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University of Michigan 2004 Rx Benefit Innovation Award Problem Identification In the late 1990s, the University of Michigan (U-M) in Ann Arbor, Mich., began to experience 15% to 20% annual increases in prescription drug expenditures for its three HMO plans and 20% to 30% annual increases in its two self-insured, fee-for-service health plans. Between CY2000 and CY2003, U-M’s share of prescription drug cost rose 34%—from $33 to $44 million. The U-M’s multiple health plans provided different prescription drug coverage arrangements, with different drug exclusions, supply or quantity limits, and prior authorization (PA) requirements. The inconsistency often impacted decisions on choosing a health plan. When health plans were approached to provide consistent coverage, reduce drug premiums, and lower annual drug cost trends, U-M found the health plans, especially the indemnity plans, had inconsistent management programs to address cost increases and growing utilization. If HMOs implemented aggressively managed pharmacy plans, they risked potential negative impact from providers and customers, and risked losing membership to competitors. U-M’s self-insured plan allowed paper claim reimbursements for drugs and most participants received no discounts on retail prescription purchases. Each HMO plan had a different Pharmacy Benefit Manager (PBM). The U-M Benefits Office’s attempts to obtain pharmacy data (i.e., drug discounts, administration fees, and utilization data) from its HMOs were unsuccessful. HMOs resisted releasing details of PBM pricing and utilization because they operate in a competitive health care market. Because of long-standing union and HMO contracts, U-M was providing duplicate drug benefit coverage to its union employees. U-M estimated it would reduce its premium payments by $2.5M in the first year if it was able to eliminate the duplicate payments. Target Population U-M’s consolidated drug program serves 32,000 employees and 6,000 retirees. When covered dependents are included, there are 80,000 total covered individuals. Objectives Consolidating drug benefit administration offered U-M several opportunities to: Solution A University task force outlined a vision for a consolidated drug benefit plan where various program administration responsibilities (i.e., plan design, formulary design, physician profiling, disease management) usually performed by the PBM or the health plan—for quality control, medical and disease management, and outcomes measurement—were transferred from the respective health plans to the University’s clinical and pharmacy resources. The greatest gains to be realized were cost containment and quality improvements by developing mechanisms that ensured appropriately managed drug regimens. The “appropriate” use of drugs (i.e., the right drug at the right amount at the right time for a patient) would guide and support drug selection by physicians, pharmacists, and patients. Desired financial incentives would be created for pharmacists and members to ensure appropriate utilization of drugs, improve member awareness of costs, and help members become better consumers by using the “best value” medications (not necessarily the cheapest), thereby enhancing quality. Preferred Drug List (PDL) management was strongly aligned with the U-M Health System’s Ambulatory Formulary PDL, ensuring consistent messages to prescribers, and, at times, foregoing rebates when anticipating drug-marketing changes. In the spring of 2002, U-M released its drug Request for Proposal to the PBM market requesting bids that would provide maximum flexibility and customization of plan design and formulary. U-M’s proposed plan design changes included:
A national pharmacy consulting team was hired to review financial and qualitative review of PBM proposals, provide savings projections, and develop plan premium rates. The estimated first-year reduction in drug expenditures was projected at more than $3 million based on the proposed plan changes. Impact and Results Multiple plan design features contributed to significant financial savings for U-M in the first year of operations. These included three-tier co-pay design, mail order savings, a high percentage of rejections for selected PA drugs, shifting to single daily dosing through the dose optimization program, an increase in generic dispensing rate, alignment of prescribing with clinical guidelines though education about the U-M PDL preferred products, and less stockpiling of drugs by members because of clear quantity and supply limits. In the first year of operations, the savings related to benefit plan consolidation and self-insurance exceeded $8.6 million: $5.6 million in premiums collected and a one-time $3 million cost avoidance savings by self-insuring and reducing premium increases planned by managed care vendors. In addition, total drug cost for 2003 was $53.3 million, an increase of only 2.8% over 2002 drug cost. U-M achieved this low increase in drug benefit cost through the following:
U-M sees several future opportunities in pharmacy benefit plan management. These include potential in-sourcing of manufacturer rebate contracting, increasing higher formulary by utilization of e-formulary and e-prescribing, more drug exclusions as over-the-counter drug approvals increase, development of more integrated case management with disease management programs aimed at specific drug classes, and Coordination of Benefits (COB) opportunities in relation to the new federal Medicare drug plan. For more information about a drug carve out, contact Keith Bruhnsen at keithb@bf.U-Mich.edu.
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Copyright 2007 Pharmacy Benefit Management Institute, LP
