Prescription Drug Benefits:

Implications for Beneficiaries of Medicare HMO Use of Formularies

HEHS-99-166: Published: Jul 20, 1999. Publicly Released: Jul 20, 1999.

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William J. Scanlon
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Pursuant to a congressional request, GAO studied how Medicare health maintenance organizations (HMO) manage drug formularies to control drug expenditures and what the implications are for beneficiaries of these formulary management activities.

GAO noted that: (1) evaluating the prescription drug benefits Medicare HMOs offer is an important but challenging undertaking for prospective enrollees; (2) to determine which plan best meets their needs, beneficiaries need to assess how HMO's use of formularies can affect their drug benefits; (3) comparing plans can be difficult because the types of formularies HMOs use and the way in which formularies are managed differ considerably; (4) the choices beneficiaries make can have a significant impact on the value of their drug benefit and out-of-pocket costs; (5) the HMOs GAO studied varied considerably in the types of formularies they use and the methods they use to manage them; (6) the HMOs also use several types of formulary controls to manage drug expenditures; (7) 12 of the 16 HMOs require the use of generic drugs when they are available; (8) 7 of the 16 use variable copayments, with a larger amount for brand-name drugs and a smaller amount for generics; (9) 12 of the 16 HMOs GAO examined deleted drugs from their formularies in four therapeutic classes that are widely used to treat health conditions common to the elderly: hypertension, depression, ulcers, and high cholesterol; (10) these deletions required beneficiaries to switch to alternative formulary drugs or increase their out-of-pocket expenses, in some cases to the full price of the drug; (11) however, 15 of the 16 also added drugs to their formularies in these classes; (12) considering all the deletions and additions, 12 of the 16 HMOs covered as many or more drugs in each class in January 1999 than they did in November 1997; (13) with one exception, the HMOs continue to offer several alternatives for physicians to prescribe in each class; (14) the HMOs also use different methods to notify beneficiaries of formulary changes and to consider exceptions from formulary changes; (15) while some HMOs do not notify beneficiaries of formulary changes, others send beneficiaries a copy of the formulary as well as a letter that informs them of specific changes that affect them and the reasons for the changes; and (16) although some HMOs allow a physician to except a beneficiary from a change without providing the HMO justification for the decision, others require that the physician document, in some cases through several steps, that formulary alternatives are inappropriate for a beneficiary before the HMO will agree to cover a nonformulary drug.

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