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F I S C A L I M P A C T R E P O R T
SPONSOR Trujillo
DATE TYPED 3/4/05
HB 391/aHCPAC
SHORT TITLE Prescription Drug Purchase Standard Copayment
SB
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 SB 23/aSCTC
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 HCPAC Amendment
The House Consumer and Public Affairs Amendment adds language allowing the differences in
co-payments between generic drugs and brand-name drugs be taken into consideration when de-
termining co-pay amounts.
Synopsis of Original Bill
House Bill 391 adds a new section to NMSA chapters regarding the Health Care Purchasing Act,
Health Insurance Contracts, Group & Blanket Health Insurance Contracts, Health Maintenance
Organizations and Nonprofit Health Care Plans. The new section in HB 391 requires that all
health insurance coverage issued or renewed on or after July 1, 2005 offering an insured a co-
payment structure for prescription drugs be the same for any prescribed drug in the same quan-
tity and for the same duration, whether the prescription is dispensed by retail pharmacy, mail or-
pg_0002
House Bill 391/aHCPAC-- Page 2
der or by any other means. This bill applies to individual and group private insurance, Health
Maintenance Organizations, 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 HB 391 would require the re-filing of insurance contracts with the insurance di-
vision, and any impact for them would be minimal.
NMRHCA and NMPSIA report HB 391 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
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.
pg_0003
House Bill 391/aHCPAC-- Page 3
NMRHCA notes prescriptions filled at the mail order facility are less expensive for them because
of volume purchasing. Members of the MNRHCA 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
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
pg_0004
House Bill 391/aHCPAC-- Page 4
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
price offered, whether by a retail pharmacy, by mail order company, or by other means.”
On page 2, line 9, after the period, insert “The standard price shall be determined by the lowest
price offered, whether by a retail pharmacy, by mail order company, or by other means.”
On page 2, line 19, after the period, insert “The standard price shall be determined by the lowest
price offered, whether by a retail pharmacy, by mail order company, or by other means.”
On page 3, line 4, after the period, insert “The standard price shall be determined by the lowest
price offered, whether by a retail pharmacy, by mail order company, or by other means.”
On page 3, line 14, after the period, insert “The standard price shall be determined by the lowest
price offered, whether by a retail pharmacy, by mail order company, or by other means.”
AHO/lg:yr