hawaii health

Hawaii health plan in rehabilitation opts to stop participating in drug rebates

Letting go of a "standard" revenue stream such as drug manufacturers' rebates for prescription medications is uncommon practice among payers, and might be considered faulty logic for those that are under regulatory oversight. But Hawaii health insurer University Health Alliance, which has operated under a rehabilitation order since July 2001, recently decided not to participate in any drug rebate programs offered by its PBM, RxAmerica.

The Hawaii Division of Insurance "was supportive" of the move, according to the health plan's chief operating officer, Howard Lee. "They understood that this would have value to us from a marketing standpoint." In addition, Lee notes that hen the 25,000-member medical, drug and vision insurer dropped out of rebate programs as of Aug. 1, RxAmerica agreed to other contractual changes such as a reduction in dispensing fees and deeper discounts on ingredient costs.

The company expected the move to cause an initial increase in drug costs, which over the long run would moderate and eventually would allow premiums to be reduced. "Our experience with it is very limited so far, but we haven't seen a significant drug cost spike yet," says Todd Kubo, M.D., the plan's medical director.

He says the insurer is developing an overhauled "true cost" formulary that will take effect Jan. 1, 2004. Now, the insurer "covers all generics, front to back, at the first tier," which carries a $5 copay, Kubo explains. A higher-copay second tier covers "preferred" brand-name drugs that don't have a generic equivalent, while other brand-name drugs are placed on tier three with the highest copayment amount. Members whose prescriptions no longer will be covered as a result of rebate losses are granted a 60-day changeover period.

Kubo contends the idea to discontinue participation in drug rebates was fueled by recent over-the-counter (OTC) switches of drugs in high-spend categories such as Schering-Plough's nonsedating antihistamine (NSA) Claritin and AstraZeneca's proton-pump inhibitor Prilosec, which also have prompted other insurers to consider more radical coverage options (DCMR 9/26/03, p. 3). "We had to be in 95% compliance with the PBM's formulary, but we decided to cover OTC Claritin at the first tier and discontinue coverage for [Rx] NSAs. We took off Zyrtec and Allegra, and it really created a ruckus because that was where our rebates were supposed to come from," Kubo maintains.

"Then we were going to do the same thing with Prilosec, and it was the same reaction," he adds. "We really felt like we were trying to do something innovative and good, but we had our hands tied and couldn't. So we finally said, 'This just makes bad sense already; we've got to get out of this rebate business altogether,'" says Kubo.

Rebates or Not, PBM Needed

Even without drug rebates, the PBM's role is essential, according to Kubo. Not only does RxAmerica handle claims processing for University Health Alliance, but "there's their bargaining power with the pharmacies down here. We could never get the prices they can," he contends.

Providers and members can't be made too aware of the coverage changes, Kubo adds. For example, "we'd put the Claritin info in with EOBs [i.e., explanation of benefit statements] and just about every remittance we sent out," he says. "We're doing the same thing with Prilosec, and within the next few weeks our new preferred drug lists will be on every doctor's desk and our Web site."

Meanwhile, University Health Alliance says it has increased net worth beyond the state's statutory requirements. The insurer reported net income of $2.7 million for the six months of 2003, which has allowed it to increase reserves to about $4.5 million. That's nearly $300,000 more than the minimum required, the company says, adding in a statement that "as a result of this achievement we hope to be removed from the rehabilitation order."

For 2004, the insurer has requested approval for premium increases from the insurance division of 7.2% for its medical plans, 15.7% for its drug plans and 1.4% for its vision plans, which the company characterizes as "well below the nationwide health care inflation rate."

Call University Health Alliance at (808) 532-4000 or the Hawaii Division of Insurance at (808) 586-2790.

COPYRIGHT 2003 Atlantic Information Services, Inc.
COPYRIGHT 2003 Gale Group