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DOLLARS AND DRUGS
HOW ONE HMO DECIDES WHAT MEDICINE IT WILL PAY FOR

Peggy Mengay of Cheektowaga got furious when an HMO forced her husband to switch to a less-expensive cholesterol drug.

He eventually did well on the new medication, but it was an anxious time. Drugs considered to be equivalent are not always identical.

"Why should we have to change just because the HMO got a deal on a drug?" Mrs. Mengay asks.

HMOs that make unpopular decisions say that if you looked at the rising cost of prescription drugs, you'd see they have little choice.

"We can't pay for everything. Premiums would get so expensive that insurance would become unaffordable," says Dr. Edward Stehlik.

Stehlik heads the group at Independent Health that decides what drugs the region's largest health maintenance organization will pay for.

As at many other HMOs, this handful of people works behind the scenes, looking at everything from how to handle toenail fungus to whether to cover AIDS therapies that cost as much as a mortgage.

Their decisions influence the drugs you take.

Contrary to popular opinion, medical people, not bean counters, call many of the shots.

Independent Health, like other HMOs, depends on 18 independent physicians and pharmacists to recommend the medications for its preferred list of drugs, called a formulary. The HMO's staff helps by producing detailed descriptions of each drug's effectiveness, safety, price, and comparison to existing treatments.

In theory, they try to achieve a balance.

HMOs want to reduce hospital stays by encouraging greater use of some prescriptions for such chronic conditions as high blood pressure and diabetes. At the same time, as prescription costs soar, they argue it's necessary to limit drugs to those deemed most appropriate and cost-effective.

Here's the problem: No one agrees all the time on what's appropriate and cost-effective.

"Look at drugs to lower cholesterol. What's a sensible price to pay now for a drug that may help some patients in the future if you don't know which ones will be helped? What's the right thing to do," asks Stehlik.

Committees such as the one Stehlik chairs are up against a pharmaceutical industry that spares no expense to sell products and a public eager to use them.

Why not?

Since many people have drug insurance coverage that pays all but between $5 and $10 of a prescription's cost, there is little public pressure on drug manufacturers to keep prices in line, say HMOs.

People are taking more drugs, and new, expensive medications are flooding the market.

Pharmacy drug sales in North America hit an estimated $118 billion in 1998 and are projected to rise to $169 billion in three years, according to IMS Health Inc. of Plymouth Meeting, Pa.

The result: The cost of prescription coverage is increasing -- more from greater use than higher prices. Premiums for Independent Health's most popular drug plan have gone up 54 percent in little more than a year.

Demand for the new drugs is intense, the cost of marketing them overwhelming.

The pharmaceutical industry spent $3.1 billion on promotion in the first six months of 1998 alone, a large increase over the previous year, according to IMS Health.

Most of the promotion is aimed at doctors. But you can't open a magazine or newspaper anymore without seeing expensive ads that push a pill for every ill -- Claritan for allergies, Prozac for depression, Pravachol for cholesterol, Propecia for hair loss.

Drug makers defend the commercials, saying they educate consumers and help start dialogues between doctors and patients about their care.

That may be true. But critics say the information is often suspect. And doctors who might consider a range of drugs find an increasing number of patients asking for medications by brand name.

"I just had someone leave me a newspaper clipping for a drug that the government hasn't even approved yet," said Stehlik, who also sits on Independent Health's board of directors.

Is it a good use of medical dollars to spend money on hyped drugs if less-expensive versions are available?

What about pricey treatments that offer only marginal improvements in quality of life?

HMOs say the right thing to do isn't always apparent. But for better or worse, the challenge of answering the questions has been dumped in their laps.

Deals for discounts

Consider the powerful new drugs that block the chemical that causes arteries to constrict and strain the heart. They're great news for people with high blood pressure. But none of these drugs appears to work significantly better than another.

And, they come at a price. The newest version costs as much as $50 a month, depending on the dose, and hypertension patients often must be treated for life.

So, a decision has to be made.

Independent Health's drug committee in November chose to shop for the best deal. The HMO won't pay for all of the drugs; only those manufacturers that offer a discount will be acceptable.

The effect: Members will see a limited choice of hypertension drugs; the HMO will lower its costs.

Critics worry that discounts and rebates can lead to decisions made on a financial, not medical, basis. HMOs counter that the deals are a necessary evil.

"Prescriptions now account for 18 percent of our total expenses. That means drug rebates are becoming a more important way of controlling the price of premiums that subscribers pay for their insurance," said Dr. Michael Cropp, the HMO's medical director.

Expensive drugs

Despite popular opinion, HMOs don't automatically reject the costliest drugs.

Indeed, Independent Health's committee didn't hesitate to approve the most expensive new drugs on the agenda at its most recent meeting.

With little discussion, members accepted a new therapy for the AIDS virus, the first once-daily drug for HIV infection. The cost: $394.20 a month.

They also gave the green light to a drug used years ago outside the United States but then banned worldwide after being blamed for birth defects.

It is back, approved by the federal Food and Drug Administration with unprecedented restrictions, for use against complications from leprosy. It's also touted as a wonder drug for HIV and cancer-related illnesses. The cost: As much as $1,350 a month.

Making a choice

HMOs face harder decisions when they try to control costs without sacrificing quality by choosing among similar drugs.

The latest controversy concerns three new anti-psychotic medications for treating schizophrenia -- Risperdal, Seroquel and Zyprexa -- that avoid nasty side effects common to older treatments.

The drugs work alike in most patients, although some people do better on one than another. But they vary tremendously in price -- $120 per prescription for Risperdal versus $207 for Zyprexa.

Independent Health had refused to cover the drugs without prior authorization by a psychiatric consultant on a case-by-case basis. This restriction angered advocates for the mentally ill, so the HMO last summer relaxed the policy for Risperdal.

The committee recently considered whether the HMO should stick with less-expensive Risperdal or offer an additional choice, probably Zyprexa, because more physicians want to prescribe it.

"If Zyprexa is not better and is twice as much, what is the advantage of adding it to the formulary?" asked Stehlik.

The issue remains unresolved. But another force in the drug market -- free samples -- may influence the final decision.

Free samples

Cannot distribute vertically Pharmaceutical companies flood doctors with free drug samples -- often the new, expensive products they want to promote.

To HMOs, if physicians start their members on an unapproved sample drug, it forces them to tell the patients they must switch medications. That may work in some cases. But with anti-psychotics, experts say, switching can be more problematic. The same goes for birth control pills.

"The drug companies have put us in a bad situation with these samples," said James Coppola, a committee member who manages the pharmacy at the Tops International Market in Amherst.

It's not clear-cut how the HMO should respond when someone tries to resupply a sample drug that could cause a problem if switched.

"Whatever we do, let's not put the patient in a precarious position," he said.

Doctors need approval

The HMO's restrictions on anti-psychotics also illustrate why doctors get angry at HMOs. They resent having to get permission from an insurer to prescribe a drug.

Independent Health says it is moving toward a less-restrictive policy. For now, though, prior authorization is a hardball way to exert control over doctors who prescribe inappropriately or aggressive physicians eager to try the newest treatments.

You can see the HMO's perspective in how the committee handled two new powerful medications for rheumatoid arthritis, a form of joint disease.

The medications -- one costs $1,000 a month and the other $245 versus $39 a month for current standard therapy -- are for treating patients who don't respond to other drugs, except in special circumstances. But a few doctors want to use them as the treatment of first choice.

Stehlik and others argued there's not enough information about the drugs' potential dangers from long-term use to allow any doctor to prescribe them.

The committee's decision: Specialists who have not tried older, standard therapies for rheumatoid arthritis will need to get pre-approval.

"We don't know the downside. With manufacturers marketing these as wonder drugs, we have a responsibility to get off the bandwagon," Stehlik said.

Different co-pays

Preferred lists of drugs are not the only method HMOs employ to attack rising prescription costs.

They are giving doctors a monthly drug budget and hiring outside firms to decide the drugs the health plan should pay for.

They encourage use of generic drugs. They also are asking members to pay more.

Independent Health, for example, may institute different drug co-payments, perhaps $5 for generics, $10 for brand names and $25 for drugs not on its formulary.

"We have to instill a discipline about health care," says Cropp. "Let's use what we know works and is cost-effective, unless we learn that it no longer works or something substantially better comes along."

Still, there's little relief in sight.

A wave of new, expensive medications, some of them the work of biotechnology, is in the pipeline for government approval.

HMOs are paying more now to expand drug use among patients with chronic conditions hopeful they will result in fewer hospitalizations and medical procedures in the future. However, the promised cost-savings have yet to pan out.

And the population is aging, which should increase drug use even more. Indeed, it is the elderly, those who use and depend on medications the most, who are threatened the most.

Because Medicare does not pay for prescriptions, Stehlik and other doctors wonder what good they do by writing prescriptions for people who increasingly cannot afford to pay for them.

"We're in a crisis," he said. "And, the answers are not obvious to me."

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