American College of Physicians: Internal Medicine — Doctors for Adults ®


Prescribing under pressure

In bid to control costs, HMOs using closed formularies—and more

From the October 1997 ACP Observer, copyright 1997 by the American College of Physicians.

By Jennifer Fisher Wilson

You call the HMO and request a medication for your patient, but it is not on the formulary, and your request is denied.

You call again and explain why the patient needs that particular medication, but your request is again denied.

Finally, dozens of calls and a month later, the HMO pays for the medication and the patient is treated. While her life has probably not been shortened by the delay, she has suffered unnecessary pain and stress. Your office staff has suffered plenty, too.

"Getting coverage for treatment [today] has very little to do with what's right and very much to do with how much you can push and shove," said Klaus D. Hoffmann, FACP, an oncologist in solo practice in Fresno, Calif., who said he has lately experienced similar scenarios all too often.

It's no secret that managed care is taking great steps to more closely manage prescription drug benefits. Pharmacy-related charges accounted for half of HMOs' cost increases last year, and managed care is eager to staunch the growth. And even as HMOs admit that pharmaceutical advertising aimed at patients—and patient demand—is partially responsible for rising pharmacy costs, they put most of the blame on physicians.

The use of strictly closed formularies—in which physician compliance is mandatory—is only one strategy HMOs are using to control rising pharmaceutical costs. Add in prior authorization, mandatory generics and automatic substitutions to HMOs' armamentaria, and doctors' heads are spinning with assorted prescribing rules and changing formularies.

Physicians feeling the pinch are frustrated. "I think as a practice matter, it's getting confusing and difficult and obtrusive," said John Schrogie, MD, a clinical pharmacologist and assistant director of the office of health policy and clinical outcomes at Thomas Jefferson University in Philadelphia. When physicians have to follow the different prescribing guidelines for each of the HMOs with which they contract, he said, "it becomes almost an overwhelming information burden to keep track of."

But some physicians say that besides being a nuisance, HMO drug controls are a potential threat to patient care. "This decreases access to care even when such care is clearly needed and indicated," Dr. Hoffmann said. "If this system of managing health care is allowed to persist, it will be more difficult for physicians to adhere to the Hippocratic oath."

Looking bleak

And it's going to become even more intense. By 1998, only 6.5% of HMOs plan to maintain an open formulary, according to the 1997 Novartis Pharmacy Benefits Report, which surveyed HMO medical directors nationwide. About seven out of 10 medical directors reported plans to increase the use of therapeutic interchange and expand the use of prior authorization.

In addition, many HMOs recently have started to experiment with financial incentives like risk pools and capitation for pharmaceutical charges to prompt doctors to prescribe more cost effectively.

Experts say that as physicians get used to income from HMO patients, the problem will only worsen. John Rourke, MD, a gastroenterologist in Berkeley, Calif., said that doctors who use costly antibiotics too often or who protest HMO drug decisions may face the threat of deselection.

HMO medical and pharmacy directors say that they've tried to get physicians' attention through more gentle education-oriented interventions, but they have made little progress. Presbyterian Health Plan in Albuquerque, N.M., for example, has attempted educating physicians through provider newsletters, drug profiling reports and conferences on cost-effective prescribing. Too often, however, doctors just aren't interested in advice about economical prescribing, said David Haddad, MD, Presbyterian's medical director. "Physicians tend to manage what they're at risk for," he said. "If they're not actually responsible for pharmacy costs as part of their payments, they tend not to manage them."

In fact, HMOs say that too many physicians choose to keep medicine and business separate. Pharmacy and medical directors are frustrated with trying to change physician prescribing behavior, said Barbara Hawes, RPH, MBA, a health care consultant for Towers Perrin in Atlanta. "We've had clients call us—HMO pharmacy directors—saying 'Help, our doctors don't appear to care a bit. This isn't a big deal to them; it doesn't affect their compensation,' " Ms. Hawes said.

The art of medicine?

Physicians say they're doing their job by prescribing what they view as the most effective medication, whether it's been approved by the patient's HMO or not. "Like it or not, there is an art form to medicine," Jefferson's Dr. Schrogie said. "There are subtleties in terms of dose response, adjusting dose appropriately, being concerned about drug interaction and so forth."

What many physicians find particularly annoying is the assumption that they say is made by HMOs that medicine is a true science, one in which the HMOs can predict which drugs will work for which patients. Philip Reilly, MD, a general practitioner in solo practice in Sacramento, Calif., said that when he wants to switch a patient from an already approved generic or particular name brand, he is usually turned down. The logic the health plans use, he said, is that the approved drug will get the job done, an argument that he doesn't buy. "You can tell me everything that you believe about a drug or treatment, and I'll tell you about 10 cases where it didn't work that way," Dr. Reilly said.

According to Ms. Hawes, the pharmacist and health care consultant, most similar types of drugs work for most patients 80% of the time. But just because drugs are chemically alike doesn't mean they elicit the same response in patients. "They're very close chemically, but there can be a big difference in patient response," she said.

For that reason, physicians like Dr. Schrogie believe automatic substitution or automatic generics is wrong. "There are product differences," he said. "There are documented performance differences." For example, while HMOs lump all calcium channel blockers into one category, he said, the effect of these drugs can vary. "To willy-nilly classify drugs grossly in terms of their mechanism of action is not always appropriate," Dr. Schrogie said.

These categorizations can have critical consequences. When the Fresno oncologist Dr. Hoffmann wanted interleukin-2 for a 55-year-old woman with kidney cancer metastatic to lung and bones, her HMO denied the request because the drug was not on the formulary. The health plan explained its decision by saying that the drug had a questionable efficacy and was expensive.

While Dr. Hoffmann conceded that interleukin-2 doesn't always work, he said that studies have shown that when it does work for kidney cancer patients, it can bring about prolonged, unmaintained remissions. In addition, he believed the patient was a perfect candidate for the treatment—she was in good condition and very functional, critical factors because of the drug's toxicity—and had already tried hormone treatment.

Despite dozens of phone calls by Dr. Hoffmann and his staff, the HMO wouldn't budge. What frustrated him most, he said, was that the HMO refused to listen to medical reason. "Physicians are used to arguing on the basis of medical reasoning, but the HMOs are doing it on the basis of the dollar sign," he said. "The less time patients spend taking medication, the better for those who have to pay for it. This is purely driven by cost savings."

Financial incentives

Perhaps tired of playing the gatekeeper for complicated pharmaceutical coverage issues, some HMOs have taken a new approach to controlling their drug costs: experimenting with risk sharing and capitation for pharmacy benefits. The idea is to financially reward or punish physicians for their prescription decisions.

About a quarter of HMOs already use drug withholds or risk pools with financial incentives based on various measures such as formulary compliance, per capita drug costs, total dollar volume or generic compliance. Almost a fifth of HMOs include prescription drugs under capitation contracts.

Plans have said that they will increase use of these financial incentives in the next few years. In fact, HMO directors have predicted that by 1998, use will double. "[Plans] are wondering if that's the only way, since ultimately all these prescriptions wouldn't be filled if they weren't first written by a physician," explained Ms. Hawes.

For HMOs, the strategy is simple. "The more you put physicians at risk for those costs, the more they'll buy into using generics and using the formulary," said John Roglieri, MD, medical director for NYL Care in New York.

Foundation Health in Sacramento, Calif., for example, is considering sharing half of the financial risk for prescription drugs with its physicians. "If there is savings on prescribing the drugs, the doctors will get a piece of the savings," explained Steven B. Raffin, FACP, medical director for the health plan. "On the other hand, if there's a loss, the physicians share half of the loss."

While such a strategy may make fiscal sense, it frightens an already wary public. Last year, for example, public outrage erupted over a Kaiser Permanente Northern California plan to base part of its physician bonuses—about 10% of doctors' income—on how much and which drugs they prescribe. Because of the negative reaction, Kaiser backed off of the plan.

But many HMOs are undeterred by such reports, in large part because financial incentives work. Presbyterian's Dr. Haddad said that studies prove that physicians given such "incentives" write more cost-efficient prescriptions. Plus, physicians who take the time to determine that lower-cost existing therapies are just as effective as costlier new drugs should be paid for their effort—and for saving the health plan money, he said. "We're trying to reward physicians for doing that," Dr. Haddad said. "They have the opportunity to earn added income by doing so and they wind up providing at least equivalent care to members."

But some experts say that these plans present some clear dangers. If a practice is struggling to survive financially—and many practices are as they deal with changes from managed care—physicians may underutilize pharmaceuticals at the expense of their patients' health. "What becomes problematic is if you are going to make more money if you prescribe less expensive medications," said the California gastroenterologist Dr. Rourke, who also heads the California Physicians' Alliance, a doctors' lobbying group.

The $80 monthly capitation payment his IPA receives from various HMOs carries essentially all of the risk for patient care and includes pharmacy costs. The dilemma is that the IPA is on the verge of bankruptcy, he said, and about 80% of its non-Medicare patients are covered by this capitated payment. "Every medication order I write is problematic," Dr. Rourke said, "so I have to be extremely prudent about what I do."

The IPA has announced that it is considering making medications come out of individual physicians' pockets so that the more medicine a physician prescribed, the less money he would take home. "The ethical conflict is obvious," Dr. Rourke said. "You try to advocate [for your patients], but there are horrendous pressures out there. It's got to affect your thinking."

The next step

Ultimately, such tactics may deal another blow to physicians. "There is a huge liability if you didn't use the latest and greatest antibiotic and you should have," said Ms. Hawes, the consultant from Towers Perrin. "If patients don't get well, they're going to sue you."

That's why physicians need to pay close attention to the details of pharmaceutical capitation rates, said Robert J. Rubin, FACP, the president of the Lewin Group, a Washington, D.C., health care consulting group. Physicians may not be adequately compensated at a per member per month rate for covering pharmaceutical cost, Dr. Rubin said, because rates are not always based on solid data.

That's why collecting better cost data—and identifying what costs should be—may be the next area of focus for HMOs. John Hopkins, pharmacy director at Rocky Mountain HMO based in Grand Junction, Colo., said that collecting and analyzing outcomes data is the next step to understanding pharmaceutical spending. "While we've had concerns about the increase in the cost of pharmaceuticals overall," he said, "we haven't been very good at identifying how much we should really be spending."

Rocky Mountain HMO is currently developing a disease management program that includes protocols for prescribing drugs to optimally treat 25 different diseases. "I'd like to see us get to the point where we're not just thinking about the cost of the benefit," Dr. Hopkins said, "but what's the appropriate cost of the benefit, what's the appropriate utilization of the benefit within the context of how it interacts with the other services—hospitalization, emergency room, physician services and so forth."

Until such data become available, however, HMOs hold the reins in determining medication coverage. "It's a one way street, unfortunately," Dr. Schrogie said. "But as physicians become able to negotiate better with the managed care organizations, a balance will be struck between the opposing forces."

Six tips to hold the line on prescriptions

Are you under pressure from HMOs to stick to the formulary, write for generics whenever possible and improve your prescription profile? Try these tips to keep drug costs in check.

1. Create an expert. Appoint someone in the office—a nurse or medical assistant—to deal with initial drug preauthorizations, approvals and appeals when necessary and become an expert in what's on their formulary and rules for making appeals, said Barbara Hawes, RPH, MBA, a health care consultant for Towers Perrin in Atlanta.

2. Organize formulary information. Organize formulary data from the HMOs you contract with so you can reference it quickly. Try creating a quick reference chart and ask if formularies are available electronically.

3. Compare costs. Learn about the costs and outcomes of similar drugs. Some medical directors sug- gest reading newsletters like the Medical Letter (800-211- 2767) for new drug and cost-comparison data. Health care consultants say that medical journals are another good source of this information.

4. Ban drug samples and sales people. Many medical directors blame the sales tactics of drug reps for influencing physicians to prescribe new, expensive drugs over less expensive, equally effective products.

5. Talk to a pharmacist. Work with a pharmacist who can analyze your prescribing habits and provide tips on prescribing more cost effectively, suggested Wendy Long, MD, medical director at TennCare.

6. Communicate with patients. Talk to patients about their drug options. They may want name brand drugs, even if it means more cost out of their pocket. "Get the patient involved," said Klaus D. Hoffmann, FACP, an oncologist in solo practice in Fresno, Calif. "I think it will help to get them involved with the consequence of costs."

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