An increased use of prescription drugs - specifically the popular anti-depressant Prozac - has forced IHC Health Plans to both renegotiate its drug-prescription plan and help bail out financially ailing pharmacies.
IHC has agreed to pay half of an $800,000 shortfall incurred by Utah pharmacies because of a pact IHC Health Plans and RxNet of Utah signed this year.Under a "capitation" agreement, IHC paid a fixed amount per member per month, and RxNet agreed to compensate their pharmacies from that amount.
The agreement, however, caught pharmacies at a loss because more IHC Health Plan members began using more prescription drugs.
"The utilization of drugs increased dramatically in 1989 compared with 1988," said Bill Nelson, president of IHC Health Plans. "We thought for awhile it was a seasonal thing, but it turned out that there was just significantly higher drug utilization in 1989 than had been seen when the capitation agreement had been set."
Neil Jensen, executive director of RxNet, the contracting arm of retail pharmacies, said because of problems plaguing the generic drug industry, members of IHC Health Plans - like other Utahns - are requesting more expensive brand-name drugs.
This had lead to increased dollar utilization, but not necessarily increased prescription utilization, he said.
"We also, however, attribute this shortfall to the increased use of Prozac, a drug that had very limited use in 1988, and, therefore, was not taken into account when the capitation rates were derived," he said."
In March 1989, when it appeared that the capitation payment was insufficient to meet prescription costs, IHC gave RxNet a $200,000 cash advance to maintain payment to its member pharmacies.
IHC Health Plans, which represents 40,000 people, one third of them IHC employees, later exempted Prozac from the capitation and agreed to pay RxNet 90 percent of the average wholesale price for Prozac - retroactive to Jan. 1. This gave $160,000 more to RxNet.
However, Jensen said a significant shortfall still exists.
"Because of its commitment to the pharmacy community, IHC has agreed to pay $400,000 of the outstanding balance owed by us to our pharmacies for services incurred before Aug. 31, 1989," Jensen said. "This is far beyond the $150,000 we requested. IHC Health Plans will fund approximately 67 percent of the shortfall for which they have no legal obligation."
Jensen said the shortfall distribution will be equitably made as soon as a final reconciliation of outstanding claims is completed. RxNet, meanwhile, has signed contracts putting them at 100 percent at-risk for the remainder of the shortfall.
To further cut pharmacy losses, IHC Health Plans agreed to terminate the capitation agreement.
Effective Sept. 1, payments were made to Utah pharmacies by IHC on a fee-for-service basis. IHC is now reimbursing pharmacies at 90 percent of the average wholesale price, plus a dispensing fee of $2.50 for name-brand products and $3.50 for generic prescriptions, less the member co-payment.
Jensen, who's also executive director of the Utah Pharmaceutical Association, said pharmacies - at risk by "capitation" - will be elated by the new agreement.