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F I S C A L I M P A C T R E P O R T

SPONSOR Campos

DATE TYPED 3/14/05

SHORT TITLE Prescription Drug Purchase Standard Co-payment

SB 23/aSCORC/aSPAC

ANALYST Hanika-Ortiz

APPROPRIATION

Appropriation Contained

Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

$6,500.0-$10,500.0 Recurring General

Fund

Duplicates HB 391

SOURCES OF INFORMATION

LFC Files

Responses Received From

Public Regulation Commission-Insurance Division (PRC)

The New Mexico Retiree Health Care Authority (NMRHCA)

Health Policy Commission (HPC)

Regulation and Licensing Department (RLD)

New Mexico Public Schools Insurance Authority (NMPSIA)

General Services Department (GSD)

SUMMARY

Synopsis of SPAC Amendment

The Senate Public Affairs Committee Amendment adds language permitting tiered co-payments

to be based on an individual’s ability to pay.

Synopsis of SCORC Amendment

The Senate Corporations and Transportation Committee Amendment adds language allowing the

differences in co-payments between generic drugs and brand-name drugs be taken into consid-

eration when determining co-pay amounts.

Synopsis of Original Bill

Senate Bill 23 adds a new section to NMSA chapters regarding the Health Care Purchasing Act,

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Senate Bill 23/aSCORC/aSPAC -- Page 2

Health Insurance Contracts, Group & Blanket Health Insurance Contracts, Health Maintenance

Organizations and Nonprofit Health Care Plans. The new section requires that all health insur-

ance coverage issued or renewed on or after July 1, 2005 offering an insured a co-payment struc-

ture for prescription drugs be the same for any prescribed drug in the same quantity and for the

same duration, whether the prescription is dispensed by retail pharmacy, mail order or by any

other means. This bill applies to individual and group private insurance, Health Maintenance Or-

ganizations, nonprofits and the Health Care Purchasing Act.

Significant Issues

Under the current structure, prescription drug co-pays vary if dispensed by retail pharmacy or

mail order. Co-payments for a three month supply by mail order can be close to the same as the

co-pay for a 30 day supply at retail pharmacies as they are typically only allowed to dispense one

months supply at the same co-pay. Proponents of this bill feel that the current system is unfair to

the retail pharmacy industry. They feel pharmacists do a better job providing important drug and

health information to consumers with the direct patient-pharmacist interaction. Opponents would

argue that mail order provides a less expensive option for the insurers and controls the cost of

health insurance. Benefit plans can provide steeper discounts for mail order maintenance medica-

tions through bulk purchasing, than the discount provided through retail pharmacies

GSD reports less than 13% of all pharmacy claims are filled mail order. GSD provides the fol-

lowing comparison between retail and mail order co-payments.

Drug Type

Local Pharmacy Cost Mail Order Cost

30-day supply

Generic

$7 to $20

$15

Formulary

$14 to $40

$30

Non-formulary

$30 to $80

$70

90-day supply

Generic

$21 to $60

$15

Formulary

$42 to $120

$30

Non-formulary

$90 to $240

$70

PERFORMANCE IMPLICATIONS

The PRC report SB 23 would require the re-filing of insurance contracts with the insurance divi-

sion, and any impact for them would be minimal.

NMRHCA and NMPSIA report SB 23 could negatively affect their program performance stan-

dards.

FISCAL IMPLICATIONS

NMPSIA note members on maintenance medication for chronic conditions have lower out of

pocket costs with mail order, and NMPSIA pays less for drugs. NMPSIA receive higher whole-

sale discounts at mail order than at the retail pharmacy level which keeps co-pays lower when

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Senate Bill 23/aSCORC/aSPAC -- Page 3

members use mail order. NMPSIA anticipate $2.l million in discounts, and drug rebates of $2.6

million will be lost due to the loss of a three-tier co-pay. NMPSIA would pass on additional costs

to members in the way of higher co-pays or higher premiums. NMPSIA anticipate the increased

cost to members at $745 thousand for higher co-pay costs at mail order. NMPSIA pays for over

500 thousand prescriptions annually, 12% at mail order.

NMRHCA notes prescriptions filled at the mail order facility are less expensive for them because

of volume purchasing. Members of the NMRHCA are offered lower co-pays to purchase their

medications through the mail order option. If co-pays at the retail pharmacy and mail order are

the same, the member will have no financial incentive to purchase through the mail order facil-

ity. Co-payments are also lower for generally less expensive generic and formulary drugs. The

NMRHCA report increasing the mail order co-pay to the current retail co-pay could cost mem-

bers an additional $2.1 million. Lowering the retail co-pay to the mail order co-pay totals an es-

timated $1.2 million in lost revenue because of drug costs. The NMRHCA believe a flat co-pay

structure would remove the incentive for members to utilize the mail order option, which could

result in a New Mexico-based mail order facility leaving the state. They also believe it would

remove the incentive for members to purchase less expensive generic and formulary prescription

drugs.

GSD reports lower co-pays at mail order provide incentive for plan members to use. If co-pays

are standardized to the retail level, their benefit plan would experience a decrease in the rebates

and discounts that apply to mail order and members would experience increased premiums and

higher co-pays. Discounts result in a lower premium cost and allow for lower co-pay for high use

medication. GSD estimates additional costs of $4 million, and a loss of rebates of $1.8 million.

Member out-of-pocket expenses could double annually to $2.4 million.

According to the HPC standardizing co-payments may have an effect on costs to consumers if a

co-payment adjustment is needed to compensate for the differences in cost for the method used

to dispense a prescription drug.

The New Mexico Pharmaceutical Association (NMPA) claims that rebates are not dependent on

where the prescription is filled. Rebates can be achieved whether filled at a community phar-

macy or a mail order pharmacy. Medicaid’s rebates are an example; ACS (Pharmacy Benefit

Management for Medicaid) does not own a mail order company but receives rebates on medica-

tions for the Medicaid fee-for-service program. NMPA believes insurance groups should see de-

crease costs for their programs.

ADMINISTRATIVE IMPLICATIONS

NMRHCA (34,000 participants), NMPSIA (84,000 participants), and GSD anticipate an increase

in workload and administrative costs for existing staff to implement the change, and thereafter to

communicate and reinforce the change to program members and dependents.

TECHNICAL ISSUES

The HPC would like to see “prescription drug” defined as to whether or not generic and brand

name drugs are considered the same for the purposes of the bill, as there are cost differences.

NMPSIA feels it is unclear if “uniform payment” prohibits a three-tier co-pay approach. If that is

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Senate Bill 23/aSCORC/aSPAC -- Page 4

the intent of the bill, drug rebates would be lost.

OTHER SUBSTANTIVE ISSUES

U.S. Postal Service reports mail theft is one of the risks of getting prescription medicines through

mail order drug suppliers. Mail order patients also may not receive pharmacist counseling about

medication misuse and possible interactions and patient care services such as disease manage-

ment and prevention offered by pharmacists, including flu shots, cholesterol screenings and

blood pressure checks.

The objective of the Health Care Purchasing Act is to provide access to affordable health care for

certain consumers. Thousands of New Mexico seniors and people with disabilities in the Medi-

care program have incomes that are too high to qualify for Medicaid, but limited enough that

paying cash for prescription medicines presents a significant financial burden.

ALTERNATIVES

The GSD notes locally-owned pharmacies and pharmacies in chain stores could offer prices

competitive with the mail order prescriptions. If local pharmacies and chain store pharmacies

provide medication at costs comparable with the mail order companies, there would be a de-

crease in costs for the prescription benefit program. The state would lose discounts, but em-

ployee co-pays and premium costs would be reduced in this favorable purchasing environment

(see proposed amendment).

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL.

Consumers may make prescription drug purchase decisions based on co-payment costs rather

than other factors, such as convenience.

AMENDMENTS

The GSD proposes the following amendment:

On page 1, line 24, after the period, insert “The standard price shall be determined by the lowest