Experts say administration proposal puts FEHB on the ropes

Thursday - 11/10/2011, 5:20am EST

Jason Miller, executive editor, Federal News Radio

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The Obama administration's proposal to carve out the prescription drug benefit out of the Federal Employee Health Benefits program into a separate item could spell the beginning of the end for the 50-year-old program.

Should the deficit reduction super committee approve the change, experts say, it would be the first of many steps to dismantle the FEHB program.

"The logic in this proposal is seriously flawed," said James Morrison, a former director of the FEHBP for the Office of Personnel Management in the 1980s and now president of Morrison and Associates. "It would severely limit the health plan's ability to access the drug claims in real time or a near real time basis to identify enrollees who need care management, interventions and who need to be incented to make appropriate choices in their drug use. A carve-out would reduce both the continuity of care and the accountability imposed on the care if we are trying to restrain overall costs and maintain or have the healthiest population as possible."

Morrison consults for Blue Cross, Blue Shield and other major companies on legislative and regulatory issues that affect health care.

Walt Francis, a consultant and FEHB expert, who has been a guest on Federal News Radio, echoed Morrison's comments.

"I cannot overemphasize, there is not one single study, there is not one GAO study, not one CBO, not one outside piece of writing, no paper, demonstrating that anything about these proposals has any origin in fact," Francis said. "As Jim put it, it's a solution in search of a problem when we don't know there is a problem."

Morrison, Francis and others spoke during a panel discussion Wednesday on the FEHB proposals sponsored by the American Enterprise Institute in Washington.

AEI invited OPM, the administration, the Postal Service and the federal employee unions to participate about why these proposals make sense, but all either declined or did not respond.

FEHB proposal gets a lot of support

The administration sent two proposals to Congress earlier this summer. The first would let OPM contract directly with pharmacy management services as part of an effort to lower prescription drug costs. The administration estimated this would save the government $1.6 billion over 10 years. The White House said giving OPM the ability to negotiate drug prices would help overcome a fragmented purchasing strategy and take advantage of volume buying.

The administration also submitted a proposal to let the Postal Service pull out of the FEHB program and create its own defined health benefit program.

House and Senate lawmakers support carving out prescription oversight from the FEHB, but Congress is less excited about the USPS plan.

Morrison said the need to bring together a fragmented purchasing of drugs is not based on fact.

"The purchasing of prescription drugs is not fragmented because there is not a single prescription drug benefit in the whole program," he said. "The prescription drug benefits or pharmaceutical benefits are designed by each carrier to be integrated with their medical offerings. It would only be a fragmented purchasing if you had a single benefit and several entities purchasing identical benefit."

He added the proposal ignores the fact that utilization drives savings not prices. For example, Morrison said, if 10 employees use a certain drug, the way the costs are reduced to the plan is by reducing how many people use that drug, not cutting the price of the drug by 5 percent.

He said the current plan works well because carriers compete for enrollees based on total cost, and if the government removes the drug piece, then the competition changes. Morrison said he believes some plans may drop out.

Francis said the move to a pharmacy benefit manager also would increase costs to the employees. He said the four giant pharmacy management services firms who cover about 230 million people, such as Medco or Express Scripts, wouldn't blink an eye at adding the government's 8 million employees and retirees.

"The four firms each on average, let's say, have 60 million lives covered, and OPM will come in and say 'Blue Cross used to cover 5 million, we now will give you a contract for 8 million, give us a better deal,'" Francis said. "If I'm Express Scripts or Medco, I think my first reaction is, I may not laugh in their face, but the notion that they've brought some really valuable commodity to the table to entitle them to a better deal than IBM, General Motors or General Electric — it's not real."