Wrestling with ways to keep ballooning pharmacy costs in check, health plans are fast replacing the "Mother may I?" approach to approving prescriptions with new tiered systems in which patients get what they're willing to pay for.
Tiered fee structures, which charge higher copayments for costlier drugs, offer a potential overall solution to the nation's pharmaceutical spending spree: Health plans can offset the often exorbitant cost of many popular drugs, and consumers get greater freedom of choice.
That's a big switch from the yes-or-no approach to covering drugs that health plans took for years. Doctors who wanted to prescribe a medication not on a preapproved list had to call the health plan for permission. This took time, and often the answer was no. Doctors sought to avoid such battles by sticking closely to the so-called formulary.
The tiered system does away with the permission process while giving patients an incentive to stick with cheaper options, as they are charged two or three different levels of copayments based on whether the drug is a generic, a brand name that's got a deal with the HMO or a brand name that's not on the plan's preferred list.
UnitedHealth Group, the country's No. 2 HMO, has moved all of its 14 million members from a traditional formulary into a three-tiered plan with $7, $12 and $25 copayments, says western regional spokesman Don Prial.
"Members don't have to go through a gatekeeper anymore, and doctors don't have to deal with the push and pull of getting a (nonpreferred) drug approved," Prial says. "If (patients) really want to pay extra because they think a certain drug is worth it, that's their choice."
Almost 70% of health plans offered a three-tiered copayment option in 1999, up from 36% in 1998, according to a study by Scott-Levin, a Newtown, Pa.-based drug research firm. Meanwhile, the number of members enrolled in such programs had risen
to 20% last year from 9% in 1998.
The beauty of the tiered approach, according to HMOs, is that it boosts enrollees' awareness that some drugs cost more. "Consumers in our triple-tier plan have the option to get any drug they choose, but they have to take fiscal responsibility for their choices," says Betsy Sell, spokeswoman for Aetna, which offers two- and three-tier plans as well as standard formularies.
Drug spending keeps rising. Indeed, a reality check may be in order. Prescription drug spending rose at a 12% annual rate from 1994 to 1998, more than double the 5.1% rate for total healthcare spending, according to HCFA. Drugs already account for nearly 8%, or about $100 billion, of national healthcare outlays. Some predict that percentage could double in the next decade as new drugs keep coming and direct-to-consumer advertising heightens the public's call for certain drugs.
So far, health plans and employers have borne most of the price hikes. Their drug spending climbed 123% to $40 billion from 1992 to 1997, according to the National Institute for Health Care Management (NIHCM). Consumer out-of-pocket spending during the same period rose only 13% to
$23 billion. Today, the average copayment is $6.63 for generics, $13.94 for preferred drugs and $28.32 for nonpreferred drugs, Scott-Levin found.
"Copays have not kept pace with inflation . . . and that's insulated consumers from the realities of drug pricing," says Susan Brown, director of Deloitte & Touche's Chicago office. "The price differential between tiers has to be significant enough to re-sensitize people. If copays are too modest, they fail to communicate the true cost of the drugs."
But percentage-based tiers are still new, so HMO regulators are evaluating them on a case-by-case basis, which has caused confusion.
California, for example, allows a 50% copayment for Viagra. But when Health Net, one of the state's largest HMOs, tried last year to market a third tier that also charged a 50% copayment on other hot sellers such as the acid-reflux medication Pepcid and the arthritis treatment Celebrex, members cried foul and state regulators vetoed the idea.
"We decided that (the percentage) would in effect penalize people who use those medications," says Julie Stewart, spokeswoman for the California Department of Corporations, which regulates the state's HMOs.
"Under the Knox-Keene Act (enacted in California in 1975, which regulates risk-bearing organizations including HMOs), health plans can't charge so much that it makes the benefit illusory," Stewart says.
Health Net spends an average of $1 million per day on outpatient drugs for its 2.2 million members. Its proposed third tier was a response to increased advertising, says spokeswoman Lisa Kulustian.
Indeed, with TV spots touting the latest brands, patients increasingly ask for drugs by name. According to the NIHCM, the 10 drugs most heavily advertised to consumers in 1998 accounted for $9.3 billion, or 22%, of the total increase in drug spending from 1993 to 1998.
"The idea was to expand member access to popular drugs while addressing the issue of affordability," Kulustian says of Health Net's former percentage-based third tier. "We were trying to strike a balance." The health plan has since filed for approval of a third tier with a fixed $35 copayment.
When name brands are necessary. But fixed copays may be too costly for patients for whom a generic "equivalent" doesn't work or causes severe side effects.
According to Scott-Levin, half of managed-care companies waive the higher copayment when a third-tier drug is deemed medically necessary. But 27% still charge the higher fee, and the remaining 23% said that decision is dependent on the circumstances of the patient's condition.
Pharmacists are most concerned about this practice when it applies to drugs used to treat chronic conditions such as asthma, depression, diabetes or high blood pressure. Chances are the patient and doctor have already done extensive experimentation to determine which brand works best for the patient.
"Different brands often require very different dosages and have very different side effects. For many people, they're not interchangeable," says Susan Winckler, group director of policy and advocacy at the American Pharmaceutical Association, which represents 50,000 pharmacists. HMOs might actually pay more when patients must see their doctors for evaluations of new drugs, she says.
California legislators have responded to concerns with a proposed bill that would shield patients when their health plans rejigger their tiers. Under the measure, plans would only be able to boost a copayment for new enrollees.
Several HMOs oppose such a "grandfather rule," arguing that it counters their efforts to curb drug inflation. While costs for patients would stay the same, drugmakers would remain free to charge higher and higher prices to health plans, points out Beth Mauer, a pharmacist and senior manager at Deloitte & Touche.
"In many cases, states are tying the hands of HMOs that are trying to curtail rising costs," Mauer says. "That's why a good exception process (for medical necessity) is so important."