In the infancy of HMOs, patients went to the pharmacy, paid their $5 co-payments and left with the medications their physicians ordered.
As pharmaceutical benefits and health plans evolved, patients who wanted to keep costs low often were restricted to a list of approved drugs. Today, patients walk into a pharmacy and don't know whether they'll pay $10, $20 or $50 for their prescription. A patient's outlay is determined not so much by which drug works best as by which costs less.
A multitiered payment plan determined by cost is one way health plans are trying to keep in check pharmaceutical expenses, the fastest rising segment of the healthcare business.
Humana officials say they have taken a different approach. Company executives have put prescription drugs into four tiers based on outcomes, not just price. They say Humana views drugs as an opportunity, not just an expense.
"We blew up the notion of drugs and generics," says William Fleming, Humana's vice president of pharmacy and emerging technologies. "It can't just be about drug costs. If someone needs this drug, if it keeps people out of the hospital and the cost shares are . . . so someone can't afford it, we circle back around and look at which of these drugs are reasonable and have good outcomes. Then we move them down in the tier."
The increase in pharmaceutical costs has eased somewhat, says Paul Ginsburg, president of the not-for-profit Center for Studying Health System Change in Washington. But the percentage of the healthcare dollar spent on drugs continues to skyrocket compared to the amount spent on hospital stays or physician office visits.
Prescription drug cost increases of 15% to 20% are a key driver of the expected 15% increase in premiums for 2002, according to Managed Healthcare Market Report.
Those rising costs, coupled with consumer demand for more choice, have health plans searching for ways to turn a profit while keeping employers purchasing their products. Faced with another year of double-digit premium increases, employers are game for approaches to keep costs down, and pharmacy expenses appear to be the logical place to save money.
In their early attempts to control drug costs, many plans began with closed formularies, says Charles Cutler, M.D., chief medical officer for the Washington-based American Association of Health Plans. Enrollees who wanted or needed medication outside the list were left to foot the bill themselves, leaving consumers angry and employers weary of hearing employees grumble.
Three-tiered pharmacy benefit plans appeared in the mid-1990s, Ginsburg says. In the decade just past, plans and employers leapt at the chance to keep costs down while providing consumers with choice. Compared with the alternative--jacking up employee premiums--tiers were a much more acceptable cost-sharing method for consumers. In the future, Ginsburg says, he foresees neither a return to closed formularies nor an elimination of prescription benefits altogether, which leaves little alternative to even greater cost-sharing by consumers.
Meanwhile, drug prices continue to soar.
"The cost of prescription drugs is rising faster than any other (sector) of healthcare," Cutler says. "The cost of prescription drugs is equal to the cost for hospital care . . . Some of the drugs may help avoid hospitalization, may help avoid emergency room visits. There's some tradeoff involved, but it's not entirely clear that there's a total offset." Cutler says the net total healthcare cost is still higher even though some drugs help decrease overall healthcare costs.
Humana officials say they are changing their plans to incorporate new thinking about drugs.
"Our strategy is two-fold," Humana's Fleming says: designing benefits and creating empowerment.
But to empower consumers and affect healthcare costs, the company used the three-tiered system as a stepping stone by looking at what worked and what didn't work. So they added a step, making it a four-tiered pharmacy benefit.
"The four-tier design's premise is to continue to engage consumers in the cost of healthcare," Fleming says. "Three-tiered backed us into a corner."
The first lesson was that the three-tiered system didn't change cost trends, he says. Patients didn't like the unpredictable costs of purchasing prescription drugs: If patients wanted a brand-name medication on a higher tier, they had to pay the co-pay plus the difference between the generic and the brand names, he says.
"The (next) thing we learned is that pharmacy kept being viewed as an expense," Fleming says. "We've changed it from being viewed as an expense to being viewed as an opportunity. We focus efforts on safety and efficacy."
Under a three-tier system, he says, "we've not been able to focus the discussion around outcomes."
In crafting its new approach, Humana officials say they look at not only cost but also the efficacy of the drug. If a particular medication is more expensive but has proven to be more effective than a cheaper version, that medication is listed in tier one. The more expensive medications are placed in tiers two and three, but patients won't pay more than their co-payment.
On the fourth tier are injectibles and gene therapy medications. Enrollees pay 25% of the cost of the medication up to a maximum out-of-pocket of $2,500. The thought was that while these medications are expensive, patients who don't receive them because of the high price tag become sick and wind up using more of the healthcare dollar, he says.
Lifestyle medications, such as Viagra and to a certain extent prescription antihistamines, are placed in various tiers, Fleming says.
A lot of people are taking Claritin, and whether they need it or not is often debatable, Fleming says. Humana won't be able to show that more antihistamines will lower healthcare costs, he says. But an employer will see that they have greater productivity because employees either feel better or believe they feel better, he says.
"There's no real tradeoff on the hospital side," he says. "The real payoff is in the workplace side."
That's an outcome employers can see immediately, and it's easier to convince employers to spend the money to cover those prescriptions than expensive cholesterol medications, Fleming says.
Revised cholesterol guidelines issued by the federal government in May indicate about one in five people should be on cholesterol medication, Fleming says. But employers don't see the 10-year payoff in lower heart attack rates by paying for cholesterol medication today.
Categorizing medications isn't the only approach Humana is taking. Company officials decided to empower consumers, giving them information along with their benefits. While enrollees will have the option of choosing brand-name medications, the company will educate them about lower-cost alternatives.
"What we've done . . . is launch a letter-writing campaign," Fleming says.
Every week, company officials go through the computer system to see who purchased one of the more expensive medications, he says. If there is a less-expensive alternative, they send enrollees a letter outlining possible cost-saving options. But they are not telling enrollees they have to purchase the cheaper medication.
To augment that, company officials launched a function on their Web site that provides alternative drug suggestions, he says. "If a patient says 'I don't want to pay $40' . . . they can see what the alternatives are."
In early fall, Humana officials plan to send e-mails to enrollees within hours of purchasing prescriptions. That information will be similar to the letters the company is already sending, Fleming says.
"Humana believes we've got to do something to talk to folks about the two trends in terms of the explosion and consumerism," he says.