Transparency Only Part of the Story for Navitus

News is out that Dean Health Plan of Madison has purchased Navitus Health Solutions, a pharmacy benefits manager also based in Madison.

Navitus is the company that manages the drug benefits for the state government and many local units in Wisconsin. Since moving to Navitus in 2004, estimates are that the state has saved $160 million in pharmacy benefit costs.

The Journal Sentinel article this morning on the deal points to transparency as the driving factor behind the savings. According to the article:

Critics have contended that PBM [pharmacy benefit manager] customers can never know how much a drug costs. Three of the largest PBMs - Medco Health Solutions Inc., Express Scripts Inc. and Caremark Rx Inc. - have faced allegations that they inflated drug prices.

Navitus' business model, in contrast, is based on fully disclosing what the drugs actually cost after discounts, rebates and other price breaks.

"You can see exactly what your savings are," said David Stella, deputy secretary of the Department of Employee Trust Funds, which administers the health plans for state employees. "It's not a black box like some models."

Dean Health Plan contends that this sets Navitus apart from its competitors.

"This is the only truly transparent model in the country," said Bob Palmer, chief executive of Dean Health Insurance, the parent of Dean Health Plan.

This needs a bit of clarification. The transparency in this case isn't going all the way to the consumer -- "the customer" referred to above is the employer. This isn't a case, as it may seem at first glance, of knowledgeable consumers being unleashed on the market and drastically lowering health costs as individuals.

As a state employee, Navitus is my pharmacy benefits manager, and I don't have a clue what my prescriptions actually cost aside from the co-pay level. My employer does, and it ensures that, aside from a reasonable cut for Navitus, all of the savings from negotiation with the drug companies are transferred into lower drug costs for me and my employer.

But transparency alone doesn't tell the whole story of what has allowed Navitus to save the state $160 million in three years. This snippet from a Cap Times article that appeared last June paints a more complete picture (emphases mine):

The second major [state health plan] change was the consolidation of prescription drug benefits under one pharmacy benefits manager, Navitus Health Solutions, a Wisconsin company that was created to meet the state's needs.

The Group Insurance Board demanded complete transparency in all financial transactions with drug manufacturers and that all rebates and savings from discounts be passed through to the plan, which also has greater purchasing power due to consolidation.

Navitus created a committee of pharmacists and physicians from across the state who developed a list of preferred drugs and chose the best in each class.

The board changed the drug benefit under the program from a two-level co-pay structure to a three-level co-pay structure. The first level, mostly generics, cost $5 per prescription, the second level $15 per prescription, and the third level $35 per prescription.

There are three important points in this:

1. The role of purchasing power in the reduction of costs.
2. The use of a centralized board to oversee the creation and implementation of the drug benefit program along with a committee of health professionals to guide the plan choices.
3. The use of a more varied tiering structure for participant co-pays based upon cost and classification.

These are all key points that should be transferred into aspects of any health care reform plan entertained by the state as a whole.

In particular, some fear the use of a centralized board would lead to placing undue influence over the program make-up into the hands of too few (see here, pages 21-22). But, as the state's experience with Navitus demonstrates, that's just not likely to happen, particularly when there's strict public oversight involved.

And the use of tiering is important because it puts some onus on consumers to make cost effective decisions, but it also doesn't force them to navigate the complicated waters of health care costs entirely on their own.

A major consultant for the state when it revamped its health plan a few years ago -- which included the move to Navitus -- was David Riemer, the primary architect for the Wisconsin Health Plan, which is one of three health care reform proposals being considered by Dems and some Republicans in the state legislature.

Under Riemer's direction, the state used a centralized board and a tiering structure on the traditional health care plan side, in addition to the pharmacy benefits side, resulting in millions of dollars in savings for the state to go along with $160 million saved in drug costs. Republican state Senator Alberta Darling called the revamping "a shining example" and referred to the new health plan and pharmacy benefits set-up as "the best in the country."

Let's hope that such a pragmatic attitude, as opposed to an ideological one, carries forward into the health care reform debate for the state as a whole.