Sponsored by The Robert Wood Johnson Foundation's State Coverage Initiatives Program
Conducted by AcademyHealth

Q: Does Michigan's supplemental rebate work similarly to the Medicaid rebate that comes after-the-fact to the state? Does it reduce the acquisition cost at the pharmacy level?

A: [Isaacs] It is part of our normal rebate system.

Q: We are trying to do voluntary rebates on our SCHIP program. We have had an issue come up with resetting the best price in the Medicaid formula. Did this come up in Michigan?

A: [Isaacs] Yes, we have to give assurances and letters that this does not affect best price. This is an issue that you can work through.

Q: What exactly is being alleged in the law suit against Michigan?

A: [Isaacs] We are not being sued on our process. That is step one to understand when you begin to do this. You will be sued. Do not think that it is something that you have done that is incorrect or wrong; it is a strategy. Just prepare for your lawsuit from the beginning. Make sure you begin your process correctly and that you have connected all of the dots at the state level. There will be constitutional challenges: the commerce clause and the supremacy clause. Everyone has the commerce claim against them. We had that, but they dropped it since they did not want to be in federal court. I don't think it is a strong claim. Thank you, Maine, for that. The other claim is that we do not have the authority under state law to combine the Medicaid program's rebates with all other programs. That is the heart of the claim at the state level. At the federal level, the claim is an unlawful approval of the state plan amendment. You will need a state plan amendment and you will have to negotiate that with CMS. Here is an issue that you need to think about. The state plan amendment is an agreement between your state and CMS. Through it, they are agreeing with the way the Medicaid program is run in your state. But, I caution you that they really do not have the authority to tell you how to run non-Medicaid programs. So, remember that when you are negotiating your language. You are going to be sued on anything and everything that are state claims. Your Attorneys General will understand that.

Q: Is your Slide 15 the illustration of the $800,000 of savings a week?

A: [Isaacs] The slide may not be entirely up to date, but the $800,000 figure was verified just the other day. That number, however, is just Medicaid Fee-For-Service and is not all the rest of our programs. Because this started in February and was phased in, I cannot really project what it will be at the end of the year, but it will be significant and obviously the legislature counted on it being sufficient because they have already made plans for this.

Q: You said that your budget office in Michigan was involved in honing in on the preferred drug. Was it legally important that the provider committee was kept separate?

A: [Isaacs] No, I think that was unique to Michigan and the large department that we have. Because we have all of the healthcare and programming money in one place, when I talk about the budget office, I mean the internal department budget office. We have administrations of policy and legal affairs and we have budget areas. That is a convenience and something unique to Michigan. The take-home message here, however, is that you need legal affairs, policy, and budget together. Then you need to do all of the background work to make sure your legislature is on board, as well as your executive office, and then the interest groups.

We also do not have our medical society opposing this. I told them that I would give them an increase this year if I could. I also told them that there is a limited amount of money and providers are suffering because of pharmaceuticals increases, as well as the normal increases. They actually said that they had heard the same thing two years in a row from me and said that maybe I was right. I showed them our numbers and they did not oppose us. We made appointments with individual physicians that had a large number of prior authorization requests and handled it one-on-one with a pharmacist. That type of outreach was necessary and it may be for you, too.

Q: Michigan has a large number of beneficiaries in managed care. Do you carve out your pharmacy from your Managed Care Organizations? If you don't, do they get a better utilization control than you do on the price side? How have you thought about merging those two?

A: [Isaacs] They are not carved out. We looked at this issue of managed care and about half of our recipients are in managed care. This is our year to examine what it would be to carve out the pharmaceuticals from the HMOs and add them to our existing program. Clearly, it looks like it will be beneficial to do that, but we have gone ahead with that. It does look like that if you add them the current supplemental rebate program that this really is an advantage.

Q: One thing we have been hearing across the states in doing this is how to structure something where carving the benefit out to the state on the price side can get the additional rebate but somehow leave some of the utilization and management to the health plan. That may not be quite as easy in Michigan since you are dealing with much of the utilization on your own, but others may be able to leave the physician education and some of the others to the plans.

Q: Michigan's program appears very administratively complex. What is the budget and how were you able to pay that off?

A: [Isaacs] Actually, I don't think it is administratively complex. In fact, I think it is incorporated into our normal Medicaid program. We are able to combine all of our pharmacy programs. For example, last year, my personal staff did Senior Epic, the state's senior pharmacy program. That was very complex. We added that to our pharmacy program. We really have not added any extra administrative burden. In addition, our Pharmaceutical and Therapeutic program is entirely voluntary.

Q: I am very interested in CalPERS' strategy of moving from plan to provider competencies. This is particularly relevant in Delaware where every plan's provider panel is the same since we have such a small population. Could you talk about how you plan to pursue that?

A: [Feezor] You make a very good point. We went from seven to two network HMOs. We found that there was somewhere between at 78-90% physician overlap. Therefore, we should not be surprised that HealthNet is not going to spend the millions of dollars that it takes to teach their provider network the new tricks of the trade when it will be more of a benefit to their competitors. By going down to largely nine largely overlapping HMO choices to three, we are trying to get what I call "institutional integrity," in terms of saying the Kaiser model versus Blue Cross Blue Shield. So that is one way that you can at least have organizational accountability. In California, we have enjoyed collaborative efforts with Pacific Business Group on Health. For five years there have been emerging comparatives. For instance, comparison among medical groups according to such things as patient satisfaction and HEDIS. In addition, we are in the process of trying to team up with CMS and get individual provider profiling over a variety of measurable statistics. Then we can develop our own database and we hope that in the next five years to have enough profiling of those providers that are common providers for our enrollees. That is the area that needs the most work. We still are saddled with process as opposed to outcomes. We are actually trying to move reimbursement to be based on outcomes and other valid measurements (that do not currently exist) instead of per capita. We hope to have those measurements in about three to five years and even if they are not perfect, they will get people thinking in the right terms. We want to focus on practice patterns.

Q: As Oregon has developed its evidence based recommended prescription categories or specific medications, have you had legal challenges by pharmaceutical manufacturers? Also, since you have large organizations, such as Kaiser Permanente in your state, that have large research arms, have you shared information with groups like that or had any other collaboration in developing those lists?

A: [Santa] Well, we are curiously absent from the list of litigants, which I guess means that PhRMA thinks it can influence us in other ways, for example, through our legislature. We have a hearing next week and they have requested that we show where funds that we are spending to do these evidence-based reviews is coming from. They want to know if there is any HRSA money involved. [Note: There are no HRSA funds involved in Oregon's Rx review.]

Also, in contrast to what you heard this morning from other states, formulary is a swear word in Oregon and prior-authorization is not far behind. So, we are going to test the nation's most liberal exception policy. All a physician will have to do if they want to prescribe Oxycontin, for example, is write "dispense as written" or "do not substitute." That is the best that we can do. So, it will be interesting to see if we can move market share.

One reason that we are being so overt about this public process is that we want to bring as much attention to this as we can. We love PhARMA to disagree with us. I wish that there would be a hearing every week, because that way we would be more in the public eye and getting out the evidence.

Kaiser has been a resource. We have had great participation throughout the community including Kaiser. Frankly, the biggest problem that we have had is finding someone without a conflict of interest, and those at Kaiser don't have disqualifying conflicts. We could not, for example, find an academic endocrinologist who did not have direct compensation from a pharmaceutical company. It was also very hard to find a cardiologist without this compensation, either.

Q: I think it is remarkable how far you have moved from the competitive model to the partnership management model in CalPERS. I have seen groups that have been held back by this belief in competition. As you develop fewer partners, how do you resolve the concern that you are as hostage to your partner as your partner is to you? Is that an issue for you? How does that relate to what the state programs can do?

A: [Feezor] That is a very big concern of ours. I think we got a little emboldened last year. We moved 100,000 lives last year and we did it with better performance than we ever were able to do it with our normal open enrollment. Talk to me in about three months and see if I can move 400,000 lives and what the local fall-out is. Instead of what I call purchasing the services "on the spot market" about we can provide the price this year that I want, we think we will provide longer stability by moving to a strategic partnership that we think will inherently provide better value in terms of care outcomes and may be no worse off in terms of cost. That is what our board has struggled to do. The reality is that one of our objectives is to increase stability. That is a clear objective of my board and we think this model will work better. It is symbiotic and both partners have to periodically say, "Yes, there is enough value for both of us to stay in here."

A: [Santa] PEBB, Oregon's state employees' plan, has 86% of our lives with one carrier and one product, the Blue's PPO. The other 14% are in Kaiser. The savings for us to do that was enormous. The carriers simply did not want to take any risk; they are very risk adverse. And we are concerned about that. In Oregon, it is becoming a very monopolistic environment in terms of hospitals and now with some physicians. In contrast, with Medicaid, our most functional communities have single Medicaid HMOs and those HMOs step up to a responsibility to the community. That is a lot more functional than a competitive market and we believe that a competitive market in Medicaid has really failed.

A: [Betit] In Utah, we probably have four active HMOs in Medicaid and SCHIP and so the choice is truly there. The interesting thing is that when we do our annual survey of all managed care participants, commercial and public, the public always rises to the top as being the most happy. And they do not choose based on the price of the product but where the physicians are. Most of those physicians have their foot in two or three of the HMOs arrangements, so they are not competing on differing panels. What we are finding is that it is getting harder and harder to keep up with the appetite of the HMOs for rate increases. It is getting more difficult to show a relationship between what we pay them and the quality of the care that they are providing. So, this year in Utah, we are moving more towards a primary care physician model and removing some of the risk from two of the HMOs but keeping their physician models in the system so that the choice is still there. We are taking a lot more of that back in house since we think we can do it at a lower cost than at what they are doing it and they are having to load a lot of actuarial risk into the rates in order to keep it off of their commercial business. It is not really materializing, but they have to meet certain requirements and it is costing a significant amount each year to cover that risk.

Q: Each of you is redefining expectations of what health insurance is and does and how the system should work. You are actually making many of the decisions much more explicit than they have been before. Where did/does that activation energy come from within each of your three processes?

A: [Betit] It certainly comes from Governor Levitt. The Governor has been engaged in this since he came into office in 1993. He made it clear from the get-go that even though his philosophy was pretty conservative, he wanted to tackle coverage. He did that in the first two weeks by creating what he calls HealthPrint, an architecture to get those questions on the table. When I ran this latest program by him, he was in California and he flew home to come and talk to the Secretary. Once that partnership was formed, this was all locked in. He has had the political "guts" to get it to stick. He also gave the Secretary some reassurance that he was not going to do something that is going to embarrass him when it is all done.

A: [Santa] Certainly some of it was leadership, Governor Kitzhaber with over twenty years in Oregon politics. Another thing is hearing those principles over and over again. I am always amazed when for one reason or another an individual who wants a service that we do not cover hits the media and how many letters there are to papers telling them that is not what Oregon's principles are all about. There are a lot of people getting benefits because we agreed not to pay for other benefits. It always amazes me how many people, the man on the street, get it. The third thing is, in a state like Oregon, given our size, we are better off if we can cooperate together and then collaborate.

A: [Feezor] I guess the quick answer would be desperation. Having said that, if there is anything that distinguishes the health care service industry it is the extraordinarily bright and well-intended, if not idealistic people that attend it. I think that provides hope.

Q: Everyone in the panel was talking about comparisons and CMS, with its report cards, seems to be pushing us in that direction. Do you ultimately see that direction as having an impact on costs?

A: [Bertko] It is difficult for us on the private payer side to get enough data. Second, from our Associates' survey, the response was that we were inundating them with too much information and that they did not have time to look at it. I am hopeful that over the long term (five to seven years) that there will be at least incremental progress on the private side.

A: [Probst] I have a basic belief that if we shine a light on prices that they will not grow as quickly. So, I think transparency may not decrease cost, but it will help us get to higher value -- by decreasing the rate of price increases while creating a desire among providers to improve their service and clinical quality.

A: [Batilit] You asked specifically if CMS's efforts will have impact. I have a few thoughts. One is that unfortunately, most of CMS's Medicare consumers are probably the ones with the least disposition for using information aggressively, although that is changing. So, I do not hold out a lot of promise for that being a source of impact. It will probably have more impact on long term care services, because family members will be looking at that. CMS's information for employers is not as relevant either, even when looking at acute care, since they are measuring procedures that people under 65 don't have as often. Therefore, I think we need to develop something that is more pertinent to the under 65 population. At the state level, that is only going to get done through collaborative effort. Even the dominant insurer does not have enough information so that at the individual provider level for an individual condition, they can get statistically significant data. We need to go back to the idea of creating community databases that combine information across insurers to create these profiles.

Q: In West Virginia, one of the issues that we are having is that the nature of the employers who are purchasing is changing from larger to smaller employers. Could someone comment as to how they believe that this work can be done by a small employer, meaning 25 and under employees?

A: [Probst] I would suggest that you work with your insurer(s) to make this happen. We have a few large employers among our group, yet we could not do this without the insurers' willingness to work with us and give us data at no cost.

A: [Bailit] I am not all that optimistic about how small employers can lead the charge. I think they need to ride the coattails. You do not need a General Motors, but instead garner the energies of even mid-size employers and get their attention.

A: [Bertko] Just a note of caution here, with the high premium increases and the nature of the small group market (under 50), there is so much "churning" in this market. There is about a 35% change in membership per year in this market. There is not much incentive to concentrate on a given group of people without some other mechanism in place. That is where some other mechanism that is different than anything that is currently in place is needed.

Q: In the Coverage First products, it seems it would be fair to not let those people who have not chosen Coverage First to come back into the richer plan for a certain amount of time. How do you work back and forth?

A: [Bertko] The key here is that we have kept the risk pool intact . We are marketing this now as what is sometimes referred to as "total replacement," so we have the entire employer group, typically of 500-5,000 employees. Our philosophy is choice. So, if a person wants to try out Coverage First and then decides later that their needs fit another plan, he or she can switch The budgeting stuff that we do with the cross-subsidy takes care of that as long as we have everybody in the risk pool. In fact, it makes them more likely to be able to choose in the consumer driven plan if they know that they can return to wherever they want to.

Q: If you did not have the combined risk pool, someone would look at John Bertko's adverse selection slide and say that it does not look so good, since you are left with individuals who are higher utilizers.

A: [Bertko] Yes, we looked at whether in our plan, since the risk pool is intact, if the whole system (that being the employer pool) would be less expensive. The answer was yes, because even though individuals in the traditional plans, the HMO in particular, were more expensive, all the other parts went down enough that the total was 7.9% as opposed to 19%.

Q: I would like to hear Michael's thoughts on creating a competitive market and how that applies in rural areas where you have sole-source hospitals and physicians and you already have insurance premiums that are higher than in urban areas. I think you made reference to the fact that even in that sole-source area that you could have a deductible of $1500 if they provide bad care, but in reality you are punishing the consumer who has the choice of traveling 100 miles or going to the doctor in the community. How do you think we deal with that issue?

A: [Bailit] Not well. I think it is much harder to apply the model in rural areas for a couple of reasons. One, is that you create the need to drive distance for services. Now, many individuals in rural areas are used to driving long distances for services. The down side is that the providers that you have in that community are tenuously there. You have to ask if you want to risk creating a competitive force that will create the need for them to leave the market; that may not be a worthwhile trade-off. So, I don't have a good example for really, really rural markets. Now, I think there are markets that are deemed as rural that could be included here, but I would acknowledge that there are real limits.

Q: I think of regulation very simplistically as a set of rules and a process. The process, we have found, can be exacerbated by the turn around for rate approvals, for example. Could one of you speak to that issue regarding the cost and impact of regulation?

A: [Chollet] When I looked at the question of rate review, it turned out that only half of the states that have rating statutes actually review rates. The other half either require rate filing but do not review them, or don't even require rate filing. There are a number of states, such as California, that review rates but do not have rate constraints in statute. When we looked at whether active review of states was statistically significant, small insurers were more likely to leave a market were there was rate review, but the statutes themselves had no effect on decisions to leave.

A: [Daley] In Washington, we have instituted a fairly strict speed of rate review standard and I believe that we have accommodated the needs of the products in the market. There are also a few other regulatory processes that we are looking at, as well.

Q: Do any of you have a sense, or in the audience, if there are investigations under way regarding anti-competitive behavior in hospitals and physician groups?

A: [Two states indicated that there are in their states.]

A: [Lindsay] We have done a lot of work in rural areas, where you especially have a difficult situation with health care providers not being willing to contract and collectively acting in their best interests. I was recently in a Western rural state the other day and I was talking with a group of surgeons, one of whom turned to me and said that he had gotten together with several of his peers where they had discussed their fees and decided collectively not to participate in a certain health plan. I asked him if he would put that down on paper. He thought about it for a minute or so and then declined.

Q: There is an industry practice, which I think is ubiquitous, of minimum participation requirement of 60, 70, 80 percent of your group. It is not a regulation or a law, but a practice to prevent erosion of the risk pool. As premiums go up and employers shift more and more fiscal responsibilities to employees, employers are having more and more difficulty achieving that high participation rate. I wonder to what extent that is a part of your small group erosion of coverage.

A: [Lindsay] I really do think that is a significant issue. The rule varies and many states do define it. The problem that you run into is that not all states define eligibility as "net eligible." So, if the individuals in the group see their rates increasing, they may leave the group and buy individual insurance on their own. If a state law uses a "net eligible" approach then those individuals do not go against the required participation. The flip side is that if you don't have eligibility defined on a "net" basis, you may end up with an employer with three or four people option out not being able to offer group coverage, because there are not enough people to take it. In response, many people will respond that the employer should just pay more, but many employers cannot afford to do so.

Q: Do you think that a political will exists for employer mandates and if so, where the political support for that may be coming from?

A: [Daley] I have to say that we are anticipating a gelling of a political phenomenon. We are going to go out and try to create a coalition that will be good enough to pass something like that which you are talking about. Our discussions with the business community have been productive, thus far. The National Federation of Independent Businesses is in a dialogue with us over this proposal. The same is the case with the Association of Washington Business, one of the main stays of the repeal of the 1993 reforms. Our conversations with the union side have also been very good. They are interested, of course, in community rating, and are anxious to see something like this to help build a community-rated pool. They are concerned about the relationship with ERISA when you talk about personal responsibility. But, as I indicated, we are going to negotiate the details as we go along here, but there is broad recognition that something must be done.

Q: There seems to be a difference in opinion between two panel members about the value of a large number of insurers in the market place. For Deborah, specifically, you basically assert that regulation does not have a strong effect on movement in and out of the market place. First, did you compare movement before and after some level of regulation? Secondly, as I look at the criteria that you set down, all of them could be attributable to a high rate of regulation. What exactly did you analyze when you came up with your conclusions?

A: [Chollet] The answer is yes to all of your questions. The method that we used observed states over time, comparing each state to itself, as well as other states. In that way, we did look at decisions before and after regulation. We also looked at some of combinations of regulation and were unable to find any significant effect of regulation either alone or in combination. We are looking more carefully at insurers' loss ratios, because the effect of regulation on loss ratios may occur with some lag. However, if regulation affects loss ratios and the loss ratio affects your, the insurer's, willingness to stay, then regulation should affect willingness to stay. We are not finding that, though. The one result that we do find is that scrutiny of rates seems to reinforce insurers' competitive reasons for leaving markets. Rate review is the only regulatory activity that appears to make a difference.