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Updated 11:00 AM April 19, 2004



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U-M prescription drug plan saves money, slows premium increases

Despite Department of Health and Human Services projections that prescription drug costs would increase by 13.4 percent in 2003, the rate of increase at U-M was only 2.8 percent, due to the U-M's new prescription drug program. In its first full year of operation, the program produced savings of $8.6 million compared with the projected costs of the former plan.

"This is an extraordinary achievement," says Timothy Slottow, executive vice president and chief financial officer. "We've successfully pioneered an approach that is slowing increases in our drug premiums without sacrificing plan quality. Successes like this help preserve resources for our educational mission."

The consolidation of prescription drug coverage under one plan produced a portion of the savings by allowing the University to set its own premium rates based on projected costs. Providing the same coverage through outside vendors would have cost an estimated $3 million more in 2003.

The plan design was effective at producing additional savings through the increased use of generics and more cost-effective brands, the availability of the mail-order pharmacy and an increase in drugs available over-the-counter (OTC). The reduction in total cost of the plan helps mitigate the impact of future premium increases for University and plan participants.

The prescription drug plan, administered by AdvancePCS, was developed by faculty from the Medical School, the Nursing School and the College of Pharmacy, along with U-M benefits experts. The plan uses a single preferred drug list (PDL) rather than lists created by individual HMOs and health plans. A University committee of physicians and pharmacists selects drugs for the PDL based on clinical value and cost effectiveness.

"With a single PDL, medications not previously covered under all medical plans—such as psychiatric drugs and oral contraceptives—are covered for all University plan participants," says Keith Bruhnsen, pharmacy benefit manager. "This allows employees and retirees to choose their medical plan based on more important considerations, like the doctor they prefer."

The simplicity of a single plan brings some additional advantages. "We subscribe to a system called e-Pocrates that allows many physicians to see our PDL right on their palm device so they can choose medications that help our employees get the lowest co-pay for their drugs," says Dawn Parsons, clinical pharmacist in the Benefits Office. "The system also links to instant information about drug interactions, recommended dosages and side effects."

Use of generic drugs also reduces the overall cost of a prescription drug plan and reduces participant co-pays. Generic drugs average about 75 percent less than brand-name counterparts. In 2003, fewer than 10 percent of prescriptions for plan participants were for non-preferred drugs at the highest co-payment tier.

"So far in 2004, the use of generics continues to grow. There has been an increase of 1.8 percent in generic prescriptions, which now account for more than 48 percent of all prescriptions dispensed to members so far this year. If that snapshot holds true for the rest of the year, U-M plan participants could save an additional $116,000 in out-of-pocket costs this year by choosing generics," Bruhnsen says.

What you can do to save

• Use generic drugs for lowest available co-pay
• Open a health care flexible spending account
• Ask your health care provider to select medications from the preferred drug list
• Consider the mail order pharmacy for longer-term supplies of ongoing drug treatments at reduced co-pays

For more on the prescription drug plan, visit

The U.S. Food and Drug Administration approved the switch of several medications from prescription to OTC sale in 2003, including Claritin (loratadine) and Prilosec (omeprazole). Costs generally decrease dramatically during the first year the drug becomes OTC, often ending up at a price below the prescription drug co-pay, Bruhnsen says. And new Internal Revenue Service rules allow employees to be reimbursed for many OTC drugs from pre-tax dollars contributed to a Health Care Flexible Spending Account.

"A seemingly small change, like a single medication becoming available over the counter, can have a dramatic impact on a plan with as many participants as ours," Bruhnsen says.

"We are thankful to the members of the U-M health community who helped develop the plan," says Marty Eichstadt, director of benefits. "Collaborating with the University's Medical School and College of Pharmacy faculty to maintain our preferred drug list means we will be able to respond quickly and effectively as the needs of our community change and as new drugs come into the market. We are fortunate to have world-class health experts available to the Benefits Office."

More on the University's prescription drug plan and Flexible Spending Accounts can be found at

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