MedImpact Healthcare Systems, Inc.

Situation

Not all states have mandatory generic plans as part of their drug benefit design.

Not all states have lowest cost generic that is clinically appropriate.

Some states currently have $0 copay – no incentive for member to select cost appropriate medication. Currently, there is no comprehensive mechanism for educating members on alternative choices for drugs or pharmacies. PilotRx® is the tool that can address and eliminate these problems within the states and empower consumers to make informed decisions for healthy lifestyles.

Another problem that exists today is that Medicaid beneficiaries are generally not educated on what their drug spend is costing the payor (their state government). As a result, the beneficiaries are not empowered to make the right choices – currently no consumer choice exists for Medicaid beneficiaries.

In addition to determining cost of drugs, PilotRx can help manage chronic disease and improve preventive care, two big cost drivers for the states’ Medicaid programs.

Medicaid reimbursement rates for a particular drug vary greatly between states. According to a 2004 Department of HHS Inspector General Report, the difference between the highest and lowest state Medicaid drug payments ranged between 12% and 4,073%. Implementing the After Pay drug benefit design can significantly reduce Medicaid reimbursements by capping state payment at the lowest cost option across states.

Solution

PilotRx is a transformational health care solution which reduces costs and focuses on low net cost, high clinical quality of care, and high consumer satisfaction.

• PilotRx achieves savings for consumers and payors by creating an open marketplace where pharmacies and pharmaceutical manufacturers compete for consumer business
  
• PilotRx empowers consumers by providing choices of pharmacies and locations, choices of brand and generic drugs, choices of copayment and out of pocket pricing options, and choices of fulfillment options
  
• PilotRx educates consumers on relevant safety, health and wellness information and helps consumers make informed health care decisions
  

An additional innovation that can be part of the benefit design of PilotRx is the After Pay benefit design with a Health Reimbursement Account (HRA) or a Health Savings Account (HSA). Benefits include:

• Reduction of payor cost by restricting drug spend at the lowest cost option across states
  
• Reduction of total drug spend by highlighting the lowest cost option for consumers and encouraging generic
  
• utilization and comparison shopping

Better Health, Lower Costs

PilotRx is a new concept that incorporates learning from the following case studies and statistics.

1. A case study by National Center for Policy Analysis illustrates the power of comparison shopping and generic substitution. In this case study, consumers can save up to 92% on a cardiovascular drug. Tenormin is a brand cardiovascular drug with a price of $121.90 for 100 doses. However, a consumer who comparison shops for the lowest cost pharmacy and who selects the lowest cost, generic (therapeutically equivalent) alternative (in this case Atenolol) can obtain the medication for only $9.60, for a total savings of 92%.

• Comparison shopping for the brand drug alone will save the consumer 17%
  
• Generic substitution alone will save the consumer 75%
  
• Comparison shopping for the generic drug alone will save the consumer 62%

In this case study, the total savings potential for the consumer is up to 92% for their cardiovascular medication. Other important statistics to note:

• Medicaid covers 55 million people and 4% of beneficiaries with very high costs account for nearly half of total expenditures. (Source: Kaiser Family Foundation, March 2007).
  
• Total Medicaid Spending in FY2006 was $304 billion. The federal government funds about 57% of all Medicaid spending (8% of the federal budget), while states spend an average of 18% of their general funds on Medicaid. (Source: Kaiser Family Foundation, March 2007).
  
• On average, Medicaid spending rose by 2.8 percent in fiscal 2006, the smallest increase in a decade. Two major pieces of federal legislation impacted Medicaid in 2006. Over 6 million low-income seniors and individuals with disabilities transferred to Medicare Part D plans on January 1, 2006. The Deficit Reduction Act legislation brought new documentation requirements and cost sharing that also helped lower costs. Medicaid growth between 7.3 and 8.3 percent is expected over the next several years. (Source: Kaiser Family Foundation, March 2007).
  
• Historically, prescription drug spending has been one of the fastest-growing categories of Medicaid spending, rising at about 9% or more a year. In 2005, Federal and State expenditures for Medicaid prescription drugs reached $41 billion (Source: OIG).
  
• To help defray prescription costs for Medicaid programs, revenue can be generated by establishing tiered copayments for Medicaid participants. As of October 2006, 42 states require a copayment for prescription drugs (Source: CMS).
  
• Through the use of tiered co-payments, there is an incentive to increase generic utilization, potentially generating savings on prescription costs. Kentucky is one state which recently proposed a copayment structure of $2 for brands and $1 for generics. The potential savings for Kentucky would be about $16 million per year if generic utilization increased by 5%. (Source: Reprinted from the June 10, 2005, issue of Drug Benefit News).
• Additional state Medicaid reforms, including Kentucky’s “Get Healthy” Benefits, now include special incentives to promote healthy behaviors.
  

2. Example of savings that can be achieved by After Pay benefit design capping payor cost at the lowest cost option across states: States can establish whatever reimbursement rate they want for an individual drug—and those rates vary widely. George Reeb, assistant inspector general for the Centers for Medicare & Medicaid Audits, stated in a 2004 OIG report that Medicaid could have saved more than $86 million in Fiscal Year (FY) 2001 if all States had reimbursed at the same rate as the lowest-paying State for the 28 drugs analyzed. These savings estimates are derived from only 28 National Drug Codes that were randomly selected from 600 codes for which the Medicaid outlays were substantial. Medicaid covers more than 50,000 National Drug Codes, implying a potential for even greater program savings.

In a report by The United States Government Accountability Office (GAO), based on testimony before the Senate Committee on Finance, States reported using information technology to integrate databases containing provider, beneficiary, and claims information and to increase the effectiveness of their utilization reviews. Various states individually attributed cost savings or recoupments to these efforts valued in the millions of dollars.

Based on the above statistics, we project that PilotRx and the After Pay benefit design can lead to a 10% increase in generic utilization, saving the states millions of dollars each year.