In an effort to hold down prescription drug costs for federal employees and retirees, the Office of Personnel Management plans to expand its oversight of contracts between health insurance companies and the firms that manage their pharmacy benefits.

OPM disclosed its decision in its annual "call letter" to insurance companies. The letter notifies companies of OPM's policy concerns and lays out a schedule for negotiating health benefit and rate changes that would become effective in 2004.

Premiums in the Federal Employees Health Benefits Program rose by an average of 11.1 percent this year, the third consecutive year of double-digit increases. As in past years, rising costs for prescription drugs and increased use of drugs were major drivers in the rate hike.

"We encourage you to continue to find ways to promote cost-effective use of prescription drugs," the OPM letter said. "Benefit incentives should support members who use their benefits wisely, rather than simply shifting costs."

About $6 billion of the prescription drug costs in the Federal Employees Health Benefits Program are routed through what OPM calls "pharmacy benefit manager operations," known as PBMs. In its letter, OPM told health insurance companies that "we are particularly concerned that your contracts with PBMs provide maximum savings to the program and our members."

The letter marks the first time that OPM has attempted a broad-based review of PBMs. Although the agency has looked at the relationship between some large plans and their pharmacy managers in past years, OPM Director Kay Coles James is interested in a comprehensive review of how PBMs work and how they produce savings for FEHBP, an agency official said.

Health insurance companies have turned to PBMs in recent years because they are an efficient way to provide prescription drug benefits. In most cases, PBMs set up retail pharmacy networks and mail-order operations for health plans. PBMs also purchase drugs from wholesalers or handle rebate negotiations with pharmaceutical manufacturers.

As health insurance companies renegotiate contracts with PBMs, OPM said, "we trust that you are aware of their cost structure and how it can best serve our mutual interest." OPM said it will look to health insurance companies to require annual audits of PBMs and submit pertinent documents to FEHBP. "In addition, we are expanding our oversight role to ensure that the OPM inspector general can perform independent audits of your PBMs."

The request for expanded oversight does not reflect any concerns or problems with PBMs in the federal employee health program, a second OPM official said. But, the official added, "these are negotiated contracts . . . and we want to make sure the health plans are getting the best deal they can."

The OPM letter also alerted the health insurance companies to changes in preventive care practices. For 2004, OPM asked health plans to consider providing routine osteoporosis screening for women 65 and older and to begin screening at 60 for women at increased risk. OPM also urged the plans to provide influenza vaccine annually to people 50 and older, rather than the current practice of 60 and older.

No Furloughs at EEOC

Congress has provided the Equal Employment Opportunity Commission with a $15 million supplemental appropriation that will allow the agency to avoid sending its nearly 2,800 employees home without pay for as many as 19 days this fiscal year.

The money was approved before Congress left on its spring break. The agency, which found itself strapped for cash because of increased building rentals and other costs, had asked for $18 million to avoid a furlough and begin efforts to restructure operations and improve technology. Congress dropped a proposal to give the EEOC an extra $5 million to set up a national call center to receive worker complaints.

TSP on Diary Live

In these uncertain times, what factors should federal employees consider when making investment choices in the Thrift Savings Plan? Paul A. Yurachek, a financial planner and lawyer, will take questions at noon Wednesday on Federal Diary Live at www.washingtonpost.com. Please join us.

Stephen Barr's e-mail address is

barrs@washpost.com.