Employee Benefits

Why is LTC A Pressing Issue?

2012-05-30T08:08:00.000-07:00

Long-term care is an important concern for several reasons:

The demographics of the baby boom lead to projections of a population explosion in the higher age groups. In 2000, approximately 34 million Americans, 12.6 percent of the population, were older than age 65. By 2030, that age group will have grown to over 70 million, more than 20 percent of the population. Further, the population at greatest risk of needing LTC, those 85 years old and older, is expected to grow in number from 4.3 million in 2000 to between 8.9 and 10.1 million in 2030.
Medical advances, ironically, have helped to convert many critical short-term health problems into long-term health problems. New techniques and technology save the lives of heart attack and stroke victims, premature babies, and many other people whose diseases or injuries would have been fatal in the past. Yet, while modern medicine prevents death, it often cannot restore health. Particularly for older people, life-saving medical treatment often is the threshold to months or years of custodial care. And even without a major health "event," some people's health and strength deteriorate slowly and steadily. Those who think the need for long-term care "won't happen to me" stand on shaky ground; for example, at age 65, there is a 40 percent probability of staying in a nursing home sometime before death. More will need some type of support at home.
Changes in family structure have made it less likely that long-term care can be provided at home by the patient's family. Few people enjoy the built-in support system of a large, local extended family to provide help with occasional nonmedical affairs, such as financial paperwork, meal preparation, or transportation, much less physical care or 24-hour supervision. And now, women, who were the traditional informal caregivers, regularly work outside the home for pay. Women who work outside the home, some 59.5 percent of women age 16 and over in 2003, cannot necessarily be counted on to care for their ailing parents, in-laws or husbands. Even if family members and friends are able to provide LTC, there are other costs to consider such as personal stress, the need to reduce or terminate employment, and out-of-pocket expenses for travel, supplies and babysitting for other dependents.

The high charges for LTC services are surprising, if not shocking. Long-term care costs vary considerably depending on location, and are beyond the means of many Americans. (See Table 1.)

Table 13–1: Privately Paid LTC Costs in Selected U.S. Cities, Mid-2004
	Annual Cost of Nursing Home Confinement (semi-private rooms)	Annual Cost of Five Four-Hour Home Health Aid Visits/Week (at average hourly rate)
Atlanta, GA	$49,275	$17,680
Chicago, IL	$45,260	$16,640
Dallas/Fort Worth, TX	$39,785	$16,640
Milwaukee, WI	$63,510	$22,880
New York City, NY	$109,865	$15,600
Philadelphia, PA	$76,650	$18,720
Phoenix, AZ	$51,465	$19,760
San Francisco, CA	$74,825	$21,840
Seattle, WA	$69,715	$21,840
Based on daily and hourly data from the MetLife Market Survey of Nursing Home and Home Care Costs, September 2004.

Existing medical coverage is inadequate to pay for long-term care. Government and private medical insurance programs cover nursing home care and home health care, but generally for limited time periods or as a response to an acute medical problem. Such benefits generally are capped. For example, Medicare covers up to 100 days in a skilled nursing facility per "benefit period" (effectively a service interval involving an illness or injury requiring hospitalization) and in very restricted circumstances, and Medicaid is only available to individuals below certain income thresholds and those who have "spent down their assets." Other coverages such as long-term disability insurance and pension plans are typically not structured to pay the significant out-of-pocket costs associated with purchased LTC services. Since most insurance plans provide little or no coverage for LTC expenses while traditional sources of LTC caregiving are contracting, individuals and families are exposed to a potentially huge financial risk.
Low public awareness about the risks and costs of long-term care has been an ongoing concern for policymakers and industry experts. Unless someone's family or friends have had to address a long-term care situation, he or she is unlikely to recognize the amount of physical and emotional attention required, may underestimate actual LTC charges, and may believe that Medicare, Medigap or other insurance policies will cover the full cost of long-term care. In the past, surveys found that about half the population had the misconception that traditional insurance products would cover this care although this is now changing.
Government help is limited. The 2002 offering by the federal government of a private, participant-paid group LTC insurance (LTCI) plan for its workforce, retirees and their families sent the message that government would not provide broad, publicly financed LTCI for all citizens. And it is unlikely that this will change in the foreseeable future because of the high cost of such programs.

Since most people cannot save enough money to cover ongoing LTC costs, private LTC insurance may serve as the only realistic option for people to pay for personal care and certain health care services if and when they are needed. More Americans are recognizing this need—from 1987 through 2001, almost 8.3 million LTC insurance policies had been sold.^[7] And at the end of 2003, over six million persons retained LTC coverage, almost one-third of whom were in group (typically employer-sponsored) plans.

Future Developments in Behavioral Health Care

2012-05-25T04:35:00.000-07:00

Recent survey results indicate that as many as 24 million Americans may need mental health treatment but are not getting it. Some of the reasons for this are cost, lack of insurance, stigma, and not understanding what behavioral insurance covers. Although the stigma associated with mental health care is fading, some individuals are still concerned that employers, coworkers, or friends will think less of them for seeing a therapist. Others are skeptical that therapy is effective and actually solves problems. And some people simply cannot find, or do not know how to find a therapist who works well with them.

The costs for not accessing needed behavioral treatment are many. Depression can complicate a patient's recovery from a major illness. Patients with chronic or serious mental illnesses who do not have appropriate outpatient care can bounce in and out of inpatient facilities, while families and patients suffer from poor outcomes and mounting insurance bills. Finally, lack of care can lead to the most serious outcome possible: death of the patient through suicide.

Broadening Care Access

Radical new approaches to reaching those in need of mental health care are needed—and fortunately, are either in development or in use already. They include:

Proactive disease management programs that operate on several fronts: working with employers to reach out to employees through the workplace, and with health plans to identify patients taking psychotropic medications who need additional support; and reaching out to patients with other diseases like diabetes or cardiac conditions who may also suffer from mental illness.
Outreach to people who want treatment but do not know how to access it or to find a therapist who is best for them. One's choice of a psychotherapist is primarily impacted by a physician's recommendation, the health plan network, and the location of the clinician's office. Offering information about clinicians online, even identifying those within a network with specializations or a track record of producing the best outcomes, can help people make more informed choices. Just as health plans publish physician "report cards" to educate consumers, so psychotherapist report cards might help people choose the best therapist for their needs.
New ways of delivering therapy that are more accessible and cost effective. For example, patients with mild to moderate levels of distress can benefit from a "coach" who offers counseling over the telephone or via the Internet. The Internet can also play an important role in promoting compliance with treatment, and augment other treatment offerings.

Productivity

One of the challenges of managed behavioral healthcare organizations is the ability to demonstrate to purchasers that the benefits they deliver result in increased workplace productivity. Studies of this type are usually collaborative efforts between an employer group and MBHO, and results are often skewed by nuances of the individual group. In 2003, PacifiCare Behavioral Health, a leading national managed behavioral health care organization, reported the results of a four-year study of nearly 20,000 of its members in behavioral treatment representing multiple employer groups and health plans across the country. By measuring the degree of work impairment through a patient survey tool administered in clinicians' offices at the beginning and at multiple points during psychotherapy, the MBHO was able to track patient improvement. Five questions on the survey assessed degrees of work impairment. The MBHO found that 31 percent of people accessing behavioral services met criteria for being work impaired—meaning their day-to-day functioning was impaired. After only three weeks of treatment, the percentage of work-impaired patients dropped to 18 percent, and after nine weeks, it dropped to 15 percent. Generally, patients who still appear work-impaired after a few months of treatment are those with chronic behavioral health conditions that need more intensive services with careful monitoring and typically are enrolled in a disease management program.

If an employer knew that nearly one-third of its employees accessing its behavioral health benefits were work-impaired, that employer would undoubtedly see treatment as a worthwhile investment if half of those starting treatment work-impaired are able to return to nonimpaired status. U.S. employers report that they suffer $24 billion a year in losses due to absenteeism and presenteeism (working, but not functioning at full capacity) from depression in the workforce, while the cost of substance use disorders is estimated at $100 billion. If these costs can be reduced substantially with treatment, then behavioral health care services would rank as one of the most worthwhile investments an organization's management can make.

Utilization Review Accreditation Commission [URAC]

2012-05-22T00:04:00.000-07:00

URAC was originally incorporated under the name "Utilization Review Accreditation Commission," however that name was shortened to just the acronym "URAC" in 1996 when it began accrediting organizations such as health plans and preferred provider organizations. URAC offers 15 accreditation programs, the most common for MBHOs being Core Accreditation and Health Utilization Management Accreditation. Core Accreditation standards are the foundation of URAC accreditation, and include organizational structure, staff qualifications, training and management, oversight of delegated activities, quality management and consumer protection. URAC Health Utilization Management Accreditation standards ensure that MBHO follow clinically sound UM processes, respect patients' and providers' rights, maintain confidentiality, give payers reasonable guidelines, and are compatible with the 2002 U.S. Department of Labor claims regulations.

Joint Commission on Accreditations of Healthcare Organizations

The Joint Commission on Accreditations of Healthcare Organizations (JCAHO) originated as the accrediting body for hospitals, but JCAHO has been active in behavioral health care accreditation since 1972. It started offering specialized accreditation services to managed behavioral health plans and integrated delivery systems in 1994. Currently, JCAHO accredits more than 1,600 behavioral health care organizations and more than 25 behavioral health plans/integrated delivery systems. To be eligible for a JCAHO accreditation survey, a behavioral health plan or integrated system must provide for health care services to a defined population of individuals, offer comprehensive and/or specialty services, and have both a centralized, integrated structure and contract with, or manage, actual care delivery sites, which include practitioner offices and/or components that deliver care

Care Management and Cost Control | Managed Behavioral Health

2012-05-19T09:02:00.000-07:00

Care Access

MBHOs traditionally require preauthorization to access treatment. MBHOs generally operate their own customer service centers, and when a member calls for a referral, an intake specialist asks the member a series of questions to establish the reason for the call, assess risk, acuity, specialty needs and member preference. After listening to the caller's concerns and explaining the nature of the caller's benefits, the intake specialist separates routine from urgent and emergency situations. More than 80 percent of incoming calls are generally for routine referrals; industry standards dictate that members receiving routine referrals must be seen by a provider within 10 business days. If a member's needs are urgent, an appointment is arranged within 48 hours, although the more stringent standard of 24 hours is adopted for some contracts. If an individual requires immediate, emergency services (e.g., he or she is suicidal or homicidal), referral is generally made to a hospital or inpatient facility if an immediate appointment is not available with a network practitioner. Most MBHOs employ a dedicated team of licensed crisis care managers, who are specially trained in emergency protocol, active listening, diffusing, and referral. Use of ambulance services and/or police may also be involved in diffusing hostile situations and transferring an individual to psychiatric facilities.

Predictive Modeling and Risk Assessment

High-service utilizers—generally individuals with severe and persistent mental illnesses such as schizophrenia and major recurrent depression—represent a small percentage of overall service users but account for a disproportionate, higher percentage of treatment resources and claims costs. MBHOs analyze claims and treatment data to identify high-risk members who have a history of high utilization and repeated hospitalizations.

Predictive modeling is the ability to forecast who those high-risk, potentially high-cost members are, and intervene in time to avoid preventable treatment costs. The degree of risk can be identified and members stratified accordingly, so care management resources can be applied most effectively and efficiently. MBHO care management resources tend to be in short supply, so it pays to use those limited resources to deliver the best clinical and economic value to both the member and the payer.

Performance Measurement

MBHOs typically measure provider network performance through a number of variables that include accessibility, utilization, and adequacy and appropriateness of treatment. Traditionally these performance data are collected after-the-fact through provider assessment reports and claims data. Today, however, some MBHOs are collecting member-reported and provider-reported data earlier on in the process to guide timely treatment interventions that can avert unnecessary emergency hospitalizations and contribute to more effective treatment outcomes. Profiling provider performance on clinical outcomes is an important step forward in the performance measurement arena.

Case Management

Case management is a term that refers to oversight of an MBHO member's treatment to ensure it is appropriate. Case managers employed by the MBHO coordinate the member's care in collaboration with treating providers, facilities and community resources, and often work with members and their families to ensure they continue to receive the appropriate level of care for their fluctuating needs. This ensures a cost-effective course of treatment in an appropriate setting. Potentially high service utilizers are identified so case managers can focus on those individuals with the greatest needs to ensure they continually receive appropriate treatment levels. Most MBHOs use an escalating series of models or protocols based on the patient's level of acuity and chronicity, which determine how frequently case managers monitor treatment. Case management goals are crisis stabilization, prevention of long-term disability, and reduced reliance on hospital care by facilitating patient engagement in outpatient treatment and community resources.

Utilization Review and Management

Utilization review is an activity that determines the medical necessity and appropriateness of treatment being provided, and is performed at various times including at the point of care (prospective review), during care (con-current review) and after treatment (retrospective review). While MBHOs generally perform this function, self-funded employers and health plans may purchase this service from stand-alone utilization review organizations. MBHOs utilize written criteria based on clinical evidence to guide the evaluation of the medical necessity, appropriateness, and efficiency of mental health and chemical dependency services.

Outcomes Management

In recent years, MBHOs have developed tools to assess treatment effectiveness and quantify outcomes, bringing technology, data, and increased objectivity to a field once dominated by subjective assessment. The measurement of outcomes concurrent with the treatment process is the most powerful approach to outcomes management because feedback to clinicians can shape care as it is being delivered. The objectives of outcomes management are to identify risks early so treatment interventions contribute to more positive outcomes, as well as prevent emergencies and unnecessary hospitalizations.

Coordination of Care

Behavioral disorders often coexist with each other (e.g., depression and substance abuse), and with medical disorders (e.g., depression and chronic heart disease). An individual may be seeing his or her primary care doctor for treatment of a physical disorder and a behavioral specialist for treatment of a mental disorder. Coordination of medical and behavioral health care services results in improved treatment outcomes for patients. When coordination of care does not take place, there are increased risks such as repeated or unnecessary testing and adverse drug reactions. A consumer in today's complex health care environment is faced with a mind-boggling array of organizations, programs, services, and providers, each of which can play a vital role in his or her care and successful recovery. Patients benefit from an interconnected series of care coordination protocols between behavioral health specialists, primary care/medical doctors, medical plans, MBHOs, pharmacy benefit managers and community affiliates.

Health care accrediting and regulatory bodies are pressing the managed care industry to integrate behavioral care into medical delivery systems. Even though progress has been made, much work is needed to create a truly integrated health care system.

Depression Disease Management Programs

Depression is a mental illness that often goes unnoticed, and it co-occurs with many physical illnesses such as diabetes and heart disease. It is increasingly a focus of disease management initiatives because of its chronic nature and large economic impact. MBHO depression disease management programs support the clinician–patient relationship and plan of care, and emphasize prevention of disease-related exacerbations and complications using evidence-based guidelines and patient empowerment tools. These programs require coordination among health plans, physicians, pharmacists, and patients. Disease management can improve patient outcomes and quality of life while potentially reducing overall health care costs.

Substance Abuse Relapse Programs

Addiction to alcohol and other drugs is a chronic condition, characterized by relapses. Therefore, the prevention of relapse is one of the critical elements in successful treatment. Standard chemical dependency treatment was once a 28-day inpatient treatment program. Since detoxification on an outpatient basis is more often recommended today than in the 1980s, only persons with severe withdrawal and other medical complications now require hospitalization (IOM, 1990a). Most substance abuse treatment experts today consider intensive outpatient treatment more effective for most patients in treating chemical dependency. Outpatient programs encourage individuals to remain sober while confronting their day-to-day living situations. In addition, most MBHOs today offer after-care programs to their members who complete a course of chemical dependency treatment. The programs are aimed at preventing relapse and often include telephonic support and self-help tools.

Behavioral Provider Payment Arrangements

2012-05-15T09:00:00.000-07:00

Fee-for-Service (FFS)

The most widely used payment arrangement today is fee-for-service. A fee-for-service arrangement means that there is payment for individual services at an established contract rate which is often negotiated and discounted based on the promise of a large volume of services. The length and intensity of behavioral services are managed by an MBHO through various utilization and quality control mechanisms.

Capitation

Capitation is a fixed payment, usually calculated on a per-member per-month basis, for the delivery of a defined range of behavioral services to a defined member population. Financial risk is assumed by the provider and the provider's profit is contingent on expending less money on caring for the capitated population than is received in capitation fees. Organized group practitioners are more likely to handle capitation arrangements than are solo practitioners.

Per Diem and Case Rates

The most common payment arrangements for facilities and organized programs are per diem and case rates. A per diem rate is a negotiated and contracted daily rate for all services provided while a patient is in an inpatient program. A case rate, essentially a capitated arrangement for individual cases, is no longer common except in chemical dependency treatment, where an MBHO may contract with a treatment facility or program to pay a flat fee for the treatment episode.

Behavioral Health Providers

2012-05-12T07:27:00.000-07:00

The Specialty Network

A behavioral specialty network must cover a wide range of behavioral treatment needs and levels of care. A typical behavioral health specialty network includes individual (solo) practitioners and multispecialty group practices consisting of clinical psychologists (PhDs, PsyDs, EdDs), social workers (LCSWs, LISWs, ACSWs, MSWs, CISWs), masters-level therapists (MPSYs, MFTs, MFCCs, LMFTs, LPCs), psychiatric nurses (ANRPs, RNs), and psychiatrists. A network may also include medical doctors who specialize in addictionology, and developmental behavioral pediatricians (DBPs) to improve access for children with special needs.

In addition to behavioral specialists, the network includes inpatient facilities and programs that accommodate the broad spectrum of treatment needs. Acute inpatient facilities are designated for the most acute treatment needs, meaning individuals who are unable to care for themselves in some way and may be suicidal or homicidal. Partial hospital programs (sometimes called day treatment) offer intensive treatment during the day, but patients return home overnight. Finally, intensive outpatient programs are designed for patients who need more intensive treatment than weekly outpatient therapy provides, but they require fewer hours each day than partial or day facilities provide. Each program or facility may specialize in a certain age group (adult, geriatric, adolescent, child), while some programs focus on mental illnesses only, others on chemical dependency, and a few specialize in co-occurring disorders. MBHOs employ specific criteria to authorize facility-based care and treatment programs for their members, and licensed care managers provide oversight to ensure treatment plans and lengths of stay are appropriate.

Provider Qualification: The Credentialing Process

MBHOs perform primary source verification of practitioners' credentials before they are accepted to practice in their network and serve their members. Areas of scrutiny include investigation into a provider's education, board certification, background and work history, liability insurance and malpractice coverage, practice information (addresses/hours/facility description), population, language and treatment specialties, and hospital admitting privileges. MBHOs conduct recredentialing—typically every two to three years—to ensure that providers maintain quality standards.

Meeting Group Needs: Customized Networks

MBHOs often custom-build behavioral provider networks to meet a group's diverse geographic, cultural, language and specialty needs, as well as member preferences. Standards for member access and availability to services are designed to ensure that members have a choice of providers—outpatient practitioners, inpatient facilities and specialized treatment programs—across the continuum of care, within an acceptable travel distance, and with appropriate clinical subspecialties. Most MBHOs forge alliances with community-based mental health and substance abuse treatment providers to provide both covered services and as referral sources for noncovered services, and they develop these linkages based on the particular needs of the membership being served. Rural areas often have a limited number and diversity of practitioners and facilities. Consequently, Medicaid-supported community mental health centers often dominate as the de facto service provider for a wide range of treatment needs. To increase access to treatment in rural areas, MBHOs may at times work with Medicaid-supported providers to establish these centers as referral options for their members. In addition, MBHOs are beginning to consider telephonic or web based psychiatry to serve rural populations that do not have access to local professionals.

How Behavioral Health Benefits Work Together

2012-05-08T05:55:00.000-07:00

An effective behavioral health program should include an integrated mental health/chemical dependency benefit that includes inpatient and outpatient services as well as an EAP. This combination of relatively low-cost benefits provides a "safety net" for the wide range of behavioral disorders suffered by a worker population and its dependents. But a behavioral program's effectiveness relies on (1) employee and employer awareness of the program's services and value, (2) appropriate use of the benefits, and (3) how well the behavioral vendor and its network providers prevent and manage costly disorders.

Even when people access their behavioral benefits by calling for a referral, the "presenting symptom"—such as the need for divorce counseling—is often the tip of the iceberg.

A typical example is "Jim"—recently divorced, he is having excessive difficulty adjusting to the situation. Jim calls his MBHO and is asked a series of questions to ensure he receives a referral to appropriate services. Jim is referred to a specialist in marriage and family therapy (MFT). After an initial assessment the therapist determines that his patient is experiencing adjustment disorder with depressed mood. As therapy progresses, additional factors come to light. The therapist finds out that the primary reason for the marital breakup was financial—apparently Jim had been—and still is—abusing cocaine and depleting the couple's bank account to support his habit. The therapist calls the MBHO, and the licensed professional who takes the call refers Jim into a chemical dependency intensive outpatient treatment program. The MBHO case manager also recommends Jim use his EAP benefit for financial counseling. Fortunately Jim had access to a full behavioral program, because each one of his behavioral benefits was essential to a successful recovery.

Even seemingly obvious EAP situations, such as a need for referral to childcare, can turn into a need for more extensive mental health benefits. Often individuals will begin EAP counseling for this type of situation only to run out of visits. Take a look at how this can occur:

"Mary," a production worker in a large manufacturing plant, is divorced and the mother of two children, ages three and six. She is living paycheck to paycheck and works from 7:30 a.m. to 4:30 p.m. Monday through Friday. She has her childcare down to a "science." Before work she drops off her three-year-old at a day care facility near her house, then swings by school to drop off her six-year-old. Mary enjoys a reputation as a loyal, dependable and productive worker. Suddenly Mary begins coming into work late, is frequently absent and the quality of her work slips. When her supervisor confronts her, she breaks down in tears, confessing that her three-year-old has a recurring illness and the day care center will not watch her. She's been relying on the goodwill of neighbors, which is often sporadic. The supervisor recommends that Mary contact her EAP for a referral to a childcare facility that takes sick children, which she does. But her childcare issues are only the tip of the iceberg. Because Mary's an hourly employee and has missed work, her income has fallen and she is behind on her rent and other bills. In addition, the new childcare facility is expensive and adds to her financial problems, compounding her stress. She contacts her EAP, receives a referral to consumer credit counseling and also makes an appointment for emotional counseling because she is deeply concerned about both her daughter and her job. She forges a bond with her counselor and begins making progress.

Basic Eap Types

2012-05-04T04:44:00.000-07:00

EAP

Full-service EAPs offer a pre-determined number of face-to-face counseling visits, generally from three to eight per year (sometimes per incident). EAP counselors are community-based, licensed mental health professionals that contract with an MBHO or stand-alone EAP company. In addition to counseling visits, which are free to EAP members, the full-service EAP includes a full array of work/life referral services (referrals are free, but services incur costs), free information resources (Web-based and hard-copy books, pamphlets, videotapes), as well as management consultation services.

Work Life Benefits

A stepped-down version of the full-service EAP described above includes all EAP services except for the face-to-face counseling visits; these are often replaced with telephonic or Web-based access to EAP counselors.

Advantages of an EAP

EAPs offer easy access to timely problem resolution, and utilization tends to be high because accessing employee assistance carries less stigma than accessing behavioral healthcare benefits. An EAP is also a proven cost-management tool because of its focus on early resolution and its high utilization. Studies have shown that, after implementing an EAP, a plan can expect savings in the form of fewer and less expensive medical claims and reduced mental health and substance abuse costs. The U.S. Department of Labor reports that for every dollar invested in an EAP, employers generally save anywhere from $5 to $16.^[14] Successful EAP implementation relies on maintaining continuing visibility, and so EAP providers generally distribute a stream of regular communications to their EAP members, including onsite posters, newsletters, premium items, special mailings and email blasts.

Behavioral Healthcare Benefit Plan Designs

2012-05-01T03:53:00.000-07:00

Behavioral healthcare benefit plan designs are closely aligned with medical plan designs. As with medical plans, behavioral benefit plans are either network-based (HMO, POS or PPO), or non-network based (indemnity). A large employer or purchasing group often will customize a behavioral healthcare carve-out plan to provide a standard plan design to all members regardless of their medical coverage. This greatly facilitates plan administration, but insurance and utilization review laws, and third-party administrator licenses vary from state to state, complicating behavioral plan administration. To fully understand behavioral health-care benefit plan design, it is essential to first understand funding arrangements.

Fully Insured Arrangements

In a fully insured funding arrangement, often called "full risk" or "risk-based," MBHOs assume the financial risk for providing behavioral services paying the claims submitted by providers for behavioral services rendered. Financial risk falls on the MBHO. When service utilization and corresponding claims costs exceed expected levels, the MBHO absorbs those increased costs. Purchasers pay MBHOs a predetermined, fixed (usually monthly) premium for assuming financial risk for behavioral treatment costs. On average, a monthly premium for a fully insured, full-risk behavioral plan, excluding EAP, ranges between 3 and 6 percent of a medical plan's premium, although rates can vary depending upon a group's utilization experience, number of members, geographic location, benefit plan, and state parity laws. The two primary cost drivers for a fully insured funding arrangement are group utilization rates and unit costs for practitioner and facility care.

A variation of a fully insured funding arrangement is a shared-risk arrangement, in which purchasers agree to assume financial risk for claims payment up to a certain amount. Premiums are based on projected claims costs. If claims exceed a prespecified amount, the MBHO assumes those claims costs or a percentage of those costs. If claims come in below the targeted amount, the balance can be shared by the MBHO and client or refunded to the client. There are many iterations of these shared agreements.

Administrative Services Only

Under an administrative services only (ASO) arrangement, an MBHO, for a fee, will handle medical management, utilization review, benefit and other administrative functions, such as claims payment (although some ASO contracts do not include claims payment). Often called a "self-funded" or "self-insured" arrangement, the purchaser assumes the financial risk for the health care costs for its members. Self-funded plans may also be administered by independent organizations called third party administrators (TPAs), which often provide administrative and medical management services in addition to claims processing. The larger the group, the more likely it is to self-fund because the financial risk is spread across more employees and its budget is large enough to absorb the risk. Self-funded groups typically have stop-loss insurance, which protects them from catastrophic losses.

A key advantage of an ASO arrangement is that employers can offer the same benefit to employees working in different states. Because ERISA exempts self-funded health plans from compliance with state laws and regulations, employers that self-fund can avoid individual state regulations such as diverse state mental health parity laws. Self-funded employers may also be able to save money because they can limit the risk pool to their own employees, avoid state taxes on insurance company premium revenues, and have complete control over benefit packages. In addition, some employers may self-fund to access claims data, allowing them to understand the true costs of their health care plans and tailor their plans accordingly. Figure 1 outlines benefit plan design and funding arrangement options.

Benefit Plan Design	Funding Arrangement
Network Providers (HMO, PPO, POS)	Fully Insured Shared-risk
Non-network Providers (Indemnity)	Administrative Services Only (ASO) Network Management Claims Payment

Figure 1: Behavioral Health Care Benefit Plan Funding Arrangements

Sample Managed Behavioral Healthcare Benefit Plan Design

Figure shows an example of a managed behavioral healthcare combined HMO/POS plan design that complies with California's mental health parity legislation.

Services	HMO	POS^[*]
		In-Network	Out-of-Network
Mental Health
Inpatient deductible	None	None	N/A
Inpatient per admission fee	None	None	N/A
Inpatient treatment annual maximum benefit including partial and day treatment	Unlimited days at 100% based on medical necessity	Maximum of 30 days (combined with chemical dependency)	Not covered
Outpatient treatment	30 visits at $0 copayment	40 visits (combined with out-of network) at $0 copayment	40 visits (combined with in-network) per calendar year 50% of UCR up to $40 per visit
Chemical Dependency/Substance Abuse
Inpatient and outpatient (includes detox)	$25,000 per calendar year	Maximum of 30 days (combined with mental health)	$200 deductible per calendar year 50% of UCR up to a maximum of $1,000 per calendar year
Severe Mental Illness Benefit^[**]
Inpatient deductible	None	None	N/A
Inpatient per admission fee	None	None	N/A
Inpatient, partial and day treatment	Unlimited days covered at 100%	Unlimited days covered at 100%	N/A
Outpatient mental health visits	Unlimited visits at $0 copayment	Unlimited visits covered at $0 copayment	N/A
^[] Pre-authorization required for all in-network and in-patient services both in and out of network. Chemical dependency and substance abuse combined in- and out-of-network maximum of $35,000 per calendar year. Chemical dependency and substance abuse combined in- and out-of-network maximum of $50,000 per lifetime. ^[*] Severe mental illness diagnoses include: anorexia nervosa, bipolar disorder, bulimia nervosa, major depressive disorder, obsessive-compulsive disorder, panic disorder, pervasive developmental disorder or autism, schizoaffective disorder, schizophrenia. In addition, the Severe Mental Illness Benefit includes coverage of serious emotional disturbance of children (SED).

Figure 2: Sample Managed Behavioral Healthcare Combined HMO/POS Plan Design With A Typical Mental Health Parity Benefit

An employee assistance program is a confidential, short-term counseling service to assist employees and their family members with personal problems that negatively affect their job performance. These programs vary considerably in design and scope, and are offered by MBHOs, stand-alone EAP companies, and work/life companies. EAPs originally focused on substance abuse problems, but most today take a comprehensive approach to support members with a range of employee and family issues. Some include proactive prevention and health and wellness programs, and may even be linked to the health plan and MBHO benefit structure. While most EAPs offer a wide range of services, they generally refer members to other professionals or agencies that can offer more, or extended, help in particular areas. EAPs also provide human resource support through management consultation, on-site employee and employer seminars and critical incident stress management after catastrophic workplace events. The average utilization rate for an EAP ranges between six to seven percent, but it jumps to between seven and 10 percent when adding work/life programs.

Figure 3 shows the benefits offered by a typical EAP.

24-hour toll-free access to the EAP

Confidential services

Available to all household and dependent family members

Unlimited calls

Five face-to-face counseling sessions (per incident) with EAP provider

Child and elder care referral services

Legal assistance and referral

Financial counseling and debt management

Alternative medicine referral

Concierge services

Figure 3: Typical Employee Assistance Program Benefit Summary

Behavioral Healthcare Benefit Plans

2012-04-28T01:50:00.000-07:00

Typical Plan Features

According to the Substance Abuse Mental Health Services Administration (SAMHSA), the vast majority of employer-sponsored plans cover inpatient and outpatient mental health treatment services. Roughly half of all employers cover intermediate mental health treatment services such as residential treatment and partial (or day) hospitalization. Approximately 60 percent cover intensive outpatient services, which can include psychosocial rehabilitation, case management, and wraparound services for children (developing treatment plans for children that involve their families). Many plans also include a parity benefit—often called a "severe mental illness" benefit—that specifies which disorders are covered under their state parity law. A well-designed benefit package should cover a wide range of clinically effective services and treatments while incorporating financial incentives to substitute lower cost alternatives for higher cost alternatives when it is clinically appropriate to do so.

Benefit Plan Variables

As previously discussed, mental health and substance abuse coverage has long been characterized by limits that do not apply to healthcare coverage in general. The typical employee healthcare benefit plan offers 30 annual inpatient mental health treatment days and 20 annual outpatient mental health visits. Industry studies show that approximately 80 percent of employees have less generous limits, copayments, and coinsurance deductibles for inpatient mental health treatment than for medical treatment. Although nearly 20 percent of all employer-sponsored health plans have no day or visit limits on inpatient and outpatient health care, more than 50 percent of the plans covered just 20 outpatient mental health treatment visits, and nearly 60 percent covered just 30 or fewer inpatient days. While approximately 80 percent of all covered employees have copayments for medical treatment of less than $20 per visit, only 40 percent have copayments of less than $20 for outpatient mental health treatment visits.

ERISA

The Employee Retirement Income Security Act of 1974 (ERISA) regulates the majority of private pension and welfare group benefit plans in the United States. The provisions of ERISA prevent states from regulating multistate employers on the provisions of their health benefits. Most notably, this affects the 9.5 million federal employees enrolled in the Federal Employee Health Benefit Plan (FEHBP). It also affects many large, self-insured employers and union trust groups.

HIPAA

HIPAA applies to all health insurance plans, including MBHOs. HIPAA allows employees to continue their health insurance coverage from one group to another. HIPAA's nondiscrimination provisions prohibit a group health plan or insurance company from denying an individual eligibility for benefits or from charging an individual a higher premium based on a health factor, including health status, medical condition (both physical and mental illnesses), claims experience, receipt of health care, medical history, genetic information, evidence of insurability, and disability. HIPAA also may serve to reduce health care fraud and abuse and protect privacy and is projected to significantly reduce the 29 cents of every health care dollar spent today on administration. The HIPAA Administration Simplification component consists of three areas:

Data Standards. Enforce standards for the electronic transmission of health care information.
Security. Protects confidential and private information through sound and uniform security practices.
Privacy. Maintains confidentiality of member information.

Because behavioral stigma still prevails, HIPAA plays a particularly important part in protecting sensitive patient information gathered during behavioral treatment.

The Managed Behavioral Health Market Today

2012-04-24T20:48:00.000-07:00

Market Size

Of an estimated 250 million Americans with health insurance, approximately 66 percent are enrolled in some type of managed behavioral healthcare program. This figure does not include individuals who receive behavioral coverage through a health maintenance organization that manages behavioral healthcare benefits without the assistance of a specialty MBHO. During 2002/2003, enrollment in MBHOs and EAPs rose to 227 million, according to Open Minds, a behavioral health and social service industry research and management consulting firm in Gettysburg, PA. This represents a two-percent growth over 2001. Over a 10-year period (between 1993 and 2002), the total number of enrollees in these programs rose 163 percent—from 86.3 million in 1993 to 227 million in 2002.See Figure 1.

Figure 1: Total Enrollment by Year in Managed Behavioral Health and Employee Assistance Programs in Millions of Covered Lives 1993–2002

Market Composition

The majority of behavioral healthcare benefits sold in the United States today are purchased by large groups that buy comprehensive healthcare and other insurance benefits for their covered members. Purchasing groups for behavioral carve-outs include self-funded and other large employers, health plans, union trust and Taft-Hartley trust funds, school districts and educational coalitions, state and county mental health agencies supported by public funds, and the government's Federal Employees Health Benefits Program (FEHBP). The smaller the groups the more likely it is that behavioral benefits are sold as an integrated part of a general health plan, which may or may not have a specialty MBHO provide the behavioral benefit.

The Sales Environment

Behavioral benefits are sold through multiple channels. Large brokerage and consulting firms often serve as the go-between for behavioral benefit purchasers, helping them locate and negotiate insurance contracts. A broker or consultant may also be an agent for an MBHO, delivering policies and collecting premiums. Brokers generally work on commission; consultants, on a fixed retainer. In addition, most large MBHOs employ sales forces that sell directly to purchasers or through brokers and consultants and generally are compensated on a combined base salary and commission pay structure. Since many MBHOs are subsidiaries of health plans, health plan sales forces also sell behavioral benefits as part of the plans they offer.

Changing Market Landscape

As with other segments of the managed care industry, MBHOs are rapidly evolving in response to payer, member, legislative, and market demands. MBHOs in the past decade went through a period of consolidation, using mergers, joint ventures, and other strategies to attract investors and capital. Four factors have been cited as drivers of behavioral healthcare mergers and acquisitions:

Payers are demanding greater capital reserves to pay providers more quickly and cover risk adequately.
Greater investment is required in management information systems to meet accountability and accreditation requirements.
Premium and capitation payments are stagnant, meaning that managed care companies are not seeing increases in revenues through existing business.
The costs involved in developing public procurement bids, especially for statewide contracts, can be large.

Merger and Acquisition Activity

Today approximately three-quarters of the market is controlled by the 10 largest companies with three companies comprising a little more than half of the market according to 2002 data. In large part, this is a result of merger and acquisition activity. Magellan Behavioral Health, a publicly traded MBHO with 69 million members, currently dominates the market, capturing 30.3 percent of total enrollment as of 2002. In addition to Magellan's acquisitions, MBHO merger and acquisition activity throughout the 1990s was rampant. During the early years of the 21st century, merger and acquisition activity briefly slowed down, but it will likely ramp up again because of continuing price pressures and economy of scale issues.

Mental Health Parity

2012-03-27T09:05:00.000-07:00

Mental health parity—equal insurance benefits for mental and medical disorders—is, in part, the result of years of work by groups such as the National Alliance for the Mentally Ill, government advocates, and thousands of other supporters to erase the stigma society attaches to mental illness—to bring it out of the dark shadows and acknowledge it as a disease as painful and often as life threatening as physical illnesses.

The Mental Health Parity Act

The Mental Health Parity Act (MHPA) was signed into law on September 26, 1996 and took effect January 1, 1998. This federal law is subject to concurrent jurisdiction by theDepartments of Labor, the Treasury, and Health and Human Services and prevents group health plans, insurance companies and HMOs from placing lower annual or lifetime dollar limits on mental health benefits than for medical and surgical benefits offered under the plan. For example, if a health plan has a $1 million lifetime limit on medical and surgical benefits, it cannot put a $100,000 lifetime limit on mental health benefits.

The MHPA, which expired on September 30, 2001 but has been extended each year since, has many loopholes. The law applies only to groups that offer mental health benefitsand have more than 50 workers; however, it does not require them to include mental health benefits in their benefit packages. It does not apply to health insurance coverage inthe individual market, and it does not address substance abuse or chemical dependency treatment. The law does, however, allow for limits on inpatient days, prescription drugs, outpatient visits, and raising deductibles which, in fact, has the effect of subjecting benefits to dollar limits. The United States General Accounting Office in May 2000 found that 87 percent of complying health plans evaded the spirit of the law by using day and visit limits to maintain unequal benefit levels for mental versus medical disorders.

Federal and State Parity Legislation

Since the passage of the 1996 law, new federal parity legislation has been put before the legislature, the most notable being the Mental Health Equitable Treatment Act of 2001 proposed by Senators Pete Domenici (R-NM) and the late Paul Wellstone (D-MN), the MHPA's original authors. Each year, permutations of this new federal law have been proposed and consequently shelved. As of May 2004, 35 states have passed their own form of mental health parity legislation. These state laws incorporate more inclusive parity coverage than the MHPA, and some include parity coverage for the treatment of substance abuse/drug and alcohol dependency.

The Mental Health Parity Controversy

The basis of mental health parity does not appear to be controversial, and there is evidence that treating psychiatric disorders contributes to lower medical costs and higher productivity. But opponents of mental health parity are generally opposed to mandated benefits of any type and are concerned about health care cost increases that can result from unlimited benefits. Lobbying groups representing insurance industry and business groups are staunch opponents. Proponents argue that cost increases will be minimal and that the real issue is discrimination against people with mental illnesses.

Psychotropic Medication Management

2012-03-24T03:00:00.000-07:00

Psychotropic medications—drugs that affect psychic function, behavior or experience—are part of the medical benefit and are generally administered by companies contracting with health plans called pharmacy benefit managers (PBMs). Psychotropic medications account for a significant part of the overall cost of health care because of the chronic nature of many mental illnesses, but a fractionalized system currently exists that prevents optimum management of these medications. Although behavioral specialists contracting with MBHOs routinely prescribe psychotropic medication to their patients, approximately 70 to 80 percent of psychotropic medications (primarily antidepressants) are prescribed by family physicians, internists, and pediatricians, who have little training in mental health issues. Because MBHOs do not manage the prescription drug benefit but bear theresponsibility for managing the behavioral care for their members, they are often unaware if psychotropic medications prescribed to their members are of the appropriate types and dosages, or if there are appropriate interventions during treatment to ensure their members are medication-compliant. Even if the "silos"—MBHOs, health plans, PBMs, primary care physicians, and behavioral specialists—are bridged through coordination-of-care protocols, the situation is further complicated by the Health Insurance Portability and Accountability Act (HIPAA) privacy legislation, which adds another layer of difficulty in sharing prescription information.

History and Industry Overview | Managed Behavioral Health Care Benefits

2012-03-21T09:29:00.000-07:00

The Early Years

Today, managed behavioral health plans are widely adopted, but that was not always the case. Prior to the 1940s, treatment for mental disorders was usually only provided in state mental hospitals. After World War II, general hospitals opened onsite psychiatric clinics and added psychiatrists to their staffs, which prompted commercial insurance carriers to include hospitalization coverage for mental illness. Initially, this coverage provided the same level of benefits as for nonpsychiatric benefits. Soon, however, insurers placed limits on outpatient mental health care because treatment often continued for indefinite lengths of time, and there was much subjectivity surrounding mental disorders and treatment methods.

Growth of Managed Care

The Health Maintenance Organization (HMO) Act of 1973 promoted and set minimum standards for health maintenance organizations and required managed care plans to include an outpatient mental health benefit consisting of 20 visits annually for emergency assessment and crisis intervention. While HMOs proliferated in the 1980s as a response to rapidly rising health care costs, their coverage for mental illness was extremely limited and differed significantly from coverage for physical illness. Hospital coverage was restricted to 30–45 days per mental illness, or 30 or 60 days per year. For medical illnesses, the number of days was usually unlimited. And for outpatient services—care received in the outpatient department of a hospital or in a clinician's office—coverage limitations were dramatically lower for mental health treatment than for medical treatment.The most common limitations for mental health outpatient treatment were a maximum dollar limit of $1,000 per year and a maximum reimbursement per visit ranging from $25 to $40. Coinsurance rates also varied dramatically between medical and mental coverage.

Advent of the Behavioral Healthcare Carve-Out

Because of the limitations of HMO coverage for mental health disorders, a new opportunity paved the way for behavioral health "carve-outs." A behavioral healthcare carve-out is a program that separates—or carves out—mental health and chemical dependency services from the medical plan and provides them separately, usually under a separate contract and from a separate company known as a managed behavioral healthcare organization (MBHO). MBHOs offer mental health and chemical dependency plans that fillthe coverage gaps in medical plans—many MBHOs also offer employee assistance programs. They are able to offer enriched, flexible and affordable behavioral healthcarebenefits along with sophisticated administrative, operational and care management capabilities. MBHOs focus on matching appropriate levels of specialists and treatment settings with the behavioral treatment needs of members to most cost-effectively provide care and maximize treatment effectiveness. Behavioral healthcare carve-outs have thepotential to produce significant savings because (1) they are usually managed by firms that specialize in behavioral health treatment; (2) they allow large, self-funded employers to offer the same behavioral health benefits across all health plans offered; and (3) they allow a health plan to minimize adverse selection, which may occur when employees who utilize high levels of behavioral treatment opt for an indemnity medical plan instead of an HMO.

Growth of the Employee Assistance Program

An employee assistance program (EAP) is a confidential resource for information and referral to emotional counseling, covering such matters as relationship issues, family conflicts, job-related stress, alcohol abuse, drug addiction, financial hardships, and other personal problems. The first EAPs arose in the 1950s and focused on early intervention for alcohol and drug abuse. Since the 1970s, EAPs have evolved into an industry of their own. In the mid-1980s, EAPs began diversifying their services to include a wide rangeof work/life services along with human resource support, and the EAP is now considered a low-cost, high-return tool for enhancing workplace productivity.

Managed Behavioral Health Care

2012-03-18T06:25:00.000-07:00

The term "behavioral health" refers to mental health and substance abuse services provided by behavioral health specialists. Managed behavioral health benefits are subject tothe general forces of managed care while also facing unique issues and challenges of their own. In recent years there has been a heightened focus on behavioral health benefitsbecause they are a key contributor to increased employee productivity and lower medical costs. Of an estimated 250 million Americans with health insurance, 66 percent are enrolled in some type of specialty managed behavioral health program.

Mental Illnesses and Other Behavioral Disorders

The most severe mental illnesses such as schizophrenia, bipolar disorder and major depressive disorder are generally considered biologically based disorders that affect thebrain, profoundly disrupting a person's thinking, feeling, mood, ability to relate to others and capacity for coping with the demands of life. They cannot be overcome through "will power" and are not related to a person's character or intelligence. Nonbiologically based mental disorders can also severely impact an individual's functioning. Early identification and treatment is of vital importance; according to Dr Thomas Insel, Director of the National Institute of Mental Health, between 70 and 80 percent of individuals suffering from depression experience significant reduction of symptoms and improved quality of life through psychotherapy and/or medication.

Mental disorders can loosely be categorized into the following categories:

Adjustment disorders (e.g., situational stress).
Anxiety disorders (e.g., panic disorder).
Childhood disorders (e.g., autism).
Eating disorders (e.g., anorexia).
Mood disorders (e.g., major depressive disorder).
Cognitive disorders (e.g., dementia).
Personality disorders (e.g., antisocial personality disorder).
Psychotic disorders (e.g., schizophrenia).
Substance-related disorders (e.g., alcohol/drug dependence).

The most serious and disabling conditions such as major depression, schizophrenia, bipolar disorder, panic disorders and obsessive compulsive disorders affect five to 10 million adults (2.6 to 5.4 percent) and three to five million children ages five to 17 (5 to 9 percent) in the United States.

The Need for Behavioral Benefits

Behavioral disorders can have a devastating impact on affected individuals, their families and society. Mental illness is the number one cause of disability in the United States, Canada and Western Europe, according to a 2001 study by the World Health Organization. It has now surpassed heart disease, which was the leading cause of disability as recently as 1996. Alcohol consumption accounts for up to 40 percent of industrial fatalities and 47 percent of industrial injuries. A study published in the American Journal ofHealth Promotion found that workers experiencing high stress are more than two times more likely to be absent more than five times per year. Given these alarming statistics, it stands to reason that health care benefit purchasers gain from providing their workforces with relatively inexpensive mental health, chemical dependency and employee assistance programs that cover the full spectrum of behavioral needs. Unfortunately, behavioral benefits are the least understood and most poorly compensated of all thepossible components of a health benefits package.

Common Misperceptions

Most people are unaware of the possible inadequacy of behavioral health benefits found in insurance plans, since it is falsely assumed that mental health and chemical dependency treatment needs are fully covered under medical plans, and in addition, that employee assistance programs fill in the gaps. Unfortunately, these are common misconceptions. The mandated behavioral benefits in a medical plan are limited to emergency assessment and crisis coverage. Mental health "parity" riders—legislatively mandated add-ons to medical benefit plans—are limited in the scope of disorders they cover. Employee assistance programs focus on workplace productivity, and offer only a limited number of visits for emotional counseling. To fully understand behavioral health benefits and the multitude of ways they are structured, it helps to take a brief look at thegrowth of the managed behavioral health care industry.

Other Factors Driving Plan Costs | Alternative Prescription Drug Plans

2012-03-15T01:22:00.000-07:00

While all the factors discussed in this chapter impact the cost of pharmacy benefits, no analysis of today's PBM marketplace is complete without an examination of some ofthe external factors driving plan costs.

High-Cost Injectable Drugs

One of the most significant trends affecting employers is the growth of biogenetic drugs, also known as injectables or specialty pharmaceuticals. The primary goal of an employers' specialty pharmacy program must be to improve the organizations' health and economic outcomes and most importantly, the medical outcomes and quality of life ofplan members. Specialty pharmacy programs are currently evolving to assure appropriate use and positive outcomes for millions of employees today who need these powerful and very expensive pharmaceuticals.

However, as utilization of specialty pharmaceuticals increases, so too do the challenges and costs for employers. Injectable medications are now a $35 billion a year market and are projected to double within the next decade. Often these drugs cost more than $1,000 per dose, up to 100 times the cost of many oral agents. In most plans, members taking specialty pharmacy drugs will represent one to five percent of a health plan's population, yet account for up to 50 percent of medical costs. Early studies indicate that specialty pharmaceuticals have tremendous potential to improve productivity and quality of life for millions of Americans. Therefore, employers who do not cover specialty pharmaceuticals or who limit coverage may be diminishing the ability of the pharmacy program to provide real value to their organization and plan members.

However, while promising, specialty pharmacy drugs are not clinically indicated for all plan members. Because of their high cost, the utilization of specialty pharmaceuticals must be tightly managed. Some of the more widely used specialty pharmacy medications include those to treat multiple sclerosis (MS), rheumatoid arthritis (RA), infertility, cancer and hepatitis. A review of pharmacy and medical data can identify the current drug utilization patterns for plan members and indicate the percent of the plan population with specific diseases that are candidates and can best be treated with specialty pharmacy drugs.

To ensure that members who will secure the most value from specialty pharmaceuticals can access those drugs, plan sponsors need a multifaceted and multidisciplined approach to the development of guidelines that will help to validate these drugs' use for appropriate members. One important component of a comprehensive specialty pharmacyprogram is the use of guidelines, which are typically developed by pharmacy & therapeutic, and/or guideline committees. These committees consist of practicing physicians, pharmacists and other professionals who use the expertise of consultants and health outcomes researchers. The guidelines developed should be provider-oriented, member-focused and condition specific. For example, guidelines for initiation of therapy for rheumatoid arthritis might include age, severity of disability, non-response to previous therapies and physician recommendation. Guidelines also play a key role in ensuring appropriate duration of therapy, dosage, titration and that the desired results of the drug therapy are being achieved.

As more high-cost specialty pharmacy drugs are introduced, there will be more evidence as to which drugs work best with which patients (e.g., genetic testing to identify individuals for whom the drug is most likely to be successful). Comprehensive programs that are integrated with the pharmacy and medical benefit, and that include managed care principles, such as prior authorization, formulary development and case management will more effectively ensure that employers and their employees get the maximum value from these promising new drug therapies.

Role of Pharmaceutical Marketing

Pharmaceutical manufacturer marketing efforts to both consumers and physicians has garnered widespread attention over the past few years. While there are issues to explore with regard to direct-to-consumer (DTC) advertising, an equally important concern for employers should be the products being advertised. For example, a growing trend among pharmaceutical manufacturers is "niche" marketing for products, such as over-active-bladder, nail fungus, dry mouth, and so on. While certainly there are instances where these ailments require medical intervention, the key goal of advertising appears to be to create demand where there has historically been little interest.

Of course, pharmaceutical manufacturers also spend significant sums of money directly marketing to physicians. While product marketing in itself is certainly an appropriate tactic within a free market, employers must be aware of the tremendous influence such advertising has on physicians and ultimately consumers.

A 2003 report from Tufts University noted that prescribing newer, more expensive drugs, rather than older, generics contributed to an estimated 24 percent increase in drug spending over a one-year period. A 2003 FDA report noted that patients who are subject to DTC advertising are more likely to request and secure a prescription for a specific drug. A primary concern for employers should not only be the excess costs such marketing can generate because of increased demand, but also the potential for side effects and medication errors from consumers demanding unnecessary medications that could further increase costs.

The message for the employer is to work carefully with its PBM to implement benefit design features that ensure that the most cost-effective, and not the most heavily promoted drugs, are used by their plan members.

Formularies, prior authorization, and strong member and physician education programs are excellent tools to address the issue of DTC advertising.

Impact of an Aging Population

There are now an estimated 76 million "Baby Boomers" approaching retirement age. However, many show no real signs of wanting to slow down or retire. As this generation surges ahead, steadfast in its belief that age is little more than a number, employers and plan sponsors will find themselves needing to provide health care benefits to an increasingly aging workforce. But the Boomers are not your average employees.

According to the Alliance for Aging Research, Baby Boomers refuse to believe that "aches and pains" are the price to pay for getting older. They tend to be less sedentary than past aging generations. To help accomplish their many life goals, Boomers are looking to health care, including prescription drugs, to help them stay active. From lifestyle drugs to those that help them manage chronic illnesses, Boomers look to health care services and products to help them successfully defy the aging process.

Boomers are also much better informed than their parents were about a variety of health care topics, and they expect to be given all the necessary information with which to make medical decisions. Unlike their parents, Boomers do not always take the word of medical "authority figures" who try to tell them what is best—they want to decide for themselves. According to the book Selling to the Generations by Robert Brenner, overall, Boomers are more likely to question authority and expect instant gratification. Atthe same time, particularly as they age, they are "brand loyal" and are strongly influenced by the brand building efforts of pharmaceutical companies to create this loyalty.

What does this mean for plan sponsors? First, the health care needs of an aging workforce will have a long-term and significant impact on the utilization of prescription drugs and on health care services. Many of today's workers will continue to work beyond the traditional retirement age and will want (and expect) to remain healthy and productive as they age. They are likely to expect to have these services and products available to them, including the brands that they have come to know and trust.

In addition, they are not likely to be automatically accepting of substitutions and especially, the unavailability of the goods and services that they perceive are necessary for them to remain healthy. According to the AARP study, Baby Boomers Envision Retirement II—Key Findings, about half of all Boomers expect their insurance to cover healthcare expenses. They will be well informed and will expect to be participants in their own health care. They will welcome options, but will resist ultimatums.

All these factors must be taken into consideration as plan sponsors seek to balance costs and access in their pharmacy benefit programs.

The Role of PBMs and Government Programs

2012-03-12T09:20:00.003-07:00

Medicare

PBM executives, analysts, and employers agree that the Medicare Act of 2003 has dramatically increased the nature and intensity of the relationship between PBMs and government-sponsored pharmacy benefit programs. Medicare Part D, the prescription drug component of the Medicare act, which was approved in December 2003 and becomes effective January 1, 2006, creates significant issues for employers to examine as well. The current legislation is expressly written to encourage employers to continue to offer drug benefits to retirees.

In addition to tax savings, the Centers for Medicare and Medicaid Services (CMS) estimates that an average subsidy for employers who offer drug coverage to their retirees will be around $611 per retiree in 2006 costs. Medicare premiums are about $35/month and will be paid by either the employer or the beneficiary. According to Aon Consulting, employers have three primary options when it comes to Medicare Part D:

Do nothing and take the government subsidy.
"Wrap-around" Medicare which is how most post-65 medical plans currently coordinate Medicare "Part A" and "Part B".
Eliminate the Rx benefit and pay the Medicare "Part D" premium for the retiree.

Employers that opt to offer a drug plan will need to do much more than simply provide the benefit. There are a number of regulations and guidelines employers will have to meet. For example, employers must adhere to formulary guidelines developed by Medicare, offer access to certain drugs, ensure access to generics, and provide detailed reports on their programs to CMS. Employers that self-fund their retiree benefits are at risk not only for costs, but also for costs associated with overseeing the entire pharmacymanagement process and for potential challenges that may arise. Retirees can be a demanding group and when there are changes made to their benefit, they will voice their concerns and may fight those changes that affect their pocketbook or their coverage. To meet the demands and challenges of this population, employers will need to ensure utilization and costs are closely managed. They will also need to be more creative in their approaches to program development and benefit design.

Employers that work with PBMs experienced in formulary development, disease management, and member education will be much better able to implement creative programs that adhere to guidelines and minimize risk. For example, a good PBM or pharmacy benefit consultant will be able to sit down with an employer and target areas of weakness and need, such as where drugs are being used inappropriately or areas where there are significant outliers or disease states that affect a large population of retirees. The PBM can then develop targeted programs specifically for that population. This approach is critical for at-risk employees. It is especially important where there are large populations ofemployees with high cost, high impact diseases, such as diabetes, heart disease or cancer. Left unmanaged, such diseases will only escalate in severity and further increasethe cost of the pharmacy and medical benefits to plans and their members.

While the government seems to have high hopes for PBMs and the private sector to control costs, there are areas of concern. A few larger PBMs have come under investigation over the past few years for some of their business practices.

Recognizing that knowledge is power, employers and consultants have begun to more thoroughly study PBM business practices so that they can better ensure they are securing value for their benefit dollars. As consultants and employers become more knowledgeable and sophisticated regarding PBMs, there has been a clear market correction. They are requiring PBMs to more fully disclose information as part of the RFP process. They are asking questions about revenue sources, how income is reported, administration fees, and other pricing policies. As a result, employers have a much better idea of exactly how and where their PBM secures revenue. As a result of this knowledge, those PBMs that have consistently shown a commitment to openness with their customers and that have not been subjected to lawsuits are securing business; those who are less transparent are finding it increasingly more challenging to secure new business.

The market correction the industry has spearheaded on its own accord has led the government to have further confidence in the ability of PBMs and private industry to help control costs. In a recent report from the Federal Trade Commission and Department of Justice, the government stated that when PBMs are allowed to operate in a competitive marketplace, and to use principles such as closed networks and mail service, they could play a significant role in helping plan sponsors manage costs.

Drug Reimportation

One of the most hotly contested topics over the past few years has been the issue of reimportation of drugs from countries where they are less expensive. Several states, including Massachusetts, Illinois, Minnesota, Rhode Island, and Wisconsin have begun to import drugs from other countries, most notably Canada, in addition to Australia and Europe.

Congress has clearly noted the demand for lower cost drugs and therefore several bills have been introduced to allow reimportation. Political analysts believe that strong public sentiment may force Congress to allow some level of drug reimportation. Not surprisingly, pharmaceutical manufacturers are fighting any efforts to allow reimportation, pointing out that current pricing allows companies to invest in research to create new drugs.

Many employers, unions, and health plans have explored reimbursement for foreign prescriptions as a component of cost reduction. While reimbursing health plan members for prescriptions filled while traveling is commonplace, extending payment to foreign source drugs ordered by the member has significant risk. The plan may assume significant liability if their member is harmed by a drug from an illegal distribution system which the plan has endorsed.

While some states view reimportation as a solution to higher drug costs, there are concerns that must be closely examined. For example, current payer reimbursement strategies are based on the average wholesale prices (AWP) of distributed prescription drugs and their corresponding National Drug Code (NDC) numbers. Imported drugs may not have an NDC code, or the NDC code may not be recognized by the established U.S. data companies. If an NDC is not recognized by the adjudication system, that prescription drug claim will be rejected by most of the U.S.-based reimbursement systems.

Reimportation may also pose some challenges for the Medicare system. The government will have to decide whether to credit drugs reim-ported from other nations as part of theout-of-pocket amount for purposes of calculating the beneficiary drug coverage. Lastly, the primary concern related to drug reimportation is safety. The FDA has reported numerous instances of tainted and even counterfeit drugs, primarily those purchased from unlicensed Web-sites located outside of the United States. However, there clearly remain safe sources of medications and unless American consumers and state and city governments experience significant and potentially life-threatening events due to reimportation, they will continue to view it as a viable alternative. Until legislation is passed, employers or states considering reimportation would be well served to work within existing legal channels.

Mandated Benefits

State governments, often using Federal guidelines and rulings, and supported by the courts, have become increasingly involved in mandating benefit coverages. Mandatedbenefits take the decision-making process out of the hands of the PBM and payer and place it into the hands of elected officials who may or may not have a strong grasp of theimplications of their actions.

One of the more common mandated benefits involves contraceptives. Plan sponsors and employers that offer drug therapies for male sexual dysfunction may be challenged with legislative mandates that require parity by providing contraceptives to female members. Special interest groups are also influencing coverage for other therapeutic categories including AIDS and antipsychotics. For example, groups representing the mentally ill have successfully lobbied in many states to ensure coverage of drugs for depression. Still other states are requiring that plans that cover diabetes medications, must also cover supplies. California has mandated that all drugs for chronic or debilitating illnesses (which in theory could include virtually any disease or illness) be covered. The result is a patchwork of laws that make it difficult for multistate employers to develop effective and compliant pharmacy benefit programs.

Desiring greater autonomy over how their money is spent, some employers have chosen to carve-out their pharmacy benefit. In effect, this creates a self-funded benefit. Thepharmacy benefit is then regulated by the Employee Retirement Income Security Act (ERISA), which provides greater freedom and flexibility by allowing employers to cover medications they deem necessary and appropriate for their employees and beneficiaries.

While there are benefits to self-funding the pharmacy benefit, there are some issues to examine—most of which can be readily addressed through an experienced PBM. For example, it may be difficult to integrate pharmacy programs with the medical benefit if they are administered by separate companies and if the PBM does not have experience in working with health plans and with data collection and analysis. If the employer group does not have ready access to the medical data, that too can present challenges. A number of PBMs have experience in working with employers and their medical plans to obtain and integrate data, however. Therefore if an employer wants to pursue that option, it should proceed.

Mail Service

Over the past decade, states and the federal government have been asked by retail pharmacy organizations to examine PBMs use of mail service. One of the arguments made by retail pharmacy is that when PBMs are allowed to provide a 90-day supply of drugs for 30-day copay, it gives the PBM an unfair pricing advantage.

The Pharmaceutical Care Management Association (PCMA) estimates that mail service discounts are 11 percent deeper than discounts on retail drugs and that currently mail service spending represents 16 percent of total prescription drug spending. That figure is expected to increase to 20 percent in 2014, representing millions of dollars in potential savings for plan sponsors. Conversely, PCMA estimates that provisions to increase regulations and limit mail service practices would increase costs by $97 billion between 2005 and 2014. This increase in costs would likely lead to hundreds of thousands of individuals losing prescription drug coverage.

Recent efforts to limit mail service appear to be failing in many areas. For example, in Michigan in 2004, the once widely touted Michigan's Consumer Prescription Protection Act failed after analysis from employers indicated that the law would increase costs to consumers significantly.

Employers should recognize that mail service should be more than a cost-saving strategy or prescription delivery mechanism. Through education programs such as refill reminders, information on the importance of persistency and compliance programs, as well as newsletters and brochures with articles regarding commonly asked questions about popular drugs, mail service has the potential to insure both the plan sponsor and plan member will secure maximum value from the pharmacy benefit.

Medicaid

While mail service has been an active area for government involvement for several years, clearly the area where government and PBMs have the most interaction is with Medicaid and Medicare. It is estimated that Medicaid programs will see the most significant increase in prescription drug expenditures over the next decade. CMS projects that, by 2011, Medicaid will be paying for almost 20 percent of all U.S. prescriptions. To help manage these costs, many states are turning to PBMs.

There are considerable implications for employers as Medicaid coverage grows. Employers can learn valuable lessons from the research conducted and programs implemented by state Medicaid programs. According to a 2004 study by Atlantic Information Services, a leading publisher of healthcare data, managed care PBMs could save some states up to 50 percent in Medicaid costs through strategies such as pharmacy networks, closed formularies and prior authorization.

Before implementation, Medicaid programs are subject to intense scrutiny. In particular, states are spending considerable resources to ensure that formularies, prior authorization and disease management programs provide adequate and fair coverage. Employers seeking new ways to manage costs might consider some of the tactics approved by state Medicaid programs as applicable to their own pharmacy benefit.

The Concept of the "Customized" Pharmacy Benefit

2012-02-06T06:28:00.000-08:00

One challenge employers face with tiered benefits is that they are often based upon the drug cost and may penalize some members with the most serious needs. For example, consider the situation of a patient with osteoarthritis. For 85 percent of patients, generic NSAIDs will provide adequate and appropriate therapeutic outcomes. Those members can secure such drugs under the average pharmacy benefit plan at a first or second tier copay level—typically $10 to $25 per prescription.

The challenge is with patients who have drug sensitivities, and who may be at risk for upper gastrointestinal (GI) bleed. Such patients are clinically suited for COX II (cyclooxygenase) inhibitors, an enzyme associated with pain and inflammation. If Cox IIs are the highest tier, they could cost patients $100/month; a price those on fixed incomes cannot afford. A far better approach is to have certain categories of drugs available at an affordable tier price through prior authorization, a formal process instituted by some PBMs to ensure appropriate utilization. Another reason to consider prior authorization for COX IIs is that these drugs have the potential to cause heart disease, kidney and liver failure as well as other serious illnesses. In late 2004, a popular COX II was voluntarily removed from the market by its manufacturer due to concerns over increased risk for cardiovascular events, such as heart attack and stroke.

The challenges of balancing costs and access are best addressed by recognizing that the goal of an effective pharmacy benefit program must be to encourage appropriate utilization, not to limit access to necessary prescription medications. By incorporating a customized approach to their pharmacy program, plan sponsors can develop a benefit focused on achieving the best outcomes at the most affordable costs.

An effective customized approach to pharmacy benefits includes:

Careful analysis of pharmacy and medical claims data;
A strong therapeutic formulary;
Programs to promote prior authorization for restricted and non-formulary drugs; and
Targeted disease interventions.

Claims Analysis. By analyzing medical and laboratory data, PBMs can help to identify utilization rates, average length of therapy, physician prescribing patterns, and other information that can provide a more complete picture of the organization's overall utilization patterns. Once this information is gathered and analyzed, it will be easier to identify areas of need as well as potential problems. From this information, the PBM can develop a "customized" approach to the pharmacy benefit. This approach also helps to ensure that pharmacy benefits do not operate in a silo. Medical and pharmacy benefits are closely intertwined. To secure optimal clinical and financial results, medical, pharmacy, lab and other available claims data should be integrated, compared and adjusted based on each benefit's impact on the other.

Formularies. Formularies have become an important benefit design feature for many employers today. The need for some type of approach to manage utilization among plan members today is clear. Consumers (e.g., employees and plan members) are encouraged to request high-cost newer drugs through pharmaceutical marketing tactics. One study showed that more than 39 percent of the time, physicians will prescribe medications patients see advertised. Employers want to offer their employees a competitive drug benefit in an effort to attract and retain valuable employees. However, offering, an "anything you want" strategy may have a negative financial impact on the plan sponsor.

In addition, a key issue with many employers' current formulary program is that they are often driven by a quest to secure the most rebate dollars. There are two fundamental flaws with this approach: (1) as the number of available generics increases, rebates will decrease; and (2) formularies not based on safety and efficacy can put the plan sponsor at risk for higher costs in terms of increased visits to physicians and the ER, as well as higher utilization of other prescription products.

The key to an effective managed care approach to pharmacy benefits is to align employer and employee incentives. Experienced PBMs can use pharmacy data to identify popular drug therapies and with that data, they can negotiate lower purchasing rates and rebates with pharmaceutical manufacturers for the most therapeutically appropriate and popular medications, and ensure those medications are on formulary.

The same claims analysis can also highlight the overall value a drug therapy choice may have for the plan sponsor. For example, a prescription drug may be more costly, but analysis might show that members will be more compliant, have fewer side effects and be more satisfied with the benefit if it is a formulary option.

A strong clinically focused Pharmacy and Therapeutic (P&T) Committee is a key component of an effective formulary program. P&T decisions must be based on recognized clinical literature, research and the latest outcomes data. When intensive review is combined with strong education of physicians and plan members, it can better highlight the optimal clinical value of the formulary. Strong and frequent education of physicians and employees is also important to ensure ongoing support and acceptance of the formulary.

Prior Authorization. The use of a formulary and P&T committee can also help to build a strong and effective prior authorization program. As noted, prior authorization is the process used by PBMs to approve formulary and nonformulary prescription drug choices where the plan needs to exert control or restrictions on the drug in question. Formulary programs should be developed, and their rationale communicated to physicians and plan members in an effort to ensure that while available, prior authorization is rarely needed. When it is necessary, it must be highly responsive—physicians should be able to speak immediately with pharmacists if needed and their request must be promptly answered—preferably while on the phone with the pharmacist. In the event a request for a drug is denied, specific clinical and outcomes data should be available to support the plan's decision and access to a plan medical director provided to the physician whose request is being denied.

Targeted Disease Interventions

While formularies and prior authorization are the cornerstones of a customized pharmacy benefit, the next step for employers is to take that foundation and use it to develop more targeted disease interventions (TDIs). TDIs use an integration of pharmacy and medical claims data to identify areas within the pharmacy benefit that involve high cost, highly utilized drugs. TDIs provide value to plan sponsors as they can help to improve outcomes and manage costs. In addition, a targeted approach to disease management can help large self-funded plans better meet requirements for Health Plan Employer Data and Information Set (HEDIS^®) standards and Medication Therapy Management Programs as required under the Medicare Modernization Act. For example, the financial impact of migraines on American business is close to $18 billion a year in lost wages and decreased productivity. Yet, less than one-half of the 35 million Americans afflicted with migraines are treated. Recognizing the need to address the impact of migraines, a West Coast PBM developed a Migraine Prophylaxis Management program. The TDI focused on three key areas:

Helping physicians recognize patients that needed migraine medications, and providing information on available pharmacologic treatment options for those patients;
Educating plan members through their physicians on the causes and symptoms of migraines; and
The utilization of first-line over-the-counter therapy, which has been clinically proven to provide effective pain relief for many migraine sufferers.

The plan sponsor reported significant results from the program, including:

Increasing the targeted number of patients on prophylactic migraine medications from 31 percent to 69 percent;
Achieving a $16.57 PMPM savings in medical costs (migraine related) among members targeted for the intervention.
Decreasing migraine-related ER/hospital visits and physician visits by 63 percent and 29 percent respectively in members targeted for the intervention.

Most significantly for the plan sponsor, while appropriate utilization of medications increased, overall medical costs (migraine related) decreased from $42 to $25 PMPM. Another high-cost, high-impact drug utilization category for employers is antidepressants. The financial cost of depression to society in missed days at work and school, medical expenses and premature death are more than $43 billion annually. Close to 20 million people each year develop depression, yet it remains one of the most under-diagnosed and treated diseases in the nation. A depression TDI for a Midwest health plan helped to increase medication compliance and persistence by 8 percent and 14 percent respectively for the acute phase of therapy, and by 12 percent and 16 percent, respectively, for the continuation phase of therapy. The health plan viewed this as a highly successful and worthwhile program. In addition, this TDI also resulted in improvement of the health plan's HEDIS scores.

Traditional Pharmacy Benefit Cost Management Practices

2012-02-02T00:07:00.000-08:00

While many plan sponsors are exploring alternative benefit designs, it is also important to recognize that existing cost management strategies may continue to play a role, either in support of an alternative plan or as an ongoing component of the benefit program. Plans and PBMs may wish to refocus their vision to use traditional benefit designs in more tailored, aggressive and innovative ways, thus achieving their goals without the need to move to more radical alternatives. Poorly managed traditional benefit designs are often to blame for runaway cost trends.

Generics

Generic drugs now make up more than 50 percent of all prescriptions filled but represent only a fifth of dollars spent. By 2010, patents will expire for 15 blockbuster drugs (those with sales exceeding $1 billion annually), including the hyper-cholesterol drug Zocor^®, the antidepressant Zoloft^®, and the "mega-blockbuster" ulcer medication Prevacid^®, a prescription drug with current sales of $3 billion.

Generic drugs save consumers an estimated $8–10 billion dollars annually at retail pharmacies. However, plans sponsors should not simply automatically switch from branded to generic drugs. Any savings from generics should be balanced against the clinical value of the branded drug, as well as the potential cost implications (e.g., loss of rebate revenue, which may make the net cost difference negligible).

Another factor to consider is the effect of the initial six-month exclusivity period on generic drug pricing. While brand-name drugs typically receive between nine and 12 years of market protection after the Food and Drug Administration (FDA) approval, the period of exclusivity granted to the first company to file and receive FDA approval for a generic drug is only six months. To capitalize on their exclusivity, many generic drug manufacturers will actually set the price of the generic to within 15–20 percent of the brand-name price. Thereafter, prices may drop more dramatically, as other manufacturers are free to enter the market.

When deciding what, if any, changes should be made to their current generic drug programs, plan sponsors should take the following steps:

Conduct a thorough analysis of current pharmacy claims data;
Determine the current utilization rate for brand name drugs that have generic alternatives; and
Conduct a prospective analysis using current utilization rates compared to branded drugs scheduled to become generics to help predict costs in the short- and long-term.

The last step is to determine the impact of moving to generics on the branded drug rebates and other cost factors. In some cases, lack of generic competition keeps the generic prices near that of the brand they are competing against. In some cases brand rebates will allow for parity with the generic price. Be sure to fully understand the net cost analysis before deciding on a generic strategy.

Copays

One of most common PBM cost management strategies is a copay model. Such programs are simple to implement and understand. However, challenges include its propensity to insulate plan members from actual costs and the inability to drive members to preferred drugs that may be less expensive and perhaps more effective.

Tiered Benefits. Tiered benefits provide another way for plan sponsors to offer coverage for popular, high-cost drugs, while promoting cost-sharing for the most expensive medications, or those not on the formulary. Tiered benefits have grown considerably over the past five years. While in the past most plans offered one or two tiers, today some plans offer up to five tiers on their benefit plan. While tiered benefits are growing in popularity, often plan sponsors do not recognize that they can be combined with managed care techniques such as prior authorization—allowing the plan sponsor to secure even greater savings and further ensuring patients can access appropriate medications when needed. Toward that end, some plan sponsors are developing closed benefits in conjunction with their tiered programs. Such a strategy works well as defined therapeutic classes, including ACE Inhibitors for the treatment of hypertension, NSAIDs for allergies, and Selective Serotonin Reuptake Inhibitors (SSRIs) for depression, often require prior authorization.

Copays for tiered benefits have increased steadily over the past few years. According to the 2003 edition of A Guide to Drug Cost Management Strategies, between 2000 to 2003, copays increased from $7.51 to $8.14 for first tier drugs (often generics) to $31.30 from $25.71 for third tier drugs (typically the highest cost medications).

Over-the-Counter Drug Coverage (Self Help)

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One of the more significant changes in the industry over the past five years has been the move by some plan sponsors, including many employers, to cover over-the-counter (OTC) medications under the pharmacy benefit. Recognizing the market potential, some pharmaceutical manufacturers have shifted particular medications directly to OTC status, creating a broader range of drug therapies that provide valuable therapeutic benefits at much lower costs. Allergy medications, pain relievers, including nonsteroidal anti-inflammatories (NSAIDs) for arthritis, proton pump inhibitors (PPIs) for acid reflux, and agents for migraine relief are just some of the examples of medications now available as OTCs. The government has helped to pave the way for OTC coverage under a health plan with the 2003 Guidance from the Internal Revenue Service stating that employers can reimburse for OTC drugs with pretax funds, such as FSAs. Under most OTC benefits, members will pay the lowest copay, typically $5 to $10. OTC programs also typically cover a more lengthy supply of drugs (e.g., 42 doses for a PPI drug versus 30 to 34-day supply for a branded or generic version). Combined with strong member education on the therapeutic value of such products, OTC programs can help to encourage the use of the lowest cost medications possible within a therapeutic category. OTC coverage works particularly well within a mail service program, allowing the PBM to better track utilization and possible drug interactions, while providing an even more cost-efficient product for members. In addition, a key component for an effective OTC program is strong physician involvement. Pharmacists and medical directors within PBMs can again play an important role in this effort by helping to coordinate development and distribution of appropriate and relevant educational materials to prescribers.

The potential value of an OTC program is clear. For example, current estimates suggest that the cost to treat migraines over a 30-day period using an OTC product versus the newest prescription medication is $10 per member per month (PMPM) for the OTC versus $175 PMPM for one of the newest prescription migraine products. For many migraine sufferers, the OTC medication will provide the necessary relief, thus saving the plan sponsors significant dollars. Clinical pharmacists and medical directors within PBMs can work with physicians and plan members to provide education on how to identify warning signs for migraines, appropriate OTC options and when to seek physician support and non-OTC options. This same approach can be used for other OTC medications as well.

While not all plan sponsors require a prescription to secure coverage for OTCs, many pharmacists believe that prescriptions are important for some categories of medications. For example, individuals using PPIs—whether OTC or prescription—must be carefully monitored to prevent progression of the disease and other side effects. Requiring a prescription before payment is made will ensure that physician and pharmacist oversight is given.

Some PBMs are working with their customers to develop a "step therapy" approach to OTC drug benefits. This has the potential to provide significant cost savings to employers. There are a wide selection of OTC options for popular therapeutic categories including NSAIDs, asthma and allergies. An experienced PBM can work with the employer and physicians to develop programs highlighting OTC options.

PBMs with contracted networks of pharmacies can institute electronic edits that would alert pharmacists to instances where OTC options are appropriate. The pharmacist can then contact the physician, and, if approved, move from a prescription to OTC medication. This approach is also known as "first line" therapy and has produced significant savings for many plan sponsors. Under this approach, the patient tries the first line therapy (often an OTC or generic) first and if there is not an appropriate response, moves up to a higher dosage or branded medication. When combined with education and physician and PBM oversight, such programs can achieve financial savings while ensuring patients access therapies that address their needs.

Physicians and PBM pharmacists caution that just switching to an OTC does not guarantee savings—particularly when its impact on pharmacy and medical expenses are considered. The key is to analyze the most heavily utilized therapeutic categories, determine if there are appropriate OTC options, and include those OTCs as one choice, while also offering generics and a branded option on the formulary. This will enable physicians and patients to select the drug that will provide the optimum value. Involving the PBM in the decision as to which drugs need prescriptions and how best to incorporate an OTC benefit can ensure that plan members and the plan sponsor secure the best cost and outcomes from the benefit design.

The Growth of Pharmacy Benefit Plan Alternatives

2012-01-24T05:55:00.000-08:00

While there are many "alternative" pharmacy benefit plans discussed in the marketplace today, some of the newest ideas under discussion include:

Reference based pricing
Reverse copays
Coinsurance
Consumer directed health care (aka, Consumer-driven health care)

Reference Based Pricing

Reference based pricing (RBP) is a reimbursement mechanism in which payers set a ceiling price for medications that exhibit similar therapeutic benefits. While utilization of RBP in the United States is low, it has become one of the more popular pricing mechanisms for government and private-sponsored plans in Europe and over the past few years has gained considerable attention in the United States.

Under a reference based pricing program, managed care organizations (MCOs) and PBMs do not directly regulate drug pricing; rather, they attempt to constrain costs by setting a reimbursement threshold for individual drug classes.

Essentially, the payer determines a "reference price" or maximum reimbursement amount it will pay for drugs within specific therapeutic classes. The reference price is derived by analyzing cost and outcomes data and determining which drug in a class offers a reasonable clinical value among its peers at the lowest possible cost. The drug selected should have the ability to provide expected clinical outcomes to the greatest number of plan beneficiaries. The cost negotiated by the PBM becomes the reference price.

Typically, RBP is used for formulary or preferred medications. There is one therapeutic agent per category, which is priced based on RBP methodology. While employees or plan members have a choice of medications, if they select a medication that is priced higher than the reference drug, they are responsible for the price difference.

Advantages/Disadvantages. In general, RBP programs have shown the most success in countries that offer a national health care system, under which price setting, drug classification, and other policy decisions are highly centralized and administrative costs are lower.

However, U.S.-based proponents argue that despite differences in governance, RBP is still more effective than current cost-sharing methods at: (1) helping patients understand the true cost of their prescription drugs and therefore, becoming better health care consumers, and (2) creating competition among manufacturers. RBP proponents argue that this structure encourages pharmaceutical manufacturers to offer lower prices to PBMs and health plans in an effort to secure a position on formularies as the reference drug in a particular therapeutic or drug class.

Opponents argue that RBP creates an economic barrier to medically necessary drugs for lower income beneficiaries—the greater the price difference between the reference drug and the most expensive drugs in the class, the more likely that a beneficiary will decide to forgo the prescribed treatment or settle for a less costly treatment that may be clinically inappropriate for their condition. If the reference drug is a lower-priced generic, the difference between it and a new branded drug can be substantial, placing a potentially valuable drug therapy out of reach for many plan members.

Another issue influencing the potential viability of RBP is that unlike Europe, where reference based pricing is more prevalent, the U.S. has a free market system—where drug manufacturers are free to negotiate prices with various purchasers. Other challenges include the analysis of drug categories, selection of the right drug to be used as the therapeutic reference, and the determination of which agent provides the net lowest cost option. For example, payers may not benefit from RBP in all therapeutic areas. RBP is most appropriate for classes where there are significant differences in cost and outcomes for various branded and generic alternatives. The reference drug must also be the most appropriate choice available to treat the highest percentage of patients possible.

Within the current free market health system, RBP can present major pricing and administrative challenges that can dilute the cost savings generated. Determining the RBP involves careful analysis of cost, negotiation with manufacturers and several other steps. If that effort is spent on drugs that only benefit a small percentage of patients, particularly if those patients are also subject to prior authorization, or other administrative processes, the resulting cost-savings could be offset. However, despite concerns, some plan sponsors have opted to explore RBP. For employers who are considering or using RBP, it is important to note that patient education is critical to the potential success of the program. The plan sponsor's PBM must work closely with the employer to ensure that members understand the details of their pharmacy benefit and cost implications of RBP. The PBM must also work to help ensure members make health care decisions based not only on the cost of the drug, but on outcomes. In addition, the program must be carefully implemented by a PBM with expertise in negotiating pricing, understanding pricing trends, and working with physicians to provide necessary education.

While RBP could be viable for very large payers, and theoretically can result in significant cost-savings for the payer, there are many uncertainties. RBP should not be adopted without careful analysis of advantages and potential problems.

Reverse Copay

Under reverse copay, the payer/plan sponsor has a fixed allocation for pharmacy benefits for employees. Under a traditional copay benefit structure, the plan member would pay a set amount—typically ranging from $5 to $50—for each prescription. Under reverse copay, the plan sponsor would pay the copay—an amount established by the benefit design—and the member would pay the remaining amount. Some employers favor reverse copays because they are insulated from drug price inflation as their unit costs are fixed.

Reverse copay works particularly well for some high-cost categories of drugs. This strategy puts the onus on plan members to understand their pharmacy benefit and to work with their physician to carefully choose which drug can provide the greatest value based on their individual need. Furthermore, unlike some benefit plans today, reverse copay is relatively simple for the majority of plan members to understand. Employers with strong benefit communication programs and those who work with experienced PBMs may find some value with a reverse copay approach. However, as with other benefit design options, it requires monitoring to ensure the program does not penalize the sickest plan members as well as those with a limited income.

Coinsurance

Twenty to 30 years ago, most major medical health plans used coinsurance as opposed to copays. However, until recently this benefit design option had fallen out of favor because copays are simpler to implement, more predictable in price, and often more affordable for plan members. Recently, some health plans have begun to revisit the tactic of replacing or augmenting drug benefit copayments with coinsurance.

With coinsurance, employees/plan members pay a percentage of the cost of each prescription dispensed, often after meeting a deductible. When structured properly, coinsurance can help the plan sponsor to save their benefit dollars. Some plans, particularly those with traditional benefit designs, have realized savings of up to 20 percent upon implementation of prescription coinsurance.

There are many ways to structure coinsurance programs. One health plan, which offered $2 copays for generic drugs and $9 for brand-name drugs, switched to a coinsurance plan wherein employees paid 20 percent of a drug's cost, with a $50 out-of-pocket maximum for each prescription and an annual out-of-pocket maximum of $1,000 for single coverage and $1,500 for a family. While this structure shifts the responsibility of cost-saving to the plan member, it does protect against more catastrophic costs.

What Proponents Say About Coinsurance. Coinsurance can be used for a variety of drug therapy categories. For example, a plan may institute coinsurance for lifestyle drugs only. This allows limited coverage for popular drugs, such as Viagra and Propecia, while ensuring that the plan member has a greater financial stake in the decision to use a lifestyle drug.

Plan sponsors like the fact that coinsurance is readily understood by members: "If a drug costs $100 and my coinsurance is 20 percent, I pay $20.00 and my health plan pays $80.00." Coinsurance also helps the plan sponsor adjust for the cost of inflation; if drug prices increase by 10 percent, coinsurance passes a proportional amount of the increase to the beneficiary.

As with many of the alternative plans under discussion, coinsurance also allows the employee to pay the commensurate share of the cost of drugs, ensuring they become more cognizant of the actual cost of the drug. In fact, many employers believe that one of the most important features of a coinsurance plan is that it helps plan members to better recognize and appreciate the true cost of their pharmacy benefit.

What Critics Say About Coinsurance. One of the primary concerns many clinicians and consumer advocates have with coinsurance is that plan members never know what they are going to pay for a prescription. Copays are predictable ($10, 20, etc. per prescription). However, there are many variables affecting the price of prescription drugs under a coinsurance program, such as different prices by network pharmacies, time of year of purchase, price increases from the manufacturer, supply chain shortages, distribution, and so on. These constant changes in pricing can be especially challenging for members on a fixed income. In addition, members used to paying fixed copays may perceive coinsurance amounts as an indication that the medications are "not covered" thus creating confusion or resulting in under-utilization of the coinsured drugs.

Recognizing the impact of coinsurance and copays on members is perhaps one of the most important issues for plan sponsors considering this option. A recent study by the Rand Corporation noted that utilization of drugs decreases when out-of-pocket costs increase past a certain threshold.

Some analysts are concerned that if costly drugs have a high coin-surance rate, it may drive members to use less effective drugs to save money or to forgo treatment altogether, either of which could lead to higher overall health plan costs. Another key issue to consider is that many PBMs have found low satisfaction rates among members with coin-surance. While this may be due to uncertainty over cost, and may be attributed to poor benefit education, it is a factor that plan sponsors will want to consider.

Critical Coinsurance Issues to Consider. While there are concerns associated with this option, some plan sponsors may still want to proceed with exploring a coinsurance approach for their benefit. If so, there are some important steps that should be taken with the PBM or a consultant:

Examine what the plan sponsor and plan members are currently paying for copays.
Conduct a full analysis of historical claims. For example, if a $100 prescription has a $25 copay, switching to a 20 percent coinsurance may not provide the savings or value for either the plan sponsor or plan members' needs.
Analyze current claims data to better identify which therapeutic categories have the highest utilization, for what condition and by which plan members. A plan sponsor may want to forgo coin-surance if the price of the identified categories will increase costs significantly for chronic drugs.
Factor in rebates. A straight coinsurance program may reduce rebate income if the coinsurance is calculated on the net price of the drug (less estimated rebates). Plan sponsors that depend on rebates to offset PBM costs would have to give notice to their members that rebates would not be figured into the net price used for calculation of the coinsurance amount, thus potentially increasing out-of-pocket costs for members.
Talk to legal counsel if the plan decides to move to coinsurance. If the actual coinsurance amount is higher than what the price would be if discounts were added in, the plan could be subjecting itself to legal action. This occurs when there is a large rebate on a drug, reducing cost to the plan by an amount greater than the payer's coinsurance obligation. In effect, the health plan would make money at the expense of reducing costs for the member. While rare, this instance would result in perceived inequity and might precipitate a legal challenge.

One of the more important aspects to analyze when considering coinsurance is its potential impact on mail service. Mail service programs provide cost efficiencies for members as they can receive a 90-day drug supply for a 30-day copay. However, with coinsurance, there is no financial incentive to use the mail service and members who rely on mail service for drugs to treat chronic illnesses, or who prefer mail service for its convenience, will be penalized if a plan sponsor moves to a coinsurance design if the design extended to the use of mail service prescription drugs.

Mail service enables PBMs to offer pharmacy programs to employers for a lower cost as they can negotiate better rates with manufacturers and pass those savings along to clients. Additional issues involving mail service and coinsurance are that members may not have a clear idea of what their coinsurance is when they mail in a prescription every three months. This can reduce the efficiencies of mail service since a fixed copay is easily understood by members and there are few expenses, such as those associated with complicated member billings and bad debt (more likely to happen with coinsurance). These issues can be addressed, however, through education, mailings to members, online websites and a knowledgeable and strong customer service department within the PBM.

It is critical that payers work with a PBM experienced in developing pricing strategies to ensure that coinsurance amounts meet the goals of the employer without negatively influencing the plan member in terms of financial burden and potential negative outcomes.

Consumer Directed Health Care

While the pharmacy benefit designs discussed have generated considerable attention over the past few years, consumer directed healthcare (CDH) is currently creating the most excitement and debate within the pharmacy benefits marketplace. CDH has been a benefit option, albeit under a different name, since the 1980s in the form of high deductible plans. CDH plans include flexible spending accounts (FSAs), medical savings accounts (MSAs), health reimbursement accounts (HRAs), and most recently, health savings accounts (HSAs). The common thread among this profusion of acronyms is consumer control over dollars deposited in a tax-favored health care spending account.

Until very recently, the most prevalent form of CDH has been FSAs. Also known as IRS Section 125 Cafeteria plans, FSAs have allowed individuals to redirect a portion of their salary—generally between $2,000 to $5,000—into a tax-favored account. Recent CDH-friendly legislation has given rise to newer forms of CDH plans, namely, HRAs and HSAs. HRAs are emerging as the most popular type of CDH plan among employers and employees. HRAs differ from FSAs in that the employer (not the employee) funds the account and any unused funds may be rolled over from year to year (the use-it-or-lose-it rule does not apply). The employer funds the account as claims are submitted, and the funds are not considered a taxable benefit.

Many employers are also beginning to explore HSAs–part of the landmark Medicare drug bill passed in December of 2003. While the majority of consumers assume this legislation dealt with Medicare only, in reality, it also included several provisions for employer-sponsored health care benefits—HSAs among them. HSAs combine inexpensive, but high-deductible health insurance plans, with a tax-advantaged savings account. The concept behind HSAs is to encourage people to be more prudent in their management of medical expenses.

CDH and Prescription Benefits. Currently, even among employers offering a CDH benefit, most prescription costs are covered through a traditional, pharmacy benefit. However, fueled by employer demand for CDH, insurance plans and pharmacy benefit providers are looking to expand their CDH offerings by integrating a pharmacy component.

When considering a CDH plan, there are some important issues to explore. The ability to acquire outcomes and utilization data under a CDH plan has been virtually nonexistent to date, meaning employers have little idea as to where employees are spending their prescription benefit dollars. In addition, most CDH plans provide few opportunities to target programs to meet specific needs of employees.

However, one of the most important issues for plan sponsors to consider is whether the CDH plan has the ability to promote quality care and provide fair and affordable coverage for all plan members. According to a 2004 report entitled, "Rhetoric vs. Reality: Employer Views on Consumer-Driven Health Care," issued by the Centers for Studying Health Systems Change, a nonpartisan research group based in Washington, D.C., CDH plans could negatively impact outcomes by limiting the ability of patients with chronic conditions to secure preventive care. In addition, some health care advocates have significant concerns over selection issues. It is believed that healthier members will choose the CDH plan, leaving the more costly, sicker members in the insured plan.A survey conducted with employers by The Centers for Studying Health System Change reported that the majority of employees—more than 70 percent—had health care costs of less than $1,000 a year. Therefore, employers were concerned that by providing a $1,000 spending account, workers would spend more, thus increasing their total costs. Another recent employer survey reported that nearly one-third of the workforce secured health care coverage through a spouse; therefore offering coverage to those employees could increase costs without adding real value to the plan member and with the potential to waste the dollars of the plan sponsor.

Implementation of CDH plans can also be more expensive for the plan sponsor. Depending on the plan sponsor's existing capabilities, a significant investment (capital or outsourced) may be required in terms of increased customer services, systems integration, investment in interactive voice response (IVR) systems, online technology, as well as educational materials. While the vendor may offer these services, the plan sponsor will have to pay for them one way or another.

CDH plans must also provide comprehensive, rapid, and easy-to-access account information for employees and plan members. It is important for members to know what they have spent and how much remains for pharmacy coverage, inclusive of fees and discounts, so they do not spend in excess of the funds they have available.

In addition, it must be recognized that some plan members may not be ready to assume responsibility for health care purchase decisions. Without proper guidance, education, communication, and support, some might be tempted to discontinue their medications or make unwise decisions. This could lead to poorer outcomes requiring more expensive medical care, such as surgery or hospitalization.

Unfortunately, there is minimal data to help consultants and plan sponsors understand the implications of CDH. Preliminary results from a University of Minnesota study comparing the health care utilization and costs of CDH enrollees to traditional plan enrollees indicate that patient expenses, including pharmaceutical costs, were similar for each population. However, CDH enrollees showed an increase in demand for services. In fact, 65 percent of CDH enrollees were more likely to call customer service compared with 40 percent in the traditional plan.

While there are uncertainties surrounding this model, there are also some potentially positive attributes of such plans. CDH plans designed, managed, and implemented by experienced managed care organizations appear to have a better chance of addressing areas of concern while meeting the needs of employers and employees. Some of the benefits of CDH plans that should be considered by employers include:

Plan members with a deductible benefit design will appreciate first-dollar coverage and the ability to obtain some level of coverage for all drugs including those that are nonformulary. However, as plan members bear the full cost of their prescription drugs, and as they become accustomed to discussing drug pricing and alternative therapies with their providers, the rate of generic substitution will likely increase.
The tax savings achieved through CDH can be significant for employers. For every $1,000 deposited into a CDH account, the employer will save 7.65 percent, or $76.50 in payroll taxes.^[8] Furthermore, if CDH enrollees become more savvy health care consumers, plan sponsors can also expect to save in terms of lower claims costs and, ultimately, lower health care premiums.

The movement towards consumer-directed health care is part of a bigger picture in which individuals have more responsibility for their overall financial and physical health. However, until more data is available, employers will need to fully explore the pros and cons of CDH plans, and ensure they have examined other pharmacy benefit strategies proven to help lower outcomes and improve quality.

Why Plan Sponsors Are Considering Alternative Prescription Drug Plans

2012-01-20T04:33:00.000-08:00

In 2004, the nation's spending on prescription drugs was more than $200 billion. While this represents one of the largest segments of health care spending today, the good news is that pharmacy costs are moderating; growth in 2003 was 12.4 percent versus 19.7 percent in 1999. However, despite moderation, pharmacy costs continue to represent a significant portion of an employer's benefits expenditures.

Pharmaceutical manufacturers are often blamed for the high cost of prescription benefits. In reality, there is a complex array of factors influencing pricing that must be examined to find effective and meaningful solutions for employers and payers. Factors currently influencing price include:

Federal and state legislation;
Consumer trends within the marketplace;
Increasing utilization caused by an aging population; and
Growing demand as a result of society's fixation on prescription drugs as a cure for all ills.

To manage costs more effectively, payers are looking for solutions, and are often willing to try any option that appears to promise lower costs. Many of the newer drug benefit design options share a common theme; they place more responsibility and financial burden on the employee as a primary strategy to reduce costs to the employer.

However, employers cannot continue to shift costs to members as the sole tactic to reduce health benefit expenses. The industry must find ways to encourage employers to move beyond the latest benefit design trend to focus on strategies with the proven ability to manage costs and improve quality. These approaches will ensure that employers' pharmacy benefit management (PBM) programs are "customized" to better meet the demands of plan members and plan sponsors.

Plan Administration | Dental Plan

2012-01-16T01:11:00.000-08:00

The last item to be addressed is claims administration. The nature of dentistry and dental plan design suggests that claims administration is very important. While several years may lapse before an insured has occasion to file a medical claim, rarely does the year pass during which a family will not visit the dentist at least once. Therefore, claims administration capability is an extremely important consideration in selecting a plan carrier—and might very well be the most important consideration.

One key element of claims administration is "predetermination of benefits." This common plan feature requires the dentist to prepare a treatment plan that shows the work and cost before any services begin. This treatment plan generally is required only for nonemergency services and only if the cost is expected to exceed some specified level, such as $300. The carrier processes this information to determine exactly how much the dental plan will pay. Also, selected claims are referred to the carrier's dental consultants to assess the appropriateness of the recommended treatment. If there are any questions, the dental consultant discusses the treatment plan with the dentist prior to performing the services.

Predetermination is very important both in promoting better quality care and in reducing costs. These benefits are accomplished by spotting unnecessary expenses, treatments that cannot be expected to last, instances of coverage duplication, and charges higher than usual and customary before extensive and expensive work begins. Predetermination of benefits can be effective in reducing claim costs by as much as 5 percent. Predetermination also advises the covered individual of the exact amount of reimbursement under the plan prior to commencement of treatment.

Also important are alternate treatment provisions. These provisions enable the plan administrator either to approve the least costly, equally effective treatment option or to cover more expensive procedures only at the level of the less expensive alternative. Alternate treatment provisions, adopted by most plan sponsors, can reduce plan costs up to 5 percent.

Sponsor's Approach to Implementation | Dental Plan

2012-01-13T00:21:00.000-08:00

The last of the factors affecting plan costs is the sponsor's approach to implementation. Dental work, unlike medical care, lends itself to "sand-bagging" (i.e., deferral of needed treatment until after the plan's effective date). Everything else being equal, plans announced well in advance of the effective date tend to have poorer first-year experience than plans announced only shortly before the effective date. Advance knowledge of the deferred effective date easily can increase first-year costs from 10 percent to 20 percent or even more.

Employee contributions are another consideration. Dental plans, if offered on a contributory basis, may be prone to adverse selection. While there is evidence that the adverse selection is not as great as was once anticipated, many insurers continue to discourage contributory plans. Most insurance companies will underwrite dental benefits on a contributory basis, but some require certain adverse selection safeguards. Typical safeguards include the following:

Combining dental plan participation and contributions with medical plan participation.
Limiting enrollment to a single offering, thus preventing subsequent sign-ups or dropouts.
Requiring dental examinations before joining the plan and limiting or excluding treatment for conditions identified in the exam. The Health Insurance Portability and Accountability Act (HIPAA) limitations do not apply as long as the dental benefits are "limited in scope" and are available under a separate policy or rider.
Requiring participants to remain in the plan for a specified minimum time period before being eligible to drop coverage.

Characteristics of the Covered Group

2012-01-10T06:20:00.000-08:00

A second factor affecting the cost of the dental plan is the characteristics of the covered group. Important considerations include, but are not limited to, the following:

Age.
Gender.
Location.
Income level of the participants.
Occupation.

The increased incidence of high-cost dental procedures at older ages generally makes coverage of older groups more expensive. Average charges usually increase from about age 30. As one ages, the need for more expensive restorative services increases for those who need dental care.

Gender is another consideration. Women tend to have higher utilization rates than men. For a given age, costs among females are 10–15 percent higher than the costs among males. One study showed that women average 1.9 visits to dentists per year, compared with 1.7 for men. These differences may be attributable to a heightened sensitivity to personal appearance by women rather than to a higher need.

Charge levels, practice patterns, and the availability of dentists vary considerably by locale. Charge levels within the United States range anywhere from 75 percent to 135 percent of the national average, except for Alaska, California, and certain metropolitan areas. Differences exist in the frequency of use for certain procedures as well. There is evidence, for example, that more expensive procedures are performed relatively more often in Los Angeles than, say, in Philadelphia.

Another consideration is income. One study shows that dental care expenditures per participant were 5 percent to 30 percent higher for members of families with higher incomes. Generally, the higher the income, the greater the difference.

Essentially four reasons may account for income being a key factor. First, the higher the income level, the greater the likelihood the individual already has an established program of dental hygiene. Second, in many areas there is greater accessibility to dental care in high-income neighborhoods. Third, a greater tendency exists on the part of higher-income individuals to elect higher-cost procedures. Last, high-income people tend to use more expensive dentists.

Another important consideration is the occupation of the covered group. While difficult to explain, evidence suggests considerable variation between plans covering blue-collar workers and plans covering salaried or mixed groups. One possible explanation is differences in awareness and income levels. One insurer estimates that blue-collar employees are 15 percent to 25 percent less expensive to insure than white-collar employees.