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    HMOs consider dropping Rx benefits for seniors

    Some health maintenance organizations were busy trimming more than the tree during the holiday season. A sampling of recent headlines:

    "Medicare HMOs to trim benefits for the elderly"

    "Ailing HMO curtails senior coverage"

    "Health-care costs going up for the elderly"

    In what may be one link in a chain reaction to the Balanced Budget Amendment, HMOs from coast to coast are slashing--or eliminating--prescription drug benefits for Medicare patients. Plans in New Jersey, New York, Pennsylvania, Maryland, and California have taken action, while other states with high Medicare populations, such as Florida, are considered at risk, as well.

    The amendment called for cuts in government spending, including limiting Medicare payment increases to HMOs. That meant plans accustomed to getting yearly raises of up to 9% on Medicare patients looked at getting a hike of only 2% in 1998. These cuts will only exacerbate the battered bottom lines many HMOs have been reporting lately.

    More than 16% of the 38 million Medicare beneficiaries belong to HMOs across the country, and it is estimated that seniors take three to four times more medicine than the general population.

    Reaction to the dropping of the drug benefit has been predictable, for the most part. Medicare plan members are up in arms, while HMOs say they've been forced into a corner by economics.

    "Seniors have high drug utilization, and the plans aren't getting capitated from [the Health Care Financing Administration] enough to cover [prescription drug benefits]," said Catherine Hill, v.p., Scheur Management Group, a managed care consulting firm. "The traditional Medicare benefits do not cover drugs, and the payment for HMOs is based on what Medicare typically pays for. That [drug benefit] is very expensive. And that's really the crux of the issue."

    Not all HMOs agree, however. HIP Health Plan of New Jersey has submitted a plan to increase its drug benefit in 1998, doubling its benefit from $500 to $1,000 for members of its zero premium plan. According to v.p. for administration Amy Mansue, the HMO's goal is to provide a range of services that members (and prospective members) will buy.

    "We believe that a tremendous amount of growth will come in the Medicare risk market," she said. "If you look at the demographics of the population, 25% is going to be over 65 by the year 2000. This is a huge purchasing entity. These folks are buying. These folks are making decisions, and they are influencing how we act."

    The reaction in pharmacy is expected to be no more uniform. The impact of benefit changes will not be consistent throughout the industry.

    "Everybody looks at this differently, depending on their patient base and whether they're in the [HMO] contracts or whether they're out of the contracts, whether it's bringing them business or whether it's taking their business," said Todd Dankmyer, senior v.p.-communications for the National Community Pharmacists Association.

    "If you're in a marketplace with a lot of HMO concentration, and the fact that HMOs' drug benefit has brought seniors into your store, this isn't really good news," he explained. "If you're in a more traditional market without a lot of HMO penetration, the fact is [HMOs] were siphoning off some patients ... to relatively closed networks. We've got some people that are kind of happy to see it because they were probably losing business."

    It may also be difficult to predict how the cuts will affect the HMOs that are making them. For some, it may boil down to the size of the company and the strength of its partnerships, according to Scheur's Hill. "The bigger firms that have more control over things might be more insulated," she went on. "I think it also depends upon what arrangements have been made to have significant discounts, like do they own pharmacies? Do they have good arrangements directly with [manufacturers]? There are a lot of things that impact the decision to stay with a pharmacy benefit or not."

    One of those factors nearly lost in the debate is the role prescription drugs have in keeping patients healthy and out of the hospital. It's something HIP of New Jersey takes a serious look at when considering the bottom line. "If I end up with a sicker population of people because I have encouraged them to either go without their drugs or made it harder for them to get their drugs by not providing some benefit, I'm going to end up with a sicker population and, therefore, hurt my overall results in this product line," said HIP spokeswoman Mansue.

    While all the decisions are clearly being made with an eye toward increasing profitability--or at least soaking up some of the red ink--some observers see potential for the benefit cutback decision to backfire.

    "This is one of the most popular benefits in Medicare risk plans," said Don White, spokesman for the American Association of Health Plans. "We would expect, especially in areas where there are numerous HMOs competing for business, that there will be a lot of competitive pressure to maintain that benefit."

    Given that, NCPA's Dankmyer sees a certain irony in the fact that one of the first things HMOs did when they got into the Medicare business was offer prescription drug benefits because it was seen as an easy way to appeal to seniors. And Mansue of HIP agreed that companies that do not consider the long-term implications may be in for a rude awakening.

    "I think the industry must be very careful that we don't lose credibility with this population base and that we actually deliver what we say we're going to deliver," she said. "I don't believe you have a chance to sort of make it better somewhere else down the line. If you've sold them something and you've told them you're going to deliver it and you can't, there had better be a good reason why not." If not, she said, the industry might see seniors flocking to plans that took a longer-range view or abandoning managed care altogether and retreating back to medigap supplemental programs.