benefit and scope of coverage for all members. The new pharmacy benefit will operate under uniform rules with consistent interventions as necessary.

For example, psychiatric drugs and oral contraceptives and devices—currently not covered under all health plans—will be covered for all participants, as of 2003. Catastrophic coverage is another new feature that applies to all participants. The plan sets an annual out-of-pocket maximum on participant co-pays and covers all prescription drugs beyond that limit. The out-of-pocket maximum is $2,500 per individual and $4,000 per family per year.

“A common prescription drug benefit will improve communications and eliminate much of the confusion among physicians and employees as to what drugs are covered,” said James Stevenson, director of pharmacy for the U-M Hospital and a member of the Oversight Committee and PBAC. “It also will help us better monitor compliance with the PDL within therapeutic categories.”

Bruhnsen noted that the new system will provide the opportunity to analyze the University’s experience with prescription drugs. Knowing which drugs are most frequently prescribed and which may be overused or underused will help the U-M recommend improvements in drug therapy management.

“Pharmacy data will be sent from AdvancePCS back to health plans about specific drug utilization, and they can use that information to provide quality health care,” Bruhnsen said. He emphasized that such data reporting will maintain maximum privacy of participants; reports on prescription drug use and claims will not identify individuals. The University is committed to providing protection of patient confidentiality regarding all pharmacy information. The beauty of a consolidated plan is that it allows the University to capitalize on its clinical resources and exercise best practices it has developed through much work and effort, said McKercher. “The new plan gives the University a better sense of accountability and the ability to monitor all aspects of the prescription drug benefit.”