Prescription Drug Plans

Question 1

Describe the common elements of a prescription drug plan.

Answer 1

Among the common elements of today’s prescription plans are:

A. Member eligibility cards
B. Online claims adjudication
C. Tiered co-pays or deductibles and coinsurance
D. Pharmacy networks providing discounts for branded medications
E. Maximum allowable cost (MAC) pricing for generics
F. Mail service
G. Formularies and/or preferred drug lists
H. Prior authorizations for certain high-cost medications
I. Therapeutic interchange or switching

Question 2

What design and managing options are available to employers for a pharmacy benefit plan?

Answer 2

When designing and managing a pharmacy benefit plan, employers have several options. Employers and other payers can (1) manage the benefit and adjudicate claims internally; (2) outsource the benefit management to a health plan, PBM, or TPA; or (3) contract directly with pharmacies and adjudicate claims internally.

In general, here’s covering fewer than 15,000 members usually do not retain the management of the pharmacy benefit in house, although some large employers do so in the belief that they can negotiate better terms with pharmacies and pharmaceutical manufacturers than can PBMs.

Question 3

What is AWP in the supply chain of pharmaceutical drugs?

Answer 3

AWP: average wholesale price - is the price assigned by the drug manufacturer and used as a reference price for all discounts paid to pharmacies and PBM’s. The AWP is used as a reference for pricing guarantees in public and private contracts.

Note: the AWP pricing benchmark has been the subject of much criticism and a 2009 court ruling resulted in, among other changes, the two largest publishers of AWP announcing that they were going to discontinue the publication of AWP in 2011. Since then, they have reversed their decision.

Question 4

What is WAC in the supply chain of pharmaceutical drugs?

Answer 4

WAC: wholesale acquisition cost (or average manufacturer price) is the price at which wholesalers by pharmaceuticals from manufacturers.

WAC pricing contracts were expected to replace AWP-based contracts; however, recent industry actions suggest otherwise, at least in the short term.

Question 5

What is MAC in the supply chain of pharmaceutical drugs?

Answer 5

MAC: maximum allowable cost of a generic medication places a ceiling on the reimbursement for generic. The genesis of the MAC concept is the federal Medicaid program. The centers for Medicare and Medicaid services (CMS) publishes a federal upper limit price for all generic medications paid by the Medicare and Medicaid programs.

PBM’s in TPAs developed their own MAC lists to cover all generic medications. Since generics are made by many manufacturers, several options are used for pricing the MAC. It may be the average cost of all manufacturers’ AWPs, the lowest AWP, or a formula for arriving at an aggregate AWP discount for the entire MAC list. Most plans offer payers a MAC list that will deliver a 50% or more discount off the AWP.

Question 6

What happens when an employee presents his or her prescription drug card to a pharmacy that is in network?

Answer 6

A prescription drug card program provides its participants with prescription medications from a participating pharmacy at a pre-negotiated discount rate. That covered employee presents his or her prescription to the participating pharmacy. The pharmacist uses an online computer network to get answers to a number of questions, such as whether the drug is covered by the plan, whether the individual is eligible for the medication and whether any limitations are associated with the medication before filling the prescription. The employee typically pays a fixed copayment, and the payer is billed at a pre-negotiated discount rate.

NOTE: under most prescription drug plans, employees are required to share in the cost of their prescription by paying a copayment or coinsurance, and/or by satisfying a deductible. A copayment (co-pay) is a predetermined amount that’s paid when the prescription is filled. Coinsurance is a percentage of the cover charges that the employee pays for his or her prescriptions.

Question 7

Today, prescription drugs represent 10 to 25% of employers overall health care costs. What factors have been cited as contributing to the dramatic increases in prescription drug costs?

Answer 7

The overwhelming majority of increase in expenditures on prescription drugs is attributable to the increased volume, mix and availability of products, as well as cost increases passed on by the pharmaceutical industry. According to one report, recently drug price inflation for branded products was the single most important factor driving up cost per unit. Direct to consumer advertising has also increased and the demand for drugs. In addition, demographics are driving up prescription medication costs as the population ages. Another contributing factor is that more and more new drug therapies are targeting the “young old” in an effort to prevent certain diseases from progressing. In some cases, prescription drugs are a substitute for other forms of healthcare.

Of note is that biotechnology drug spending is expected to account for about half of the future growth in drug prices.

Question 8

What are some examples of medications excluded under prescription drug plan?

Answer 8

Come and plan exclusions are medications used for smoking cessation, hair loss, obesity and has medic conditions. (Drugs for investigational use, drugs covered under workers’ compensation programs and immunizing agents are also excluded).

Contraceptive prescription drugs are a special class of drugs that have often been giving separate consideration. Insured plans may have a rider that allows a plan sponsor to opt for coverage of contraceptives. Multiple court rulings have required plans to cover contraceptives, even in plans for religious organizations, but this trend is starting to be reversed.

Another special class of drugs is so called lifestyle drugs - the term applied to prescription products that do not necessarily cure illness that can be used to improve daily life by boosting psychological attitudes, energy levels, sexual performance and body image. These drugs are typically excluded from employer-sponsored prescription drug plans.

Over-the-counter (OTC) medications also are a common exclusion. Very few plans cover OTC medications. A few plans cover some OTC medications, such as insulin, needles and syringes, prenatal vitamins, and diabetic devices and test strips.

Finally, when biotechnology medications (drugs made from living cells that treat diseases from cancer to anemia to psoriasis) must be administered by a healthcare professional, they are usually covered under the medical benefit. However, some plans are placing these drugs under the pharmacy benefit for the purpose of applying managed-care tools since this placement allows for more discounted pricing, formulary management, edits and position profiling for managing the use of these medications.

NOTE: Prescription drug plan benefits typically include: (1) Federal legend drugs, (2) State restricted drugs (in some states, federal nonlegend drugs can only be dispensed with a physician’s prescription), (3) compound items which contain a federal legend drug or state restricted drug and (4) injectable insulin. Quantity limitations are often the greater of a 30- or 34-day supply or 100 units. The definition of federal legend drugs is any medicinal substance which bears the legend “Caution: Federal law prohibits dispensing without a prescription.”

Question 9

Need to know-review answer.

Answer 9

In a three-tier prescription drug plan, the lowest tier is for generics, the next higher tier is for preferred brands, and the highest tier is for nonpreferred or nonformulary brands.

Question 10

Explain the mechanics of a prior authorization program.

Answer 10

A prior authorization (PA) program restricts coverage under the plan for certain drugs based on the patient’s conditions and maximizes the outcome of the medication. Under this program, the physician must call into the entity that is administering the PA program (typically the PBM or health plan). The physician answers questions about the patient’s condition and, based on the information, the drug will either be covered under the plan or not. Many drugs that are subject to PA programs have monthly cost that range from $250 to $2000 a month. Some drugs also have quantity limits in addition to a PA requirement.

Question 11

Explain the mechanics of a quantity limits provision in a drug plan.

Answer 11

Quantity limits (QL’s) are predefine maximal quantities for specific medications. QLs restrict the number of dosage units (e.g., tablets or capsules that can be dispensed for a 30-, 60-, or 90-day supply of a prescription. Originally established to ensure that certain medications could not be abused or overused, QLs may help in improving compliance with medication therapy. Instead of taking a lower strength of a drug more frequently, QLs prompt patients to obtain and take higher doses less frequently.

Question 12

Provide a number of reasons for offering carved out prescription drug plans.

Answer 12

A. Under an indemnity plan, there are typically no discounts for prescription drug coverage. Plan sponsors may pay as much as 10% above the AWP rather than 15% below it.

B. Medical claims Processors often do not require detailed receipts for prescription drugs and therefore cannot review the prescriptions for coverage as effectively as is done with the PBM’s online claims processing systems.

C. Because detailed information is not entered into the medical claims processing systems, limited data are available in report format for reviewing drug trends.

D. Rebates and other cost-saving programs, which are available in prescription benefit plans, are not available through medical claims processors.

Question 13

Need to know-review answer.

Answer 13

Some employers that believe it is more cost-effective to manage the entire medical benefit, may wish to avoid a freestanding drug plan in favor of covering medication under a make major medical or comprehensive health plan. The employers thinking is that carving the pharmacy benefit out of the major medical benefit may lead to micromanagement of the pharmacy portion of The plan, leading to losses for the medical portion. For example excluding certain medications could lead to increased emergency medical visits for physician encounters.

Question 14

What factors influence the cost of prescription drug benefits?

Answer 14

The cost of the prescription benefit depends on a variety of factors:

First, the demographics (age and gender) of the population determine the disease mix that is being treated.

Second, benefits, co-pays and formulary design influence what is covered in the plan.

Third, drug cost and the mix of branded products covered by the benefit drive the cost of drugs. Drug mix is a factor of the preferred drug list, or the restrictiveness of the formulary. Rebates may migrate some branded drug cost, particularly if 100% of the rebates are being returned to the plan. Preferred drugs may actually cost more on a monthly basis in terms of the cost of the discounted ingredient cost. But, after rebates, the “net” costs of the preferred drugs should always been less than those of the nonpreferred drugs within a therapeutic category unless the agent (a particular drug) is clinically superior.

Fourth, the utilization (number) of prescriptions used by the members is the multiplier of drug cost.

Fifth, the cost charged by the PBM and the PBM’s ability to gain a profit from retail and mail-order discounts, rebates and other programs should provide offsetting discounts to the cost of the program. PBM’s can increase costs, however, if all earned fees and discounts are not returned to the plan sponsor.

Sixth, other factors influencing the cost of a prescription drug plan are fraud (by pharmacies, patients, or physicians) and prescription misuse.

Seventh, the ability of the plan to manage costs has a definite impact on the cost of the benefit. Tightly managed plans always yield lower costs on a patient-by-patient basis than nonmanaged plans do.

Question 15

What are the advantages of a mail service program (MSP) which typically allows a more generous quantity amount to be filled, say a 90-day supply, compared with a 30-to-34-day supply in a retail sale?

Answer 15

A mail service component in a prescription drug plan allows patients to obtain prescription drugs by mail. Mail service prescriptions typically are used for chronic conditions that require maintenance medications for long periods of time, such as high blood pressure, asthma, or diabetes.

One advantage of MSP’s is that they save patients time and money and are popular additions to the benefit design. Mail service typically can save as much as 10% of the cost of traditionally delivered prescription drugs. Also, MSP’s offer a lower cost of dispensing and allow quality control through automation that is uncommon in retail pharmacy.

Although MSP’s are typically underused because enrollees are not familiar with a plans mail service benefit or are not sure how to access the service, studies indicate that once enrollees are introduced to the convenience, simplicity and safety of an MSP program, perceptions change. Most enrollees then express a high level of satisfaction with the plan. In addition, one industry association cites numerous studies that conclude that managed-care MSPs reduce overall prescription costs while maintaining and even improving quality.

NOTE: Among the disadvantages of MSP’s are the possibility of waste if individuals obtain excessive dosage sizes prior to a change in their treatment regimens and the possibility of an employee stocking up on prescriptions prior to employment termination.

Question 16

List come and techniques plan sponsors use to control pharmacy costs.

Answer 16

A. Review the design of the pharmacy benefit and how it fits into the overall medical program. With flat dollar copayments that may not have increased in several years, many plans are subsidizing the cost of the pharmacy benefit by a substantial amount.

B. Analyze experience to identify areas needing better management. Typically, also and depression therapy are the two most frequently dispensed medications. Ensuring that a program is developed to help employees use those drugs properly controls costs.

C. Use the following pharmacy management tools and techniques:
(i) reduce the pharmacy network to the smallest size without compromising access; in addition, offer pharmacy incentive programs aimed at additional reimbursement for increases and generic substitution and formulary compliance to decrease cost trends.

(ii) Offer mail service or 90-day retail point-of-service prescription as a convenient option to members. Rather than making mail service prescription a requirement, make the copayment per day’s supply equal in both retail pharmacies and mail order pharmacies.
(iii) Adopt a plan design that encourages generic drug substitution where patients have to pay the difference between the cost of brand medication and the generic drug if the patient for the position requires a brand.
(iv) use it formulary that is designed to promote cost-effective and clinical therapeutic drugs coupled with a rebate program that passes on 100% of the rebates to the plan sponsor.
(v) . Practice utilization management that targets high cost users and intervenes with physicians and patients to ensure quality outcomes.
(vi) . Offer physician profiling that highlights high-cost physicians with low acuity patients coupled with an incentive program to dispense appropriate medications.
(vii) . Utilize health management programs designed to educate patients about alternatives to high-class therapies.
(viii) . Communicate cost trends to plan members to help them become better consumers.

D. Anticipate the financial impact of new drugs and therapies and set policies and procedures for the new drugs before they are released.

Question 17

What are the three types of drug utilization review (DUR) programs available?

Answer 17

Concurrent, retrospective and Prospective.

Concurrent DUR occurs at the point of service (the pharmacy) and flags potential overuse based on clinical monitoring criteria or “edits” that have been programmed into the PBM’s systems. These edits (referred to as “hard edits” because the claim will not be adjudicated until they are cleared) are for too-soon refills, duplicate claims, drugs requiring prior authorization, or quantity limits.

In Retrospective DUR programs (pharmacy case management), pharmacists or nurses review patient profiles to determine if patients are complying with their drug therapy or to suggest alternative therapies to their physicians that may be better or more cost-effective. PBM’s have been reluctant to offer these types of programs because PBM’s are paid to fill rather than not fill prescriptions by plan sponsors (and drug manufacturers). Many PBMs refer to their therapeutic switching programs as retrospective DUR. However, therapeutic switching programs are aimed more at substituting one drug for another rather than determining if the therapy is appropriate.

Prospective DUR refers to educating physicians and patients about drugs or drug therapies.

Question 18

What is a formulary?

Answer 18

A formulary is a list of drugs preferred by a health plan or PBM. A formulary is designed by a process of evaluation and analysis that is usually under the auspices of the pharmacy and therapeutics (P&T) committee. A P&T committee is composed of physicians, pharmacists and nurses who may be complemented by pharmacoeconomists, ethicists, the lay public and plan administration. The P&T Committee has the responsibility for evaluating all available evidence to choose medications to treat the conditions indigenous in the insured population.

If the P&T Committee determines that drugs within a therapeutic class are equally effective, the formulary select struggles within the category that are most cost-effective based on a combination of AWP and rebates that manufacturers are willing to give to the PBM or plan. Although generic drugs may be listed on the formulary as preferred, formulary development typically centers on brand products. Some PBM’s contract with generic manufacturers for rebates, although generally this practice is uncommon. It is critical for plan sponsors to ensure that they receive all earned rebates weather for brand or generic drugs. When plan sponsors purchase formularies developed by health plans, PBM’s, or TPAs, it is important for them to know who the representatives are on a PBM’s formulary.

The use of formularies is growing because formularies, particularly preferred formularies, are very effective at moving patients to lower-cost drugs and maximizing rebate potentials. One of the primary drawbacks to formularies, however, is the constant communication to physicians and patients that is necessary regarding the current list of preferred products. When a PBM changes it’s formulary and does not communicate those changes to members, members may become dissatisfied because their copayment may differ from what they had expected.

Question 19

What is an open formulary?

Answer 19

Open formularies allow plan enrollees any covered prescription drug prescribed for them. Since most physicians are primarily familiar with only the handful of prescription medications they use most often, open formularies - which typically include hundreds of possible medications and several options per category - give physicians and patients the chance to make a better informed choices.

In an open formulary environment, the list of preferred drugs is distributed to patients and physicians for informational purposes only.

Question 20

What is a preferred formulary?

Answer 20

Preferred formularies have become quite popular in the last several years. They encourage patients to use the preferred or formulary drugs in return for reduced copayment.

Question 21

What is a closed formulary?

Answer 21

Closed formularies often meet with resistance from plan enrollees. They simply mean that the plan will not cover the nonformulary drug. Closed formularies are typically found in hospital settings and tightly managed HMO programs - employers normally do not use this type of formulary.

Question 22

What nonformulary cost management tools are available to contain prescription drug cost?

Answer 22

In addition to formularies, there are other tools available to contain prescription drug cost. Other cost management tools include:

1. Network management, better discounts with retail and mail order programs, and monitoring performance to avoid fraud and abuse.
2. Designing plans that meet the objectives of the overall benefit program.
3. Quantity limits and maximum dollar limits on all prescriptions.
4. Step therapy programs to ensure that prescribing complies with national guidelines for treatment of particular diseases.
5. Prospective review of new drugs in early policy determination.
6. Clinical management through a thorough pharmacy case management program.
7. Other DUR programs such as concurrent or propective programs.
8. Quality data management that provides early intervention reporting.

Question 23

Why are disease state management (DSM) programs developed?

Answer 23

Disease state management programs are developed to measure and manage all healthcare outcomes and costs associated with a particular disease across the entire continuum of healthcare delivery.

Question 24

What are the two main types of DSM programs?

Answer 24

Two types of DSM programs are offered: the medical model in the therapy-directed model.

The medical model consists of call centers staffed by nurses and their assistance to triage patients to appropriate levels of care. These centers follow up on patients with select diseases to ensure that the patients are scheduling physician appointments, receiving appropriate tests and procedures, and understand the importance of taking their medications.

The therapy-directed model is administered by PBM’s, pharmaceutical manufacturers, health plans and disease management companies. These entities foster improved compliance with medication therapy, patient education and testing for outcomes of care.

Question 25

What kind of criticism is leveled at DSM (disease management programs)?

Answer 25

Critics argue that neither model has any standardized methods to judge success and return on investment (ROI). They have argued that these programs are thinly veiled “advertisements” from the drug manufacturers (as in information distributed to patients of mail-order firms) rather than actively managed DSM programs.

Critics of DSM programs also argue that the DSM targeted diseases are “low hanging fruit”, in that their treatment can be easily improved with compliance and education programs to properly use medications. They argue that the benefits of these programs are front loaded, in that benefits are achieved with initial interventions, and further clinical improvements and cost reductions are marginal, or at best, incremental.

Question 26

What is evidence-based medicine (EVM)?

Answer 26

Evidence-based medicine is an approach to medical decision-making that emphasizes scientific evidence and statistical methods for evaluating outcomes and risk of treatments. It is also a response to arrive at objective decisions in the face of mass media advertising, direct-to-consumer advertising of drugs, and the promotions a pharmaceutical and device manufacturers.

Question 27

How does a network system in a prescription drug program operate?

Answer 27

Typically, to receive coverage, employees participating in a prescription drug program must have their prescriptions filled by a network pharmacy, except in emergencies. Some plan sponsors will pay for prescriptions filled outside the network but may reduce reimbursement up to what would have been paid have the member gone to a participating pharmacy. Pharmacies join networks and provide services at reduced rates in exchange for valiant business. It is up to the PBM to design a network that meets the needs of enrollees and is convenient and acceptable. A tight network of pharmacy providers allows PBM’s to control costs and quality effectively.

Question 28

What is a PBM?

Answer 28

A PBM is an entity that administers managed pharmacy programs. It is defined as an application of programs, services and techniques designed to control costs associated with the delivery of pharmaceutical care by:

A. Streamlining and improving the prescribing and dispensing process through online and real-time claims adjudication.

B. Maintaining a retail network of pharmacies and a mail order option that in turn offer discounts off the cost of prescription drugs and potentially monitor the performance of the network.

C. Offering limited DUR online at the point of sale or dispensing.

D. Providing data and reporting regarding drug use.

E. Controlling the cost of prescriptions dispensed through clinical and financial programs, such as formulary development and rebate contracting with drug manufacturers.

Question 29

Summarize the common services that PBM’s provide.

Answer 29

A standard portfolio of services common to all PBM’s includes:

A. Claims processing.

B. Account management and support for plan design alternatives, trend analysis and general advice regarding prescription drugs.

C. A retail network of pharmacies for the purchase of medication at discounts.

D. Dispensing mail order prescriptions.

E. Communication to patients regarding program use.

F. Formulary development and rebate administration.

G. Some drug utilization management, including prospective, concurrent and retrospective review programs.

H. Reporting of drug utilization and industry trends.

I. Some educational components for patients and physicians.

Question 30

Discuss the methodology for establishing PBM prices.

Answer 30

PBM prices can vary dramatically by region, age of enrollees, type of industry covered by the plan, overall health of beneficiaries, size of the group that is being covered and, most specifically, by the elements the plan sponsor wants to include. A pricing scheme composed of a combination of discounts off the AWP and a dispensing fee are paid to retail pharmacies or the mail order firm for the actual medication. These discounts are shown:

Common PBM pricing guarantees:

Retail network brand drugs: 12 to 16% off AWP plus a $1 - $3 dispensing fee.
Retail network generic drugs: MAC plus a $0 - $3 dispensing fee
Mail order brand drugs: 20-25% off AWP plus a $0-$1 dispensing fee
Mail order generic drugs: 50-65% off AWP or MAC plus a $0-$1dispensing fee

Question 31

How do PBM’s generate profits?

Answer 31

PBM’s generate profits in many ways. The typical revenue streams are through claim administration fees, mail service and rebates. The following is a more extensive list of potential PBM revenue streams:

A. Charging payers and administrative fee per transaction based on the number of prescriptions or employees.

B. Retaining rebate administrative fees negotiated with manufacturers.

C. Filling mail service prescriptions from their wholly-owned mail order pharmacies.

D. Disease management, education and value added programs negotiated with pharmaceutical manufacturers.

E. Securing discounts through a contracted network of pharmacies or through direct purchasing when the PBM owns its mail service pharmacy.

F. Retaining the pharmacy spread.

G. Retaining the spread and MAC list payments for generics that is greater than what is paid to the network pharmacies.

H. Reducing payments to pharmacies based on certain package sizes, regardless of the package size dispensed.

Question 32

Discuss the features of a rebate under a prescription drug program.

Answer 32

A rebate is an agreement between a PBM and a drug manufacturer to secure significant reductions in the cost of prescription drugs. Some of the savings are passed along to employers. Over the past 10 years, rebates have grown from 1-2% of a payers total drug expenses to 6-9% of the total. The growth in rebates paid to payers has paralleled the rise of pharmacy benefit inflation and the advent of multitiered co-pay designs.

Question 33

What factor set an employer consider in the selection process of a PBM?

Answer 33

Every employer must develop its own list of objectives before soliciting proposals from PBM’s. Cost is a major factor; however, clean administration that is consistent with the plan benefit designs, service delivery, administrative oversight and transparency of pricing also are critical factors.

Question 34

What are some specific questions that can be asked by an employer when considering a PBM?

Answer 34

A. What are the options and pricing of the network of providers that the PBM offers? What’s support does the PBM provide for customizing the network (adding and deleting pharmacies that are important to the plan)? Does the PBM reimburse pharmacies at a rate different from what it charges to the plan?

B. Does the PBM owned the mail order program? If not, how does the subcontractual relationship work between the two organizations? How are mail order claims monitored for accuracy and timeliness?

C. Our price guarantee is backed by unrestricted audits by the plan sponsor?

D. Our service and performance offerings backed by guarantees and significant financial penalties?

E. What kind of reports does the PBM offer?

F. What types of DUR edits are performed routinely? Can these edits be customized? Are the DUR edits limited to too-soon refills, prior authorization, quantity limits and duplicate claims, or are pharmacists notified of DUR alerts (drug-drug interaction’s)?

G. Are DUR edit’s based on criteria that are measurable in the claims detail supporting the invoices? Is the edit performance backed by a return on investment (ROI) that can be independently verified in the claims?

H. How does the PBM work with physicians to educate and modify prescribing patterns?

I. What types of educational programs are offered to patients?

J. If the PBM offers disease management programs, how are the programs designed? Do they emphasize more than prescription drugs? How are the programs funded?

K. What types of ancillary services are provided? Are claims processed in house?

L. What drugs are preferred by the PBM? Can a client make changes to the preferred list? Are there therapeutic switching programs in mail order or retail edits to flag preferred drugs? Who are the representatives on the PBM’s pharmaceutical and therapeutics committee? What are their affiliations? Do these members accept grant money from drug manufacturers?

M. What are the results of these programs? Does the PBM track savings and the return on investment of programs offered?

Finally, the ownership of PBM’s should be scrutinized to ensure that the best discounts and oversight of owned pharmacies are available to the payer since many PBM’s are either owned by or have historical relationships with large drug chains or pharmaceutical manufacturers. In addition, smaller PBM’s maybe owned by chains for independent pharmacy consortiums.

Question 35

Of the following medications, which one is more likely to be excluded from a prescription drug plan?

A.  Oral biotechnology drugs
B.  Oral contraceptives
C.  Compound items that contain state restricted drugs
D.  Prenatal vitamins
E.  Lifestyle drugs

Answer 35

E. Lifestyle drugs

Oral biotechnology drugs and compound items that contain state restricted drugs are covered under a plan while oral contraceptives and prenatal vitamins maybe covered under certain plans. Lifestyle drugs are seldom covered under prescription drug plan.

Question 36

Which of the following statements regarding formularies is (are) correct?

I. A flaw of many employer formulary programs is that they are often driven by the goal of securing the most rebate dollars.

II. Formulary programs often exacerbate the demand pressures created by direct to consumer marketing.

III. The key to an effective formulary program is a thorough analysis of utilization data by a pharmacy benefit manager (PBM).

Answer 36

D. I and III only.

Item II is incorrect since formularies can assist in mitigating the adverse impact to plan cost of direct consumer marketing.

Question 37

All of the following are common characteristics of a card system reimbursement arrangement and prescription drug plans EXCEPT:

A. These systems are preferred provider arrangements.
B. Identification cards are issued to individuals covered by the group plan.
C. A flat prescription copayment is typically paid by the user although some plans may require a coinsurance payment.
D. Individuals may obtain prescriptions from nonparticipating pharmacies, but the out-of-pocket expense maybe higher and he claim form must be submitted to the insurer.
E. Participating pharmacies determine their dispensing fees at point of sale as a percentage of the discounted price.

Answer 37

E. Participating pharmacies do not determine dispensing fees at point of sale. These fees are negotiated earlier and are a fixed amount per prescription drug filled.

Question 38

What is the difference between a traditional prescription drug plan under a group health policy and today’s “carved-out” plan?

Answer 38

Before the widespread adoption of carved-out plans in the 1990s, the term prescription drug plan was often used to describe a prescription drug benefit within a health plan member’s major medical coverage or a separate benefits sold as a “rider” to the major medical package. Under such a program, plan members submit receipts to a claims administrator or insurance company and are reimbursed for prescription drugs in the same manner as for medical expenses, often subject to an annual deductible and a 20% coinsurance payment. Under these plans, the participants pay the full cost at the pharmacy and then file a claim for reimbursement.

The newer prescription drug plan usually is “carved out” from the medical benefit and is typically administered by a pharmacy benefit manager (PBM) or third-party administrator (TPA). The plan offers payers discounts off normal pharmacy charges, electronic claims administration according to benefit requirements and utilization reports. It also offers programs to reduce costs through mail service and the Internet, and rebates from manufacturers for volume purchasing.