As prescription drug costs continue their double-digit rates of growth, employee benefit plans across the country are examining their prescription drug plans.

The University has formed a Prescription Drug 2002 Work Group to examine options across U-M health plans. Members include faculty and staff from the Medical School, Office of the Provost, Hospitals, School of Nursing (also represents SACUA), School of Public Health, College of Pharmacy, Human Resources and Affirmative Action (HRAA), Benefits Office, and the William Mercer, Inc. Consulting Team. The group will seek input from the University community and likely consider the best practices and the pluses and minuses of popular strategies employers and managed care organizations are using to manage their prescription drug programs.

Among those strategies are:

(1) Drug formularies. A drug formulary is a list of preferred and approved drugs that a health care plan uses in cooperation with physicians. Drugs are included or excluded on the basis of cost and quality.

The University currently has open formularies across all health care plans, with the exception of Care Choices, which has a modified formulary. The open formulary does not place restrictions on access to the prescription drugs. A preferred or modified formulary recommends certain drugs over others and may have increased co-payment for non-preferred drugs on the list. A closed formulary prohibits member physicians from prescribing excluded drugs, but may offer an appeal procedure.

John E. Billi, associate dean for clinical affairs at the Medical School, and Jeoffrey Stross, professor of internal medicine, are co-chairs of the Ambulatory Formulary Committee for the U-M Health System. The committee is working on recommendations for optimal drugs for common conditions in drug classes such as antidepressants and lipid (cholesterol) lowering drugs. The end result will be a preferred drug list for use by M-Care, the University Hospital and health centers, and the Hospital's faculty physician group.

"Factors that go into our choices include safety, effectiveness, and cost," said Billi, also a member of the Prescription Drug Work Group 2002. "We believe some restrictions can be helpful and are trying to arrive at the best balance of recommendations based on all evidence available."

The Prescription Drug Work Group 2002 will not make decisions about including or excluding specific drugs. Those decisions are made by the Pharmacy and Therapeutics (P&T) Committee of each health plan composed of physicians, pharmacists, and other health professionals.

(2) Increased generic drug use. Used for years in hospitals, the vast majority of generic drugs are therapeutically equivalent to brand drugs with expired patents. Generics must pass that equivalency test to meet Food and Drug Administration (FDA) requirements. Over 40 percent of all prescriptions dispensed for ambulatory patients are for generic products.

Since they cost 40 to 60 percent less than brand name drugs, wider use of generic drugs would greatly reduce pharmaceutical costs for everyone. Three of the University's health plans charge only $5 co-payments for generic drugs and $10 for brand drugs as an incentive to use generics.

(3) Multi-tiered co-pays. Under this system, for example, members may pay different amounts out of pocket for prescriptions, depending on whether the drug is generic, a preferred brand drug, or a non-preferred brand drug.

If a doctor doesn't specifically request a brand name drug and a generic equivalent is available, some plans require the member to accept the generic drug, or pay the difference in price between the generic and brand name drug. This method provides incentive to choose less expensive drugs while not restricting consumers' choices.

(4) Other forms of cost-sharing. Some health plans use deductibles, where patients pay a set amount before the prescription benefit kicks in. Another cost-limiting measure is the expenditure cap, which imposes a limit---anywhere from $500 to $3,000---on members' prescription expenditures.

While these forms of cost-sharing apply to standard indemnity plans, they are not representative of managed care. By law, HMOs are required to offer first dollar coverage without any caps on coverage.

"Expenditure caps are the cruelest form of cost-sharing," believes Patrick McKercher, director of the Center for Medical Use, Policy and Economics in the College of Pharmacy and a member of the Prescription Drug Work Group 2002. "Only the sickest people run into the spending ceiling. Just when they need drug coverage the most, they're hit by the expenditure cap."

"A good cost-sharing program creates incentives for the consumer to do the most efficient drug therapy possible," McKercher said. "But in programs with only a flat, $5 co-pay, people can still get the most expensive, rather than most appropriate drug. And it costs them nothing more."

(5) Disease Management. Programs of disease management involve the physician, pharmacist, and patient in the management of drug therapy for specific conditions such as asthma, coronary artery disease, and ulcer disease. The program follows guidelines for best prescribing practices to treat the disease and emphasizes patient education.

While the drug therapy might be expensive, savings may result from improvements in overall health and the lack of guesswork in prescribing practices.

"Disease management is designed to provide better medical care rather than save money, said Billi. "But these programs may save on pharmaceuticals because they discourage use of ineffective drugs that don't meet established criteria. That's a good byproduct of evidence-based medicine."

Throughout Michigan and the country, organizations that offer employee health benefits are examining such strategies. Most, like U-M, are addressing the problem through consumer education combined with moderate changes in cost-sharing, said Jon Clement, head of Health Care and Group Benefits for William Mercer, Inc.

"The U-M health benefit plan mirrors most of those in industry in both its practices and in the magnitude of prescription drug cost increases," said Clement. "Only a few companies so far have been willing to try very aggressive cost control initiatives."

Next, this series will look at generic drugs and the impact of new drug development on prescription drug costs.