Strong medicine for drug costs.

You're already squeezing every last dollar out of managed health care. Now what? Here's a look at how some companies keep the lid on prescription-drug expenses, the next cost hot button.

HANG OUT YOUR OWN SHINGLE 

by Robert Kessler Director of QuadMed Clinic QuadGraphics, Pewaukee, Wis.

Company size: $900 million Employees: 8,400 Prescription drugs as % of total health-care costs: 5 Generic drugs as % of prescriptions filled: 30

A few years ago, when our prescription-drug costs started getting out of hand, we decided to set up our own pharmacy. For most companies, that might sound drastic, but this wasn't exactly foreign territory for us. QuadGraphics is a privately held printing company, with the majority of our employees in our Wisconsin plants. Our aim is to be completely self-sufficient in meeting our business and employee needs, so we have a number of divisions that aren't strictly related to our core business, such as QuadGalleries, which handles our corporate art collection, and QuadGardens, which is responsible for our grounds and landscaping. We believe these divisions contribute to and enhance our core printing business.

With that philosophy, we had several goals in adding a pharmacy to our existing on-site medical center in 1991. Giving our employees several pharmaceutical options to choose from was and is important to us, and we felt we could establish a more productive relationship and negotiate a better deal with drug manufacturers by contracting with them directly instead of through a network. Plus, we wanted to know where we were spending our prescription-drug dollars. Our pharmaceutical program was bundled with our major medical policy before 1991, so our former third-party administrator never tracked pharmacy costs separately.

Today, two full-time pharmacists, one part-time pharmacist and two full-time technicians fill more than 60,000 prescriptions a year. The pharmacy is open from 8:00 a.m. to 8:00 p.m. Monday through Friday and from 8:00 a.m. to 12:00 p.m. on Saturday. The employee copay is 25 percent of the prescription, with a $3 minimum. Spouses and dependents get identical coverage.

Our interplant shuttles deliver prescriptions five times a day to the employee-services division at each of our five Wisconsin plants, which are within a 50-mile radius of each other. We use an overnight express carrier to shuttle prescriptions to our other locations in New York, Minnesota, West Virginia and Georgia. If an employee in Saratoga, N.Y., calls in a prescription to our pharmacy by 3:00 p.m., it'll be there by 8:00 a.m. the next morning. Overnight express is cost-effective for us because the prescriptions simply go in with our regular corporate mail package.

Unlike many companies, we don't use formularies - we want our physicians to choose what they think is the right drug for the patient. But we do use generics whenever possible. Wisconsin has a generic-substitution law that allows pharmacists to substitute a generic drug for a brand-name one without notifying the physician, unless the physician writes "Do not substitute" or "Dispense as written" on the prescription. Under our pharmacy plan, if the employee insists on the name-brand drug, he or she pays the difference in price.

We also give employees the option of using two national pharmaceutical chains, and we've added independent pharmacies here and there to fill in any geographical gaps. But these options are more expensive, with an annual deductible of $50 per family and a 50-percent copay, so most people opt for our pharmacy. The average employee age is 31, so most employees' costs are relatively low.

At one time, we were spending a fair amount of money and employee time just to process our external network claims. Now our vendors funnel all their paperwork through a pharmaceutical adjudication company that we retain. The adjudication company processes the claims and pays the vendors, and we pay the company a per-claim fee every month for its services. This has decreased our average claims cost per employee by more than 90 percent. Also, the adjudication company maintains a database of the employees who use the outside vendors. It's not linked to the database we keep of our pharmacy users, but we can access the data.

Since we have a direct contractual relationship with the drug manufacturers, we make it clear to them that their responsibility is to partner with us to educate physicians so we can keep our pharmacy costs down. We can offer them about 18,000 customers (employees plus spouses and dependents), so they're more than willing to cooperate. In fact, we're usually able to purchase drugs at wholesale prices through a variety of arrangements, depending on the manufacturer.

As you might imagine, privacy issues are a big concern for a corporate pharmacy. We take a great deal of care to ensure we never breach medical confidentiality. All the pharmacy's data systems are totally separate from QuadGraphics' other systems, and no one can access them except the people working at the pharmacy.

As soon as a pharmacist fills the prescription, he places it in bubble packaging that is then heat-sealed, so any type of sabotage or tampering would be immediately obvious. Neither the name of the drug nor the condition for which it's prescribed appears on the package. The label bears only the employee's name. When the shuttle driver makes his daily delivery, he must have someone sign for the entire drug order, which promotes accountability and confidentiality. Finally, no clinic worker can be related to anyone else working for Quad Graphics. Even with these measures, however, it took some time for employees to develop trust in us as their pharmaceutical provider.

The next step for us is looking more closely at disease management, because studies show that managed care in pharmacy can dramatically improve health-care costs. We're working with a major drug manufacturer to produce outcome studies on lipid (cholesterol) management, asthma, depression and respiratory infections, as well as the cost-effectiveness of certain antibiotics.

YOUR FRIENDLY NEIGHBORHOOD PHARMACY

by Thomas Morin Director, Employee Benefits Maytag Corp., Newton, Iowa 

Company size: $3 billion Employees: 16,000 Prescription drugs as % of total health-care costs: 6 Generic drugs as % of prescriptions filled: 40

Like many other companies, Maytag includes prescription-drug coverage in its employee-benefits package, and for years, we considered this benefit very inexpensive. But in 1989, we realized our various drug programs, including mail order, major medical and card plans, were rising in cost from 15 to 20 percent.

That's when we realized we had to revamp our approach to prescription-drug coverage. We consolidated our handful of plans into one plan for the entire company, and we carved it out from our health-care program so we could better track our costs. By the end of 1991, our per-employee drug cost had decreased by 2.5 percent. But the following year, our costs rose again by 15.7 percent.

Clearly, we needed to do some fine-tuning, so we raised the employee copayment from a flat $5 fee to 15 percent of the prescription cost. Our base indemnity plan requires 20 percent coinsurance, and we reasoned that employees were already accustomed to sharing health costs through coinsurance payments.

To further control costs, we adopted a voluntary formulary, a list of drugs recommended for their clinical and cost effectiveness. Our employees receive copies of the formulary, and we encourage them to share it with their doctors. We've had a great deal of success in this area - our participation rate is 91 percent, so we haven't made the formulary mandatory, as some employers are considering doing. We also encourage employees to use generics by requiring them to pay the difference in price if a generic version of a drug is available and they choose the brand name. These changes have stabilized our costs, which have decreased 14 percent since 1992.

Most of our employees accepted our cost-cutting measures reasonably well, because we make pharmaceutical services convenient for them. Our employees are concentrated in Ohio, Tennessee, Illinois and Iowa, mainly in rural locations, so we chose a vendor that could offer us a comprehensive retail pharmacy network, one that wouldn't restrict our employees' choice of pharmacy. You can't pick a network that has only two of the 20 pharmacies in your area and expect it to be successful. Plus, we want employees to be able to get prescriptions filled if they're traveling.

The claims processing is completely on-line and takes place at the point of service. The employee simply gives the pharmacist his prescription-drug card, and the pharmacist immediately enters all the relevant information on the computer system. This gives us a great deal of security and control, because the database has many built-in red flags. For example, when the pharmacist pulls up the individual's file, he can see immediately how many refills the employee has left, whether he's already filled that prescription at another pharmacy, whether the prescription is contraindicated for another medication the individual is taking and so on.

One issue we're really wrestling with is what we should do if we find out, through utilization review, that an employee is abusing prescription drugs. Fortunately, we haven't had any cases like that, but if the problem arises, we'd like to help that person get treatment. Some possible options are going through our third-party administrator or handling it through human resources or our internal medical department. But you can quickly run into some very ticklish invasion-of-privacy issues, so we haven't made any policy decisions in this area yet.

About two years ago, a drug manufacturer acquired our provider, and we had some concerns about the possibility of the manufacturer influencing the makeup of the provider's formulary. However, the proportion of the manufacturer's drugs listed on the formulary - just over 4 percent - has remained exactly the same. So we'll continue to monitor the situation, but we're not really concerned for the moment.

We don't expect any more major changes to our prescription-drug program in the near future. From time to time, we've looked at setting up a corporate pharmacy, but we just don't want to be in the prescription-drug business. The cost of staffing and administering the pharmacy would quickly offset any savings we might achieve.

And although many companies have begun to use mail-order plans for employees on maintenance or long-term drugs, we decided against that option, too. We're the main employer in a lot of our locations, and we saw our decision to use a strictly retail network as a way of giving back some business to the community via the local pharmacies, rather than paying some out-of-state mail-order supplier.

STRENGTH IN NUMBERS 

by Barry Martin Manager of Health-Care Planning and Administration The Timken Co., Canton, Ohio 

Company size: $1.93 billion Employees: 16,000 Prescription drugs as % of total health-care costs: 10 Generic drugs as % of prescriptions filled: 30

The Timken Co., which manufactures tapered roller bearings and alloy steels, is one of the founding companies in a 50-company regional health-care coalition, and our first big purchasing success was in the prescription-drug area. By combining our mutual interests in purchasing a drug program, we negotiated a better deal than each of us would have been able to achieve individually.

The coalition selected a vendor by creating a request for proposal and sending it to eight major managed pharmaceutical-care vendors. All competitors for the bid had nationwide networks and could integrate retail and mail-order plans, so access wasn't an issue. Actually, our current vendor won the bidding process because it was the most clinically oriented - it had the best programs for utilization review and disease management. The vendor brought some of its pharmacists to the presentation, and they spoke convincingly about the importance of their role in identifying potential drug interactions and in educating physicians about formulary and generic-drug usage.

Currently, the coalition insures about 50,000 lives, a figure that includes spouses and dependents. The Timken Co. alone covers 10,000 active employees (in the United States) and 7,000 retirees, who have similar coverage. We estimate our pharmaceutical costs will decrease by about 6 percent under our new program, which we implemented January 1 of this year.

Before we instituted our prescription-drug plan through the purchasing coalition, we had a mail-order program for maintenance drugs, and any other drugs were covered under our medical-indemnity program or preferred-provider organization. Essentially, our employees were purchasing drugs on the open market, with no volume discount or corporate leverage working for them. They really didn't have much of a benefit that way, because 60 percent of them never met their deductible, which was $200 through the medical-indemnity plan and $220 through the preferred-provider organization.

Not surprisingly, employees really like the new mail-order program because it's a good value for them. They pay $10 or $12 (depending on their medical plan) for brand-name drugs and $5 for generics. There is one caveat about mail-order programs, however - you do have some potential for waste. For example, an employee may order a six months' supply of drugs, and halfway through, the physician decides to change the prescription because it's not helping the patient or is producing side effects. To avoid wasted orders, we limit employees to a 90-day supply of mail-order drugs.

Our voluntary formulary has worked pretty well for us in containing costs so far, but we do find some of our people don't fully understand what it's supposed to do. They're under the impression that the drugs on the formulary are the only ones we cover, so if their migraine medicine isn't listed on it, they think they're not covered. They don't realize the drugs on the formulary are particularly recommended for their cost and efficacy, but that we will cover other drugs if they're medically appropriate. Although we did educate employees extensively about the new program, we didn't dwell on the details of the formulary. But we're planning to address some of these questions and misconceptions in an upcoming employee newsletter.

Next on our agenda is evaluating provider proposals on targeting benefits communications to individuals with specific diseases, such as diabetes or asthma. We also may go to a percentage, rather than a flat-fee, basis for our mail-order copayments, to keep pace with the cost of providing mail-order services. And we're looking into setting up our mail-order process electronically, to save both time and money.

AN OLDER POPULATION

by J. Michael Losh CFO General Motors, Detroit

Company size: $155 billion Employees: 692,800 (1994 worldwide average) Prescription drugs as % of total health-care costs: 14 Generic drugs as % of prescriptions filled: 34

Last year, GM spent $500 million to pay the employer share of 14 million prescriptions. Drug-cost inflation trends were approaching 20 percent annually during the early 1990s, and that was clearly unacceptable. We decided we needed a pharmaceutical benefit manager to help us change directions.

The GM pharmaceutical network, which we established early in 1994, yielded savings of about $60 million last year for prescriptions outside of our health maintenance organizations, compared to 1993. The network comprises about 34,000 pharmacies, down from 56,000 under our previous plan. By limiting the network, we've been able to improve discounts and pharmacy dispensing fees. And the pharmacy benefits manager has been able to negotiate more favorable rebates with drug manufacturers and to focus pharmacies on dispensing generic drugs.

Another major advantage of restructuring our systems under a pharmacy benefit manager is the ability to integrate mail-order drugs with retail-pharmacy purchases. That's a significant advantage for us in preventing conflicting prescriptions, which can be a problem with an older and mobile covered population. Our health-care enrollee group of 1.6 million people has more retirees than active employees, an increasing company-wide average age (currently 47) and, as you'd expect, increasing utilization. In fact, 75 percent of drug expenditures are for enrollees age 50 or older.

Given the average employee age, it's hardly surprising that cardiovascular, acid-peptic (digestive), lipid, arthritis, depression, respiratory and diabetic disorders account for more than 50 percent of our prescription-drug costs. We're focusing on the four most easily managed, high-cost categories - cardiovascular, acid-peptic, arthritis and diabetes, which respectively represent 22, 14, 6 and 4 percent of the total. For example, diabetic enrollees in our mail-order program receive educational materials to help them manage their care.

Another benefit we get from our pharmaceutical network is the ability to run data from transactions to profile pharmacies and physicians. This information allows us to target specific physicians and pharmacists where improvement is needed. The pharmacy benefits manager also uses the data to develop educational materials for the physician.

Our current approach to controlling pharmaceutical costs focuses on disease management, outcomes and the integration of patients, physicians and pharmacists. Disease management attempts to pin down particular ailments or conditions so the patient can receive the proper medication and potentially avoid a costly and unnecessary hospital stay. This approach has built on cost-containment efforts that began during the 1980s and focused on generics, distribution efficiency and reduction of fraud. Other current efforts include formularies and case management. We count heavily on our managers to set standards and develop data.

We're focusing the next wave of pharmaceutical benefits improvements on long-term and total-system intervention, partly because we've found a good deal of waste in the system. According to our pharmaceutical benefits manager's data, 20 percent or more of prescriptions aren't well-suited to the patient's problem, and about one in every two patients is not using the medicine as prescribed. Sometimes the patient stops too early, develops problems as a result and ends up in the hospital. In fact, several studies we've done suggest that a substantial number of hospital admissions for our senior enrollees result from inappropriate drug treatment. So sometimes it's much better to have the patient use the benefit, because in the long run, it'll reduce overall health costs.