With prescription drug costs skyrocketing now and for the foreseeable future, many health plans are restructuring their pharmacy benefits so that their members, largely insulated from the big increases so far, will shoulder more of the expense.

As part of this effort, many plans are creating a higher, third level of drug co-payment to steer consumers away from the more expensive medications like Prozac, Claritin and Zocor to other less costly name-brand drugs and generics.

Nevertheless, the overall cost of doctor-prescribed medication is expected to increase nationally by almost 20 percent this year -- following an increase of 16 percent in 1998 -- and health plan managers complain that they alone have been bearing most of the additional costs.

"What to do about prescription drug costs is the number one topic for benefit managers today," said Elizabeth Dudek, vice president of the Segal Group, a benefit consulting firm in Washington. "Just about everyone is struggling with changes to their plans to either limit benefits or increase co-pays and deductibles."

Many of the changes are being put into effect as federal workers and other people with employer-sponsored health coverage enter the "open season" period when they can change plans. The Clinton administration has already said that health insurance premiums for the Federal Employees Health Benefits Program will rise an average of 9.3 percent next year and that rising drug costs are a major reason for the increase.

The federal program, which provides coverage for 9 million federal workers, including 803,000 in the Washington area, is generally considered a model, with comprehensive benefits and a wide choice of plans.

The huge increase in prescription drug spending comes as an aging population takes more drugs and an unprecedented number of new medications come onto the market. Many of these new pharmaceuticals carry a high price tag.

In addition, price inflation on existing drugs has played a part. IMS Health Inc., a drug data research company, reports that drug prices increased by 4.9 percent from the second quarter of 1998 to the same period in 1999. But industry analysts agree that what is driving up drug spending most is the sheer volume of prescriptions written and filled.

The drug industry, whose representatives describe today as the "golden age of pharmaceuticals," contends its products will lower health costs by making hospital stays and even surgeries unnecessary. But benefit managers, whose plans now cover two-thirds of all prescription drug costs, say they haven't seen that decrease in other health services so far. As a result, they are trying to protect themselves from the fast-rising drug prices.

The Three-Tier Solution

An increasingly popular step has been implementation of a three-tiered prescription benefit system, which charges different co-payments for different types of medications.

Many consumers have long paid higher co-payments for brand-name drugs than for generics under a two-tiered system. But the three-tiered system adds a new category of "non-preferred" brand-name drugs that are available but only if the patient agrees to pay $25 or more out of pocket for each prescription.

These "non-preferred" drugs generally are high-priced selections. For example, the antihistamine Claritin, the antidepressant Prozac and the cholesterol reducer Zocor can cost 25 to 50 percent more than comparable brand-name drugs such as Zyrtec, Zoloft or Lipitor.

Most patients would still be allowed to use Claritin or Prozac under the three-tiered system, but they would have to pay substantially more for it. Even with the higher co-pays, consumers would be paying considerably less for the drugs than the health plan is being charged.

"We see this as a win-win situation for the plans and the consumers," said Winston Wong, director of pharmacy management for CareFirst BlueCross BlueShield in the Washington area. "Members can obtain any drug on the market, but the system allows us to recoup some of the large difference in costs between name-brand medications."

Wong said that most Blue Cross plans locally are moving to the three-tiered system this year, following a national trend that began in California. He said results have been impressive in terms of slowing down the increase in spending on prescription drugs.

Eileen Wilson, a vice president of the George Washington University Health Plan, said her group is using the three-tiered benefit system widely.

"We're saying to the consumer right up front that if you don't want to pay $25 for a prescription, then make sure the doctor writes the preferred drug on our list," she said.

Limited Impact on Drug Sales

The effect on sales of the more expensive drugs, which are increasingly found on the third tier, has so far been limited. After years of steady growth, for instance, total sales for Prozac, Zocor and Claritin are all up for the first nine months of 1999 vs. the same period of 1998, according to IMS Health. The rate of increase, however, is slower than in the past.

While overall consumer reaction to the three-tiered system is unclear, at least one group is livid. The National Mental Health Association (NMHA) says that some plans use three- and four-tiered co-pay options that can end up costing members $70 and more out of pocket for antidepressant and antipsychotic prescriptions.

"We've been tracking this for a while, and we think mental health patients are being discriminated against in the co-pay system," said Mary Graham, a vice president at the NMHA. "It seems the plans don't want to be criticized for keeping closed formularies [lists that limit the medications available through the plan], but these high co-pays serve the same function. Many people just can't afford them."

As part of their multi-tiered systems, many plans are also requiring pre-authorization by plan prescription managers or a doctor's detailed explanation of why a patient needs a higher cost brand-name drug. These additional requirements seem to be having an effect.

Wilson, of GWU Health Plan, said that since her plan began more rigorously implementing its three-tiered system a year ago--requiring that more expensive drugs be documented as "medically necessary"--the use of those more costly drugs has declined sharply. For instance, half of all antihistamine prescriptions filled through the plan last year called for Claritin, she said. During the first nine months of this year, less-expensive Allegra has become the top antihistamine, and Claritin was requested in only 16 percent of prescriptions.

Prescription benefit managers describe these more aggressive steps as part of a "counter-detailing" process--an effort to persuade doctors and patients that the drugs heavily advertised and promoted (or "detailed") by pharmaceutical companies are not necessarily the best or the most cost-effective option. Some health plans are actually visiting doctors to lobby them to prescribe the less expensive brands.

According to a recent survey by the National Institute for Health Care Management, a nonprofit group established by the managed care industry but now funded by a variety of sources, direct-to-consumer advertising by drug companies has played a significant role in driving up drug costs.

Nancy Chockley, president of the institute, said that 22 percent of the total increase in drug spending between 1992 and 1998 (or $9.3 billion) came from increased purchases of the 10 drugs most heavily advertised directly to consumers. That advertising, she said, is encouraging patients to ask their doctors for specific, and often expensive, medications. Most of those 10 drugs were in four pharmaceutical categories: antidepressants, antihistamines, cholesterol reducers and anti-ulcer drugs.

"It's very hard to manage health plans in that kind of heavy advertising environment," said Chockley. "Studies have shown that 86 percent of people walking in to a doctor's office and asking for Claritin walk out with a prescription for it."

To representatives of the pharmaceutical industry, this is not a problem but rather is a good thing for patients, doctors and the nation's health.

"Research has shown that direct-to-consumer advertising helps patients become more involved in their own health care," said Judith H. Bello, executive vice president of the Pharmaceutical Research and Manufacturers of America (PhRMA), the association of research-based drug companies. "It also helps play a positive role in terms of compliance and in refilling medicines they need. . . . The bottom line here is that the advertising informs people about medications that can help them, and they wouldn't continue taking them unless they worked."

Bello said her organization has no formal policy regarding three-tiered prescription plans and current efforts to restrict the use of more expensive drugs. But she added that the group opposes any efforts to deny patients drugs that doctors believe they need.

"We're very concerned whenever access is reduced to medications that doctors think are medically necessary for a patient," she said.

Higher Costs for Lifestyle Drugs

In addition to implementing three-tiered systems, health plan officials say that they are also addressing rising drug costs by increasing deductibles, setting maximum yearly drug benefits, fixing co-payments as a percentage of the price of the drug, and raising overall premiums.

A spokeswoman for the mid-Atlantic division of Kaiser Permanente said, for instance, that percentage increases for the health maintenance organization would be "in the high single digits or low double digits" for 2000. She said the increase was in line with other plans and was made necessary largely because of rising drug costs.

Other benefit plans are looking to more innovative ways of addressing drug use in the future. Donald Segedin, vice president for corporate accounts for the national pharmacy management company PCS Health Systems, said his company is looking into charging smaller co-pays for drugs proven to be "medically superior." For prescriptions considered to be "lifestyle" drugs--weight loss pills, medications for sexual dysfunction, baldness treatments--the co-pays could be considerably higher.

WellPoint Health Networks in California administers pharmacy plans that cover 22 million people, and Michael Nameth, general manager for pharmacy management, said that three-tiered benefits will be introduced to many of them in the months ahead.

He points out that many plans present the change to members as an appealing alternative to a closed formulary, something which consumers have made clear they don't like. But given the large increase in drug costs, Nameth said, consumers have to expect some efforts to control those costs.

"If you think there are problems now when we have $100-a-pill drugs, imagine what it will be like when we have medications that cost $10,000," he said, referring to some of the gene-based therapies expected to be available within the decade. "Hopefully we will see offsets in cost in terms of hospital and physician care, but that really hasn't been proven yet. People need to do some very deep thinking here."

Alan L. Hillman, director of the center for health policy at the University of Pennsylvania, has been studying the topic intensively and sees an inevitable health care crisis coming, created by prescription drug costs.

He says there are so many drugs awaiting approval before the Food and Drug Administration, or in the development pipelines of drug and biotechnology companies, that the health care system will be overwhelmed by them sometime between 2005 and 2010. That's when the now-experimental gene-based therapies, which are tailored to each individual's genetic makeup, are expected to be ready for use.

"If the middle class wants these things, and I'm sure they will, they will have to pay the skyrocketing premiums or will have to buy insurance without these things and cover them on their own," he said. "Given the costs involved, I believe there will be a revolt against health care as we know it by the middle class."

Choose Your Coverage Carefully

Confused by all the brochures and ads? Wondering how to compare the vast array of health plans available? When choosing a plan, it may be helpful to review this advice:

* Never choose a plan on the assumption that you and your family will remain healthy. Accidents and disease happen.

* The cheapest plan is not always the best buy, especially if it has a high deductible and no comprehensive coverage.

* Look into whether your personal physician, hospital and pharmacy are covered by the plan.

* Find out how difficult it is to see a specialist if you feel it is necessary. And determine how difficult it is to use doctors and medical facilities that are not part of the plan.

* Be sure to ask if the plan pays for prescription drugs and how much of the cost you will have to absorb. It is also important to know if there are restrictions on which drugs the plan will cover. Also, you might want to see if the plan offers discount pharmacy services for drugs that are taken for chronic conditions, such as asthma or high blood pressure.

* Check out whether the plan has lifetime limits on benefits. Some plans cap payments at $1 million, but in the case of a serious accident or illness that benefit may not cover all needed services.

* Make sure the plan has an out-of-pocket maximum. This ensures that once you've paid a certain amount in deductibles and co-payments, the plan will take care of the rest of your health care costs.

* Ask how the plan deals with grievances by members or how consumers can appeal decisions by the insurer. How complicated is the procedure and is there an independent arbiter?

* Check out the mental health benefits. Some plans pay very little toward mental health coverage or require high co-payments.

* Look into the plan's record for retaining members. A high turnover rate may be a signal of consumer discontent.

* Ask if the plan is accredited by the National Committee for Quality Assurance and whether it permits data collected by the NCQA to be released. Although such accreditation does not guarantee quality, it does signify that the plan has met certain standards.

RESOURCES FOR CONSUMERS

* Consumer Reports rated 54 of the nation's largest health care plans--including some in the Washington area--in its August issue.

* Washington Consumer's Checkbook is publishing its annual guide to federal employee health plans. The guide can be ordered for $10.45 by calling 202-347-7283.

* The federal Office of Personnel Management has established a Web site with information about the plans available to federal workers and retirees. The site, at www.opm.gov/insure, provides price information, links to each plan's home page, phone numbers for the plans and breakdowns of each plan's benefits. The site also provides results of a survey of more than 450,000 people covered by the plans and shows how these consumers rated the quality of the service. Included are detailed descriptions of what questions were asked and how people responded. The Web site also offers a tool called Plan Smart Choice, which is an interactive, step-by-step guide to picking a plan that meets an individual's needs.

* The National Committee for Quality Assurance, a nonprofit group that assesses and accredits health maintenance organizations, also provides information on specific plans. However, not all HMOs seek such review and some plans refuse to have information released. The information can be found at 1-888-275-7585 or on NCQA's Web site, www.ncqa.org.

HEALTH TALK ONLINE

Got a question about the drug benefits in your health plan and the rising costs of prescriptions? Join us today at 2 p.m. for a discussion of this topic on The Washington Post's Internet edition at www.washingtonpost.com/ liveonline. Our guest is Winston Wong, director of pharmacy management for CareFirst BlueCross BlueShield. Send in your comments and questions.

Health Care Options for Federal Workers

Each fall, millions of Americans participate in "open season" to choose their health care coverage. For the 800,000 federal workers, retirees and dependents in the Washington area, open season began yesterday and continues through Dec. 13. Federal workers in the the Washington area may choose from these types of plans:

* Fee-for-service plans. These allow patients to go to any doctor or hospital, but the patient usually has to pay a deductible and coinsurance.

* Health maintenance organizations. These provide a wide variety of services through the HMO's doctors and facilities for a set fee.

* Point-of-service plans. These provide a network of doctors and hospitals that patients can use for a nominal cost. People covered by these plans can also go to outside doctors if the patient picks up a larger share of the expense.

Fee-for-Service Plans 2000 Premium Rates

Biweekly Monthly

Alliance Health Plan

Gov't Pays Empl. Pays Gov't Pays Empl. Pays

High Self $78.83 $55.59 $170.80 $120.44

High Family $175.97 $109.00 $381.27 $236.17

APWU Health Plan

Gov't Pays Empl. Pays Gov't Pays Empl. Pays

High Self $78.83 $39.72 $170.80 $86.06

High Family $175.97 $84.20 $381.27 $182.43

Blue Cross and Blue Shield

Gov't Pays Empl. Pays Gov't Pays Empl. Pays

High Self $78.83 $66.29 $170.80 $143.63

High Family $175.97 $134.35 $381.27 $291.09

Standard Self $78.83 $30.04 $170.80 $65.09

Standard Family $175.97 $66.78 $381.27 $144.69

GEHA Benefit Plan

Gov't Pays Empl. Pays Gov't Pays Empl. Pays High Self $78.83 $45.72 $170.80 $99.06

High Family $175.97 $92.67 $381.27 $200.78

Mail Handlers

Gov't Pays Empl. Pays Gov't Pays Empl. Pays

High Self $78.83 $45.43 $170.80 $98.43

High Family $175.97 $86.13 $381.27 $186.61

Standard Self $63.25 $21.08 $137.04 $45.68

Stand. Family $137.28 $45.76 $297.44 $99.15

NALC Gov't Pays Empl. Pays Gov't Pays Empl. Pays

High Self $78.83 $46.87 $170.80 $101.55

High Family $175.97 $92.66 $381.27 $200.76

Postmasters Gov't Pays Empl. Pays Gov't Pays Empl. Pays

High Self $78.83 $122.15 $170.80 $264.66

High Family $175.97 $257.67 $381.27 $558.28

Standard Self $78.83 $43.61 $170.80 $94.49

Stand. Family $175.97 $88.89 $381.27 $192.59

Foreign Serv.* Gov't Pays Empl. Pays Gov't Pays Empl. Pays

High Self $78.83 $32.56 $170.80 $70.55

High Family $175.97 $94.91 $381.27 $205.64

Panama Canal Area*

Gov't Pays Empl. Pays Gov't Pays Empl. Pays

High Self $74.57 $24.85 $161.56 $53.85

High Family $161.72 $53.90 $350.39 $116.79

Rural Carrier Benefit Plan*

Gov't Pays Empl. Pays Gov't Pays Empl. Pays

High Self $78.83 $40.02 $170.80 $86.71

High Family $175.97 $66.33 $381.27 $143.71

SAMBA* Gov't Pays Empl. Pays Gov't Pays Empl. Pays

High Self $78.83 $45.80 $170.80 $99.23

High Family $175.97 $117.55 $381.27 $254.69

Secret Service* Gov't Pays Empl. Pays Gov't Pays Empl. Pays

High Self $72.94 $24.31 $158.03 $52.68

High Family $172.85 $57.62 $374.51 $124.84

HMO and Point-of-Service Plans 2000 Premium Rates

Biweekly Monthly

Gov't Pays Empl. Pays Gov't Pays Empl. Pays

Aetna U.S. Healthcare

High Self $78.83 $29.37 $170.80 $63.63

High Family $175.97 $77.33 $381.27 $167.55

Standard Self $56.02 $18.67 $121.37 $40.46

Stand. Family $131.40 $43.80 $284.70 $94.90

CapitalCare

High Self $77.59 $25.86 $168.11 $56.03

High Family $175.97 $77.47 $381.27 $167.85

Free State Health Plan

High Self $78.83 $46.07 $170.80 $99.82

High Family $175.97 $108.82 $381.27 $235.78

George Washington Univ. HP

High Self $73.10 $24.36 $158.37 $52.79

High Family $175.97 $62.91 $381.27 $136.30

Kaiser Permanente

High Self $70.50 $23.50 $152.75 $50.92

High Family $174.30 $58.10 $377.65 $125.88

MD-IPA

High Self $78.46 $26.15 $170.00 $56.66

High Family $175.97 $75.15 $381.27 $162.82

Prudential HealthCare HMO

High Self $78.83 $33.26 $170.80 $72.06

High Family $175.97 $70.75 $381.27 $153.29

* Only open to certain employees

Spending More on Drugs

Percentage of national health care expenditures that goes to prescription drugs

1960 10.0%

1965 9.0%

1970 7.5%

1975 6.2%

1980 4.9%

1985 4.9%

1990 5.4%

1995 6.1%

1997 7.2%*

* Last year for which figures are available

SOURCE: National Health Statistics Group, Office of the Actuary, Health Care Financing Administration