TOPICS > Health

Restricted Access: HMO’s

September 19, 1997 at 12:00 AM EDT

TOM BEARDEN: John Mainini has had five heart attacks and thinks his health insurance company is making his heart problems worse. He tries to do his part. He and his wife, Cathy, walk every day.

CATHY MAININI: Well, that was all downhill.

TOM BEARDEN: Mainini had been wearing a skin patch that gradually released nitroglycerin into his bloodstream to control his heart problems and had been doing well. But last year his Health Maintenance Organization, FHP, informed him they would no longer pay for the patch. They said he would have to start taking nitroglycerin pills, or pay for the patch out of his own pocket.

JOHN MAININI: They gave me old medication that I had before, and they increased the amount of it, where now I have eight pills a day.

TOM BEARDEN: The older medication was about $32 a month cheaper. But shortly after the switch, Mainini was walking out of a movie theater and started feeling chest pains.

CATHY MAININI: And he was having a hard time breathing. His coloring wasn’t good. I was just frightened. I said, what does it take to have a massive heart attack? I mean, is this person dying on me or what? It was a frightening experience.

TOM BEARDEN: After the incident, Mainini’s cardiologist increased his dosage, and it stabilized his heart condition. Most Americans don’t realize the drugs that their HMO’s will pay for are restricted to a list called a formulary. And formularies aren’t standardized. Some of the lists contain as few as 600 drugs, others as many as 1600. That’s out of about 3,000 FDA drugs approved on the market today. Formularies can change from year to year, forcing people to change their medication.

Sometimes those changes are the result of discounts negotiated between HMO’s and drug companies. Located in California, Pacific Care is one of the largest HMO’s in the country. It recently took over FHP, which was the HMO Mainini was dealing with. It has close to 4 million members, and it’s a publicly-traded company that employs 10,000 people. In its corporate office there’s a digital screen over the elevators on each floor displaying the company’s current stock price.

DR. SAM HO, Vice President, Pacificare: So who’s exactly answering each of these questions?

TOM BEARDEN: Dr. Sam Ho is vice president of health services at Pacificare. He says formularies are necessary because pharmaceutical costs are spiraling out of control.

DR. SAM HO: Pharmacy cost inflation is increasing at about 15 percent per year, which is more than five times the rate of the general inflationary rate, as well as the general medical cost of inflation. So for a variety of reasons, to try and develop a set of guidelines, which is all a formulary really is, a set of guidelines to help physicians prescribe more cost-effective medicines.

DR. PHILIP ALPER: How is your breathing doing?

PATIENT: Fair, with that new medication you gave me, it’s fine.

TOM BEARDEN: But Mainini’s primary care physician, Dr. Philip Alper, says patient care is being compromised to save money. He claims cost, not effectiveness, is the overriding factor in deciding what drugs get on the list.

DR. PHILIP ALPER: It makes logical sense to say, well, shouldn’t we try to manage drugs, shouldn’t we try to get the best price for the drugs possible? And the answer is, yes. But the practical effect of the thing is to select only certain drugs, push doctors to use drugs that they’re not familiar with, keep drugs that should have been thrown out long ago on formularies because they’re cheaper.

TOM BEARDEN: Dr. Ho says cost is a factor in making up formularies, but it’s not the most important one. He points out that doctors make up the lists. Like other HMO’s, Pacificare has a contract with a pharmaceutical benefit management company that uses a committee of doctors to choose drugs for the formulary.

DR. SAM HO: You have within a therapeutic class, let’s just say the class of agents used to treat high cholesterol, you have three drugs within a class and you might have a 200 percent variance in the cost, and they’re all therapeutically equivalent. So the pharmacy and therapeutics committee, comprised primarily of physicians, would say, well, we have to take into account, all things being equal in terms of efficacy and clinical outcomes, then we should select the less expensive drugs.

DR. PHILIP ALPER: But the people on the committee are employed by them. You’re not going to have a person in that therapeutics committee lasting very long if he’s going to go to bat for some drug with some marginal benefit. Maybe it’s a little bit better than the next drug but not that much better. So his–his orientation is to sort of make it have to be a lot better before he uses it. My orientation is even if it’s a little better, I’d like you to have it because I want you to have the best odds.

TOM BEARDEN: Dr. Alper also says some of the pharmaceutical benefit management companies are owned by drug manufacturers, who can be expected to promote their own products. He calls it a clear conflict of interest. Another large HMO, Health Net, uses a pharmaceutical benefit manager owned by a drug company. Dr. Michael Siegel, Health Net’s senior medical director, says that ownership doesn’t affect their choice of drugs.

DR. MICHAEL SIEGEL, Medical Director, Health Net: I think there’s a potential conflict of interest; however, in our case the final decision about what goes on our formulary is made by practicing physicians.

JAMIE COURT, Consumers for Quality Care: (on phone) This is the bill creating–recreating the Texas laws, where HMO’s are liable for medical malpractice.

DR. MICHAEL SIEGEL: Jamie Court is the director of consumers for quality care, a California advocacy group. He lobbies for legislation that would regulate the managed care industry, which now covers 80 percent of all Californians who have health insurance. He says if cost is not an overriding factor, then why does Pacificare exclude an expensive new psychiatric drug called Risperdal and offer a substitute called Haldal?

JAMIE COURT: Risperdal costs $250 for a month’s supply. Haldal, a 36-year-old drug, costs $2.50 for a month’s supply. Now, Pacificare wanted its doctors to use the cheaper drug, to use Haldal, because they wanted to save 1000 percent on those drug costs. The problem is, when you’re a patient and you take Haldal, you can have very severe shaking of your hands, you can have other side effects, and those side effects are not present with Risperdal.

TOM BEARDEN: The National Alliance for the Mentally Ill was so opposed to Pacificare’s choice of psychiatric drugs that it took out full-page ads in three California newspapers that said, “Your HMO May Be Dangerous To Your Health. Pacificare Restricts Your Access To These Medications.” But Dr. Ho says doctors can prescribe any drug that’s not on Pacificare’s formulary merely by demonstrating they have a good reason to do so.

DR. SAM HO: Risperdal is available for every prescribing physician. Our formulary covers well over 90 percent of what practicing physicians would normally prescribe. For the 10 percent or so of drugs that aren’t on our formulary we have a prior authorization program, which is just a simple reminder and a request mechanism to have doctors think twice about whether or not the drug that somebody may be on already needs to be prescribed for the specific clinical condition.

TOM BEARDEN: How long does it take to get that authorization process underway?

DR. SAM HO: Our authorization process requires a phone call or a fax from the doctor’s office and from the–most of the time can be covered within 10 minutes.

TOM BEARDEN: Dr. Alper says it’s not that simple.

DR. PHILIP ALPER: I wrote a letter for Mr. Mainini, a page and a half, to get him his cholesterol pill. And, yes, they did approve it, but it was for only one year. Other companies approve it for only six months. And then you start all over again with the letter writing and all this. So it’s Chinese water torture. If you’re busy, you know, you just go ahead and cave in. I just happen to be a little stubborn.

TOM BEARDEN: For Mainini alone Dr. Alper wrote three letters and exchanged several phone calls with the HMO over three different medications. Dr. Ho says Pacificare members aren’t complaining about hassles and that by having a formulary and cutting costs, the company is able to pay for prescriptions for a million Pacificare clients on Medicare, a benefit the federal government doesn’t offer for people outside the HMO.

DR. SAM HO: If we can save $45 million in the pharmacy expenditure, we could put $45 million into better benefits and better service to members.

TOM BEARDEN: And Dr. Siegel says his HMO’s 1.3 million members are often given “more” expensive drugs if they work. For example, physicians there were told to prescribe a more expensive antibiotic to treat stomach ulcers because it would cure the problem.

DR. MICHAEL SIEGEL: We have increased the recognition of this disorder in our network amongst our physicians significantly. Whereas, before maybe about 50 times a month prescriptions were being written to treat the infection which was causing the ulcer, now approximately five to six hundred times a month these antibiotics are being prescribed.

TOM BEARDEN: Formularies aren’t the only method HMO’s are using to control drug costs. There’s also a practice called capitation. An HMO will contract with a group of doctors to pay a specific rate for pharmaceuticals for each patient, whether they receive drugs or not. If doctors prescribe drugs that cost more than that set fee, they lose money; less, and they make a profit. Dr. Thomas Paukert of Napa Valley Physicians says his group lost between seventy-five and eighty thousand dollars last year on a contract they had with Health Net. Their doctors prescribed $17 a month per patient on average.

DR. THOMAS PAUKERT, Napa Valley Physicians: the health plans are budgeting us something more like between 11 and 13 dollars per member per month. And the health plans want the medical groups to take a downside.

TOM BEARDEN: Health net’s senior medical director said some medical groups simply manage costs better than others.

DR. MICHAEL SIEGEL: We think that the goals that we’ve set up for each of the medical groups are realistic goals and ones that will help the group focus on this as an area where they can improve the care and also add more value and maintain the affordability of the pharmacy benefits.

TOM BEARDEN: Dr. Paukert said his doctors can’t prescribe the necessary medication and meet the HMO’s cost goals.

DR. THOMAS PAUKERT: The costs of medical care generally are going up and the costs of pharmacies are going up across the board. So there needs to be some kind of adjustment in pharmacy budgets, if nothing else.

TOM BEARDEN: Consumer advocate Jamie Court thinks capitation creates incentive for doctors to under-prescribe or to prescribe cheaper, less effective drugs.

JAMIE COURT: There is no situation in which a doctor should have to make a choice between the best medication for their patient and taking more money home at the end of the month for themselves and their colleagues.

TOM BEARDEN: At Medclinic, a doctors group in Sacramento, their in-house pharmacy committee circulated this newsletter in March, saying they stood to lose more than $400,000 annually due to pharmaceutical cost overruns.

MARILYN STEBBINS, Pharmacist, Medclinic: Okay. Here’s all of our migraine medicines.

TOM BEARDEN: Marilyn Stebbins is Medclinic’s solution to the problem. She’s their new in-house pharmacist, and her job is to rein in drug costs. She’s cleaning out the closets that have all the free samples that doctors give to patients using the clinic’s new list of preferred drugs as her guide. It has two categories: red and green. The red drugs are more costly. Green are the more cost effective, as she puts it, and therefore preferred medications. Stebbins is throwing out all the red drugs in the sample closet so doctors can’t give them to their patients.

MARILYN STEBBINS: The whole idea of the preferred list and eliminating non-preferred agents from the sample closet was that our physicians told us that generally what they sampled is what they prescribed.

TOM BEARDEN: Was cost a factor in these decisions?

MARILYN STEBBINS: Cost was one component; that’s always the last one that we look at. If there were equal agents and there was a difference in cost, we chose the agent that was more cost effective.

TOM BEARDEN: Some medical groups with capitation contracts are finding other ways to police their own doctors. They send them what’s called a profile like this one. It shows the doctor what he most prescribes and then lists lower cost alternatives. It also shows how much money the group stands to lose in a given month. It offers the doctor advice, in this case suggests the doctor prescribe more generic drugs, and even to tell his patients to buy over-the-counter medications instead of prescription drugs.

JAMIE COURT: And what I think consumers really don’t realize is there’s not only pressure at the level of the HMO telling physicians what drugs to prescribe through the formulary; there’s also peer pressure at the level of these very large medical groups, where you have bureaucrats at that level telling a doctor, hey, if you prescribe this drug instead of this drug, you would have saved our doctors’ group this much money. And a doctor who rocks the boat and doesn’t come in line with the economic profiles done of doctors at the medical group level probably won’t be part of that medical group very long.

TOM BEARDEN: The California legislature has taken notice of drug formularies and pharmaceutical capitation. Two bills are making their way through the legislature. One requires HMO’s to provide consumers with the drug formulary list, which some HMO’s are reluctant to release. The other bill would require HMO’s to prove that capitated rates negotiated with doctors are sufficient to provide all necessary care. Drug formularies are also becoming legislative issues in a few other states that are asking the HMO’s to publish what drugs are on the list.