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					Physician Group Incentive Program

Pharmacy Initiative: Increasing the
     Use of Generic Drugs




           December 2007




                 1
                                            Table of Contents
Table of Contents..................................................................................................... i
Executive Summary ................................................................................................1
I. Background......................................................................................................2
    Problem Statement..............................................................................................2
    National Initiatives ...............................................................................................3
    BCBSM Initiatives................................................................................................5
II. Proposed Solution ...........................................................................................7
    Opportunity Assessment .....................................................................................7
    Goal/Objectives .................................................................................................11
    Incentive Design................................................................................................11
III.    Evaluation ..................................................................................................15
IV.     Implementation Plan...................................................................................17
    Timeframe .........................................................................................................17
    Communication .................................................................................................17
V. Continuous Quality Improvement...................................................................17
      Pharmacy Initiative: Increasing the Use of Generic Drugs

Executive Summary
Generic drugs represent cost-effective, quality alternatives to brand name drugs and are a
proven method to reduce health care costs for payers and consumers. Blue Cross Blue
Shield of Michigan has created a Pharmacy Initiative: Increasing the Use of Generic
Drugs for 2008. The overall goal is to continue to improve prescribing patterns and reduce
costs. Objectives include:
       • Increase the use of lower-cost generic drugs by encouraging physicians to
           switch from name brand pharmaceuticals to generic pharmaceuticals
       • Encourage physicians to prescribe lower cost alternatives such as over-the-
           counter medications (OTC) or less expensive brands when no generic is
           available
       • Reduce costs by:
           − Increasing the use of lower-cost generic medications
           − Lowering the average cost per prescription of select drugs
       • Reduce costs by increasing the selection of lower-cost brand name drugs
           when only brand name drugs are available in a given category of medication

The use of generic drugs is a key factor to moderating pharmacy cost trends. There are a
variety of national and local initiatives underway to encourage the use of generic drugs. In
2002, for BCBSM, brands accounted for 60.2 percent of total prescriptions, and generics
accounted for 39.8 percent. As of third quarter 2007, brands accounted for 37.9 percent,
whereas generics accounted for 59.3 percent of total prescriptions, saving an estimated
$76 million in out-of-pocket costs since 2001 as a result of lower copayments. The
changes were due in large part to pharmacy programs and physician organizations
promoting the safety and effectiveness of generic drugs.

BCBSM will provide POs with quarterly group and individual physician reports and
monthly pharmacy claims files. These reports will compare pharmacy metrics across
PGIP POs versus a control group and applicable benchmarks.

For this initiative, PO participation will be determined by submission of a progress report.
While performance will be determined by the same pharmacy measures as in 2007, the
scoring methodology will be modified based on feedback from POs. Achievable
Benchmarks of Care™ 1 will be used to determine performance goals and performance
will be measured based on group-specific annual improvement targets.

This paper is divided into five sections. Section one provides background on prescription
drug spending, the Physician Group Incentive Program’s focus on improving prescribing
patterns, and a look at what others have done to control the growth in drug spending. The
second section describes the opportunity for additional savings from increasing the use of
generic drugs and the goals and objectives. The remaining sections include an evaluation
approach, implementation plan and opportunities for continual quality improvement.
      Pharmacy Initiative: Increasing the Use of Generic Drugs

I. Background

Problem Statement
Prescription drug spending is the fastest-growing segment of national health
expenditures. 2 The share of total
expenditures increased from 12 to 20
percent between 1996 and 2003. The
proportion of the population using
prescription drugs remained constant
during that period, but spending per
person more than doubled, from $424
to $950 per person. 3 Total spending
rose to about $274.9 billion in 2006. 4
The average cost of a prescription
drug has tripled since 1994 to $68.26
in 2006. 5

Primary pharmacy cost drivers include
an aging population, increased
advertising, rising prescription drug
prices and new medicines. 6 The
Medicare Part D prescription benefit,
the increased utilization of generics
within new therapy classes and the
launch of new drugs targeted to specific diseases, such as cancer and diabetes,
contributed to the growth in 2006. 7

BCBSM processed more than 35 million prescription drug claims totaling more than $2.5
billion in 2006. That’s nearly one-fourth of the total benefit payout. Average payment per
member for prescription drugs rose from $850 in 2004 to $918 in 2006. Average payment
per prescription increased 3.4 percent in 2006, from $66.95 to $69.24 (see Table 1).

                                            Table 1
                                                               8
                                  BCBSM PRESCRIPTION DRUGS
                                  Prescriptions per 1,000 members
                       Year                  Prescription            Change
                       2005                    13,334
                       2006                    13,261                 -0.5%
                              Average BCBSM Payment per Prescription
                       Year                    Amount                Change
                       2005                    $66.95
                       2006                    $69.24                  3.4%
                                 Total payments per 1,000 members
                       Year                    Amount                Change
                       2005                   $892,722
                       2006                   $918,198                 2.9%


Currently, about 55 percent of employer groups that have BCBSM health coverage are
enrolled in the pharmacy program. Rising health care costs are resulting in some groups
reducing their pharmacy coverage or dropping it altogether.
National trend reports show that pharmacy benefit costs are moderating, but are projected
to increase 6 to 9 percent through 2010, a net result of Medicare Part D, higher spending
for specialty drugs and lower spending as more generic products enter the market
(patents are expiring on widely prescribed branded drugs such as Norvasc® and
Ambien®). 9 According to the FDA, more than 80 percent of cost increases over the next
few years will be driven by drugs in the cardiovascular, central nervous system,
gastrointestinal and endocrine/diabetes categories.

The use of generic drugs is one of the key driving factors that moderate pharmacy cost
trends. 10 A number of primary care classes are experiencing slowing or below-market-
average growth due to the entry of lower-cost, high-quality generics and a switch to over-
the-counter products. These classes include proton pump inhibitors (PPIs),
antihistamines, and antidepressants, 11 and cholesterol lowering drugs, such as statins.

National Initiatives
Numerous cost-containment strategies are used to control growth in drug spending 12
including:
    •   Utilization strategies – There are a variety of market-based approaches intended
        to affect which and how many drugs patients use, ranging from imposing direct
        limits (such as excluding specific drugs or drug classes from coverage or limiting
        the quantity covered) to rules on utilization (such as formularies, preferred drug
        lists, step therapy, prior authorization requirements and provider financial
        incentives) to methods of influencing how much the patient pays (such as tiered
        copayments or reference pricing).
    •   Pricing Strategies – These include market-based approaches intended to reduce
        the price of drugs, including use of purchasing pools, restricted pharmacy
        networks, use of mail-order pharmacy and manufacturer rebates.
    •   Regulatory strategies – Government authority is being used to contain costs,
        including direct price regulation, broader availability of generic drugs through
        changing patent-protection laws, transferring drugs to over-the-counter status and
        increased regulation of direct-to-consumer advertising.

Following are examples of these approaches.

Medicare –The Part D prescription drug program launched in 2006 stimulated the use of
generics with policy mandates and financial incentives. Of the top 20 products dispensed
by Medicare Part D prescription volume, 15 were unbranded generic drugs. By the end of
2006, utilization of unbranded and branded generics through Medicare Part D accounted
for 63 percent of all dispensed prescriptions. 13 Financial incentives, in the form of reduced
copayments, are a feature of the portion of Medicare Part D program for low-income
enrollees, e.g., $1-2 copayment for generics. Consumers Union estimated that Medicare
beneficiaries could save between $2,300 and $5,000 per year on their prescription drug
costs by choosing lower-cost generic alternatives, 14 with the greatest savings accruing to
patients switching to generics for high cholesterol, depression, arthritis and post-heart
attack pain, and high blood pressure.

Health Plans – Health plans use multiple strategies, including tiered pricing and no copays
for generic drugs to encourage the use of generics. Here are some examples:
•   Some health plans have adopted mandatory generic substitution. They will pay only
    for a generic drug, unless no generic equivalent is available. 15 About 20 percent of

                                              3
    covered workers have mandatory use of generic drugs (Kaiser/HRET). A 2002 study
    examined generic substitution along with other benefit designs such as tiered cost
    sharing by analyzing claims data for 25 private employers. Mandatory generic
    substitution lowered drug costs significantly – by about 8 percent in plans with two-
    tiered cost sharing. Spending was reduced on both multi-source and single-source
    brand-name drugs, without any increase on generics. 16
•   In 2006, BCBS of North Carolina waived co-payments on generic drugs, giving its
    members an opportunity for significant savings on prescription drug costs for six
    months (approximately $36 million).
•   Regence BlueCross BlueShield (Utah) introduced a Generics First Antidepressant
    Program, which encourages the use of high-quality generic medications with proven
    track records. Regence requires physicians to prescribe a generic antidepressant,
    such as citalopram, fluoxetine, fluvoxamine, paroxetine, sertraline, mirtazapine or
    bupropion SR, first. 17 A 30-day prescription of a brand-name drug can cost as much
    as $83, while the same prescription of that drug’s generic equivalent is only $30.
•   BCBS Rhode Island, Highmark (Pittsburgh), WellPoint (California), Horizon Healthcare
    Services and Aetna (Philadelphia) are among the health insurers that are promoting
    use of an ATM-like sample-dispensing machine in doctors’ offices to help increase use
    of generic drugs. 18 19 The machines are provided at no cost to doctors and enable
    physicians to have immediate access to generic samples. Each insurer pays a
    transaction fee when a machine provides samples to a patient covered by one of its
    plans. Each machine contains prepackaged 30-day supplies of about 20 generic drugs
    in different therapeutic classes, such as statins and proton pump inhibitors. To use the
    system, a doctor enters a passcode and scans the patient’s billing information. The
    machine then ejects a sample and prints a drug information sheet. According to
    MedVantx (San Diego), the process can take as little as 15 seconds. Highmark
    analyzed generic prescribing in 10 physicians’ offices over one year, comparing a
    group of patients that had access to the system with one that did not, and found the
    rate of prescribing generics was 0.6% higher, with a savings of about $100,000 —
    twice what Highmark paid for the service.
•   Premera Blue Cross (Washington) is offering personalized, actionable information that
    shows members how they could save an average of $350 per year in drug costs. 20
    My Rx Choices® is an online tool available exclusively from Medco Health Solutions,
    Inc. It offers members personalized options to help reduce their prescription drug
    costs. Members are provided with a simple, personalized menu of medication choices
    of available lowest-cost alternatives to their current medication, including generics and
    preferred brand-name drugs, based upon their plan’s drug benefit coverage. The tool
    integrates Consumer Reports Best Buy Drugs™ information. The average one-month
    supply of a generic medication is $27 while a comparable brand name drug would cost
    $118. Premera estimated that every 1 percent increase in the generic fill rate reduces
    the total cost of prescription medications by 1.4 percent. Their GDR is 62.5 percent.

Wal-Mart rolled out a prescription drug program in 2006 to all its U.S. pharmacies, making
331 generic drugs available for only $4 per prescription for up to a 30-day supply,
including those in common therapeutic categories, such as allergies, cholesterol, high
blood pressure and diabetes. Wal-Mart estimated the program has saved $350 million in
costs to the U.S. health care system. The program has helped to raise national awareness
about the benefits of low-cost generics. Many other chain pharmacies, including Target
and Meijer’s, have launched similar programs. 21



                                              4
Autos: The auto companies have implemented certain traditional pharmacy management
tools, including mandatory generics and mail-order delivery of drugs that treat chronic
conditions. Chrysler has taken the additional step of eliminating coverage of Nexium and
Lipitor at doses of 20 mg or less. The changes reflect medical evidence that finds generic
Prilosec (omeprozole) is just as effective as Nexium, and that the generic Zocor
(simvastatin) is as effective as the brand Lipitor at the lower doses. 22

Financial incentives: A growing number of insurers offer financial incentives for increased
usage of generic drugs:
   •   BCBS of Kansas and Prime Therapeutics, LLC implemented a targeted member
       generic drug incentive program in 2003 that proved successful at encouraging
       participants to choose generic drugs. Prime, the pharmacy benefit management
       partner, identified members prescribed one of 45 costly brand-name drugs that
       pharmacists can substitute with a generic equivalent. Win with Generics(SM) offered
       immediate financial award in the form of a one-time waived copayment when
       select members asked for the generic drug. Of the targeted members, 15 percent
       switched from a brand-name to a generic equivalent. For every 1 percent increase
       in the use of generic drugs by program members, more than $816,000 in claims
       expense was saved, according to program records. The program yielded a savings
       of $6.99 per targeted member (members who received a letter) and $45.65 per
       utilizing member (members who switched to the generic equivalent).
   •   RegenceRx (Oregon) Generic Incentive Program allows members taking select
       generic medications (from a list of 25) to receive up to a 30 day supply at no cost.
       According to Regence, each 1 percent increase in generic utilization represents a
       savings of approximately $12 million dollars. Over-the-counter medications were
       excluded from the program, with the exception of Prilosec OTC.

BCBSM Initiatives
For BCBSM, the use of generics increased to 59.3 percent in third quarter 2007 due in
large part to aggressive pharmacy programs and physician group efforts. These include
the “Unadvertised Brand” campaign, launched in 2001 to promote the safety and
effectiveness of generic drugs, and the PGIP, initiated in 2005.

                  H is t o r y o f B e n e f it A d j u s t e d A n n u a l D r u g T r e n d
                  f o r B C B S M B o o k o f B u s in e s s * , 2 0 0 2 – D e c . 2 0 0 6




                       25%

                       20%                                              2 0 .0 %
                                     1 6 .7 %
                       15%                           1 4 .7 %
                       10%

                        5%                                                                             5 .9 %                        4 .2 %
                        0%
                                  2002           2003               2004                        2005                           2006


                                                                    * C u r r e n t d r u g tr e n d s e x c lu d e C h r y s le r a n d M P S R 6 5 +



                                                                3




Generic drugs represent cost-effective, quality alternatives to brand name drugs and are a
proven method to reduce health care costs for payers and consumers. In 2006, the
average cost of a brand-name prescription was $96.01, while the average generic
prescription cost was $28.74. BCBSM members have increased their use of generics from


                                                                5
37.7 percent of total prescriptions to 59.3 percent — and saved an estimated $76 million
in out-of-pocket costs due to lower copayments since 2001.

In 2005, BCBSM implemented the Physician Group Incentive Program, which included an
initiative to improve prescribing patterns as measured by the generic prescribing rate. In
2006, with the implementation of the Physician Organization Gain-Sharing Program,
BCBSM expanded the pharmacy component to include a focus on select therapeutic
classes, including:
     − Non-Sedating Antihistamines (NSA), which are widely used to treat allergies
     − Non-Steroidal Anti-Inflammatory Drugs (NSAID), which are commonly prescribed
         to relieve pain, swelling, stiffness and inflammation (discontinued in 2006)
     − Proton Pump Inhibitors (PPI), which work by reducing the amount of acid produced
         by the stomach
     − Statins, which are highly effective at reducing cholesterol (LDL cholesterol) and
         decreasing the risk of major cardiovascular events (added in 2006)
     − Antidepressants, which are used to treat depression (added in 2006).

As part of the program, BCBSM shares pharmacy data with the POs to encourage goal-
setting to increase its generic dispensing rate and to lower the average cost per
prescription for the above therapeutic classes of drugs. BCBSM also provides a quarterly
comparison report to POs, which includes their generic dispensing rate and ingredient
costs for select therapeutic classes compared to a control group. POs submit reports to
BCBSM describing their efforts to improve GDR and reduce costs.

POs have pursued a variety of process changes related to prescribing practices, including
providing performance feedback reports to their physicians, offering financial incentives to
individual physicians to improve GDR, and initiating programs where nurses or
pharmacists contact patients receiving brand name drugs to discuss substitution with an
equivalent generic drug. The overall GDR has increased substantially since 2004 as
shown in Figure 2.

                                          Figure 2: PGIP and POGS Generic Dispensing Rate Improvement
                                                                                                                               59%
                            60%                                                                                        59%
                                                                                                               57%

                                                                                                       55%                     57%
                            55%                                                                                        56%
                                                                                               53%
                                                                                        53%                    55%
                                                                                                                               54%
                                                                                                                       54%
                                                                           50%                         53%
                                                                  49%                          52%             52%
   Generic Dispensing Rat




                            50%                                                                        51%
                                                                           50%          51%
                                                  48%                                          50%
                                                          47%              49%          49%
                                          46%                     48%
                                                                                                                                       P G IP
                            45%   44%                                                                                                  POGS
                                                                                                                                       C o n tro l



                            40%




                            35%




                            30%
                                  3Q 04   4Q 04   1Q 05   2Q 05   3Q 05*   4Q 05       1Q 06   2Q 06   3Q 06   4Q 06   1Q 07   2Q 07
                                                                              Q u a rte r



The focus on reducing the total ingredient cost for select categories of drugs, including
anti-inflammatory drugs, drugs to reduce stomach acid, drugs to protect the
cardiovascular system and drugs to fight depression, has also resulted in significant


                                                                                    6
reductions in ingredient cost per member per month in all of the targeted categories, as
shown in Figure 3.
                                        Figure 3
       Reducing total ingredient cost PMPM trend compared to control group

       Per Member per Month Ingredient Costs

         $60.00                                                                                        $59.29
                                                                                                                                    $57.85


                                                                                                                                                     $52.92
         $50.00



                                                                                                       $43.46                       $43.00
         $40.00                                                                                                                                      $39.71




         $30.00




         $20.00




         $10.00

                          $6.54          $6.85            $6.84                                       $6.21                        $6.19
                                                                                $5.64                                                               $5.95
                          $3.11          $2.39                                  $1.51
                          $1.74                           $1.74                                       $1.85                        $1.63            $1.18
          $0.00                          $1.76                                  $1.45
                   3Q05           4Q05             1Q06                2Q06                    3Q06                         4Q06             1Q07
                                                                      Quarter

                                   NSA P4V       NSAID P4V        PPI P4V               Statin P4V            Antidepressant P4V




In 2007, BCBSM consolidated PGIP and POGS. In addition, BCBSM Pharmacy Services
launched several new initiatives to control cost trends that are not part of PGIP, including:
   •      Dose optimization, which encourages changing the dose of specific drugs from
          twice or more a day to once a day when appropriate
   •      Brand to alternate generic interchange, which encourages prescribing of generics
          instead of single source brands, e.g., switching from Nexium to omeprazole.
   •      Generic copay waivers, offered when members switch to a generic equivalent of a
          brand-name drug
   •      Continuing to promote safety by checking for appropriate use and drug-to-drug
          interactions
   •      Member education about generic drugs and over-the-counter equivalents of
          expensive brand-name medications. A very significant change is that BCBSM has
          begun paying for over-the-counter Prilosec®. The price for the OTC drug is less
          than 25 percent of the cost of the brand name medication.
Together with PGIP, the new pharmacy initiatives are expected to improve prescribing
patterns and reduce costs.

II. Proposed Solution
Opportunity Assessment
The use of generic drugs continues to offer a safe and inexpensive alternative to many
brand-name drugs. The FDA has approved approximately 7,000 generic drugs for various
treatments, including benign prostatic hyperplasia, various ovarian and breast cancers,
                         23
and high blood pressure.


                                                                  7
In 2004, the FDA’s Center for Drug Evaluation and Research found that drug costs per
day can fall by 14% to 16% if patients use generics instead of branded drugs, depending
on their medical needs. Patients whose needs could be fully satisfied with generics could
receive reductions of 52 percent in the daily costs of their medications. 24

Savings from generics will increase as more patents expire. A number of drugs are facing
patent expiration in the near future (see below).




                                            8
Over the next five years, patents on $60 billion worth of brand name drugs will begin to
expire. 25

BCBSM provides or administers prescription drug benefits to more than 2.7 million
members, including 183,000 Medicare Part D beneficiaries. In 2006, there were 13,261
prescriptions per 1,000 members (Table 1), with prescription drug payout totaling more
than $2.5 billion. Average payment per member for prescription drugs was $918. Average
payment per prescription was $69.24. 26

Variation by physician group continues for GDR, in select therapeutic classes (statins,
non-sedating antihistamines, antidepressants and proton pump inhibitors), and by
physician specialty. Analysis of PGIP GDR continues to show variation by physician
organization ranging from 51 percent to 67.6 percent (Figure 4).

                                            Figure 4

                               PGIP Generic Dispensing Rate
                                Jan. 1, 2007 - June 30, 2007

         100
          80
          60
     GDR 40
          20
           0
                1    3     5     7    9    11 13 15 17 19 21 23 25 27 29 31
                                                Physician Group



Statin ingredient cost per utilizing member per month ranges from $41.35 to $51.30
(Figure 5).
                                          Figure 5

                           PGIP Statin - Ingredient Cost
                         Per Utilizing Member Per Month
                                  Jan. 1 - June 30, 2007

  Ingredient        $60.00
  Cost              $40.00
  PUMPM             $20.00
                     $0.00
                                1 3       5 7    9 11 13 15 17 19 21 23 25 27 29 31
                                                      Physician Group



                                                  9
PPI ingredient cost PMPM ranges from $3.15 to $7.54 (Figure 6).
                                                                                      Figure 6

                                                       PGIP Proton Pump Inhibitors
                                                  Ingredient Cost Per Member Per Month
                             ember Per                    Jan. 1 - June 30, 2007

                                                 $10.00
    Ingredient
                 Cost Per


                                          onth


                                                  $5.00
                                         M




                                                  $0.00
                            M




                                                          1       3       5       7    9    11 13 15 17 19 21 23 25 27 29 31
                                                                                                Physician Group



Antidepressant ingredient cost PUMPM ranges from $26.09 to $40.37 (Figure 7).
                                                                                      Figure 7

                                                PGIP Antidepressant
                              Ingredient Cost Per Utilizing Member Per Month Jan. 1 -
                                                   June 30, 2007
    Cost PUMPM




                            $60.00
     Ingredient




                            $40.00
                            $20.00
                             $0.00
                                                  1   3       5       7       9       11 13 15 17 19 21           23 25 27 29 31
                                                                                           Physician Group




There is also variation by PGIP physician specialty for GDR and ingredient cost PMPM as
well. GDR ranges from a low GDR of 21.1 percent for pediatric endocrinology to a high of
63.0 percent for general practice (Table 2).




                                                                                           10
                                                Table 2
           Variation by Physician Specialty for GDR and Ingredient Cost PMPM

                                          Specialty                            GDR
                     ALLERGY & IMMUNOLOGY                                      28.5%
                     FAMILY PRACTICE                                           59.8%
                     GENERAL PRACTICE                                          63.0%
                     INTERNAL MEDICINE                                         57.6%
                     PULMONARY DISEASE                                         36.2%
                     PEDIATRICS                                                57.4%
                     GERIATRIC MEDICINE                                        62.6%
                     CARDIOLOGY                                                55.5%
                     ENDOCRINOLOGY - DO                                        40.5%
                     ENDOCRINOLOGY & META                                      38.3%
                     PEDIATRIC ALLERGY/IM                                      22.2%
                     PEDIATRIC CARDIOLOGY                                      74.8%
                     PEDIATRIC ENDOCRINOLOGY                                   21.1%
                     PEDIATRIC PULMONOLOGY                                     22.7%
                     Overall GDR is NOT based on the attributed panel and is
                     calculated using all rendered claims.


With the price of generic drugs averaging 15 to 60 percent less than the cost of brand-
name drugs, significant savings can be achieved by using generic drugs without reducing
the quality of care offered to patients. In 2008, BCBSM will offer POs the opportunity to
participate in a Pharmacy Initiative designed to continue to improve prescribing patterns
and reduce costs.

Goal/Objectives
The overall goal of this initiative is to improve prescribing patterns for BCBSM members.
Specific objectives include:
   1. Increase use of lower-cost generic drugs by encouraging physicians to switch from
      name brand pharmaceuticals to generic pharmaceuticals
   2. Encourage physicians to prescribe lower cost alternatives such as over the
      counter medications or cheaper brands when no generic is available.
   3. Reduce cost by:
           a. Increasing the use of lower-cost generic medications
           b. Lowering the average cost per prescription of select drugs
   4. Reduce cost by increasing selection of lower cost brand name drugs when only
      brand name drugs are available in a given category of medication

POs selecting this Initiative will develop processes or methods to improve prescribing
patterns of their physicians.

Incentive Design
Payments are based on both participation and performance improvement.


                                                   11
                           First payment                 Second payment               Third payment
                            (April 2008)                (September 2008)              (January 2009)
Participation is       o   Completed progress       o     Completed progress      o   Completed progress
defined as:                report                         report                      report


Performance            o   Generic dispensing       o     Generic dispensing      o   Generic dispensing
improvement is             rate for BCBSM                 rate for BCBSM              rate for BCBSM
evaluated using the        members                        members                     members
following metrics:     o   Non-Sedating             o     Non-Sedating            o   Non-Sedating
                           Antihistamine                  Antihistamine               Antihistamine
                           Ingredient Cost                Ingredient Cost             Ingredient Cost
                           PMPM                           PMPM                        PMPM
                       o   Proton Pump              o     Proton Pump             o   Proton Pump
                           Inhibitors Ingredient          Inhibitors Ingredient       Inhibitors Ingredient
                           Cost PMPM                      Cost PMPM                   Cost PMPM
                       o   Statin Ingredient        o     Statin Ingredient       o   Statin Ingredient
                           Cost PUMPM                     Cost PUMPM                  Cost PUMPM
                       o   Antidepressant           o     Antidepressant          o   Antidepressant
                           Ingredient Cost                Ingredient Cost             Ingredient Cost
                           PUMPM                          PUMPM                       PUMPM


Participation: BCBSM will evaluate participation based on completed progress reports and
collaboration in sharing best practices with BCBSM and other physician organizations.

Performance Improvement: BCBSM will reward POs that compare favorably to
benchmarks and improve prescribing performance on the pharmacy measures in 2008:
    •    Comparison of Physician Organizations to Benchmarks
         In 2007, BCBSM compared PO performance to a statewide trend (2007 target: 1
         percent above control group). For 2008, BCBSM has developed benchmarks using
         the “Achievable Benchmarks of Care™ (ABC™) methodology, which is a tool
         developed for the Agency for Healthcare Research and Quality.” ABC
         methodology is used to facilitate the measurement, comparison and dissemination
         of benchmarks derived from the process of care practices already being achieved
         by “best-in-class” providers. 27

         BCBSM use of the ABC methodology will provide POs with benchmarks of best
         practices among Michigan physicians that are part of PGIP’s defined specialties
         (Family Practice, General Practice, Geriatrics, Internal Medicine, Pediatrics,
         Allergy/Immunology, Cardiology, Cardiovascular Disease, Endocrinology,
         Endocrinology/Metabolism, Preventive Medicine, and Pulmonary Medicine). The
         ABC benchmark is calculated for a specific indicator as the average of the top
         performing groups treating at least 10% of the attributed population. It represents a
         realistic standard of excellence attained by the top performers in that group.




                                                   12
    The following table depicts ABC benchmarks (3Q07) compared to the PGIP and
    control group averages:

                                            ABC           PGIP      Control Group
           Measure                       Benchmark      Average       Average
           GDR                             65.8%         59.0%         55.2%
           NSA PMPM                         $0.65        $1.05          $1.11
           PPI PMPM                         $4.02        $5.81          $6.99
           Statin PUMPM                    $37.42        $42.07        $44.49
           Antidepressant PUMPM            $25.08        $31.28        $33.06

•   Group-specific annual improvement target (2007 absolute percent reduction
    target: 4 percent gain)
    PGIP groups expressed two concerns relating to the calculation of their expected
    increase in Generic Dispensing Rate:
       a. Applying a flat percentage rate expectation to groups that have already
          achieved a high level of generic utilization may be difficult to sustain due to
          potential decrease in generic opportunities as their rate approaches the
          highest potential GDR that can be achieved.
       b. Use of “100 percent” as the complement in the calculation of group-specific
          expected GDR would be medically imprudent to consider as an achievable
          GDR.
    The following calculation of the Expected GDR will be used to address these two
    concerns:
       •   Determine the maximum expected GDR from national references, trend
           surveys, Plans with highly managed benefits, and CMS. The value that is
           being considered is 80 percent.
       •   Determine the expected percent increase in overall GDR. Looking forward
           into next year, this value is an estimation of the impact of both patent
           expirations for the coming year, the expected volume of use of these new
           generic products, the introduction of new branded products, and the impact
           of pharmacy benefit changes on the GDR. The last two years have been
           very active with the introduction of high volume generic drugs. The targeted
           GDR increase for 2006 and 2007 was 4 percentage points each year.
           Fewer new generic products are expected for 2008 and the volume of use
           for those products is lower. The target percentage increase for GDR for
           2008 is estimated at 3 percentage points.
       •   Determine the average GDR for all groups participating in PGIP.
    The complement or difference between the average GDR and the expected
    highest GDR is determined:
           Highest GDR (80%) less Average GDR (60%) yields ‘complement’ (20%)
    Determine the multiplication factor necessary to yield the expected 3% increase:
           Expected GDR increase (3%) divided by Complement (20%) yields
           performance factor of 0.15



                                         13
       Each group would then be expected to increase their GDR by the amount
       calculated from the complement, calculated from the Maximum GDR (80%) less
       their current GDR times the performance factor (0.15).
       The higher the average GDR the group has, the lower the expected increase in
       GDR.
       As an example, for a high performing group at 67%, their complement would be 13
       (80 less 67) times the performance factor (0.15), yielding an expected GDR
       increase of 1.95%.
       For a lower performing group at 52%, their complement would be 28 (80 less 52)
       times the performance factor (0.15), yielding an expected GDR increase of 4.2%.
   •   Non-Sedating Antihistamine (NSA) Ingredient Cost Per Member Per Month
       (PMPM): Includes fexofenadine (Allegra®, Allegra D®), desloratidine (Clarinex®,
       Clarinex-D®, Clarinex RediTabs®), cetirizine (Zyrtec®, Zyrtec-D®), Levocetirizine
       (Xyzal®)
              o Percentage improvement from baseline
              o Comparison of PMPM performance trend relative to the ABC
                 Benchmark
   •   Proton Pump Inhibitors (PPI) Ingredient Cost Per Member Per Month:
       Includes omeprozole (Prilosec®, Zegerid®), lansoprozole (Prevacid®, Prevacid
       Solutab®), rabeprozole (Aciphex®), esomeprozole (Nexium®), pantoprozole
       (Protonix®)
              o   Percentage improvement from baseline
              o   Comparison of PMPM performance trend relative to the ABC
                  Benchmark
   •   Statin Ingredient Cost Per Utilizing Member Per Month (PUMPM): Includes
       lovastatin (Mevacor®), simvastatin (Zocor®), pravastatin (Pravachol®),
       rosuvastatin (Cestor®), fluvastatin (Lescol®, Lescol XL®), atorvostatin (Lipitor®),
       lovastatin/niacin extended release (Advicor®), simvastatin/ezetimibe (Vytorin®)
               o Percentage improvement from baseline
               o Comparison of PUMPM performance trend relative to the ABC
                   Benchmark
   •   Antidepressant Ingredient Cost PUMPM: Includes (citalopram (Celexa®),
       escitalopram (Lexapro®), fluoxetine (Prozac®), fluvoxamine (Luvox®), paroxetine
       (Paxil®), sertraline (Zoloft®),venlafaxine (Effexor®, Efferor XR®), duloxetine
       (Cymbalta®), trazodone (Desyrel®), nefazodone (Serzone®), bupropion
       (Wellbutrin SR®, Wellbutrin XL®), mirtazapine (Remeron®)
               o Percentage improvement from baseline
               o Comparison of PUMPM performance trend relative to the ABC
                   Benchmark

GDR will continue to be the primary measure. The value of the other measures will be
based on the potential savings projected.

BCBSM will provide the following pharmacy performance reports to the POs:
     • Pharmacy Group Report on a quarterly basis (reporting time period – rolling 6
         months)


                                            14
       •   Pharmacy Individual Physician Reports on a quarterly basis (reporting time
           period – rolling 6 months)
       •   Pharmacy Claims File on a monthly basis (1 month incurred claims with one
           month runout for payment)

BCBSM will evaluate PO progress three times per year when the participation and
improvement performance payments are calculated.

III. Evaluation
Following are anticipated results:
       • Increased generic dispensing rate
       • Measurable improvement in performance on measures of prescribing efficiency
       • Reduction in ingredient cost per member (or per utilizing member) per month
           for select measures
       • Active participation by physician organizations

BCBSM will evaluate the initiative to determine the impact and success in meeting
program goals and objectives. Possible areas of focus for an evaluation:
      • Overall drug ingredient cost PMPM/PUMPM
      • Generic dispensing rate compared to statewide trend and benchmark
      • Investment in structure, best practices and tools that can lead to improvement
Data analysis and reporting plan:
Data analysis and reporting involves several strategies for identifying use of generic drugs
and targeting areas for improvement, including:
   •   Physician List – POs electing to participate in this initiative will update their
       physician lists twice per year – in January and June.
   •   Attribution – BCBSM developed an attribution methodology for assigning patients
       to physicians in cooperation with POs. The methodology determines which
       BCBSM members, and under what conditions they will be attributed to a physician.
       The purpose is to assign responsibility for a patient to a physician for
       measurement, reporting and payment. Attribution is conducted twice a year at the
       time the physician list is updated.
   •   Progress Report: Each PO is expected to complete three progress reports per
       year describing goals, significant actions, investments, achievements and progress
       directed toward advancing the goals of the initiative. Following are areas to be
       covered:
             1. Completion of self-assessment of current capabilities relative to the
                Initiative
             2. Development of an implementation plan
             3. Identifying opportunities for improvement based on BCBSM data and
                pharmacy reports provided to PO
             4. Strategies used to assess and improve overall PO prescribing
                performance with emphasis on:
                  a. Increasing generic dispensing rates


                                              15
                b. Reducing per member per month costs for non-sedating
                   antihistamines (NSA), proton pump inhibitors (PPI), antidepressants
                   and statins
           5. Barriers encountered in implementing strategies and plans to overcome
              barriers
           6. Major accomplishments
           7. Methods used to share and collaborate with other PGIP POs on the
              Initiative
•   Cost and Use Data: Pharmacy claims data are provided monthly, while aggregate
    pharmacy performance reports are provided quarterly to POs. The quarterly
    reports allow POs to track progress on performance metrics and provide additional
    analysis to support physician behavior change. Reports are produced at both the
    group and individual physician level and are based on a rolling six month’s worth
    of pharmacy data with a one-month run-out for the payment of claims. Per member
    and per utilization member per month rates are calculated using the attributed
    population. Data is based on those attributed members with BCBSM pharmacy
    coverage. Members with carve-out benefits are excluded from the denominator. All
    claims received by attributed populations are taken into account when calculating
    rates by therapeutic class and corresponding therapeutic class generic dispensing
    rates. The overall generic dispensing rate is based on claims containing the DEA
    numbers of physicians on the PO’s physician list, regardless of the patient filling
    the prescription.
•   Control Group Comparison: In 2007, each PO was compared to a control group
    to determine the impact of each groups’ efforts:
       •    Control group was composed of physicians not participating in PGIP.
       •    Analysis included all prescriptions (new and refill) and all defined
            specialties (internal medicine, family practice, general practice, pediatrics,
            cardiology, cardiovascular disease, endocrinology, endocrinology and
            metabolism, pulmonary allergy/immunology, geriatrics and preventive
            medicine).
    As the PGIP program grows, the control group and its effectiveness as a
    comparator group decreases. For this reason, while BCBSM will share the control
    group performance with POs, the information will not be used for payment
    purposes.
•   Achievable Benchmarks of Care: For the pharmacy initiatives, BCBSM will apply
    the Achievable Benchmark of Care approach to facilitate the measurement,
    comparison and dissemination of benchmarks derived from the practices already
    being achieved by “best-in-class” providers. The ABC benchmark is calculated for
    a specific indicator as the average of the top performing groups treating at least
    10% of population attributed to participating physicians. It represents a realistic
    standard of excellence attained by top performers in that group. BCBSM will
    compare the performance trend relative to the ABC benchmark for each pharmacy
    measure.
•   Group-specific annual improvement target: BCBSM will determine group-
    specific annual improvement targets using a methodology similar to one used by
    the University of Michigan in a Medicare pilot (previously described).



                                          16
IV.    Implementation Plan
Timeframe
       •   December 2007: POs elect to participate in initiative
       •   January 2008: Incentive payment
       •   February 29, 2008: Physician organizations file Progress Report
       •   March 14, 2008: PGIP quarterly meeting at Lansing Community College
       •   April 2008: Initiative payment
       •   June 2008: POs update physician list
       •   June 13, 2008: PGIP quarterly meeting at Schoolcraft Community College
       •   September 5, 2008: PGIP quarterly meeting at Schoolcraft Community College
       •   September 2008: Initiative payment
       •   December 5, 2008: PGIP quarterly meeting at Lansing Community College
       •   January 2009: Initiative payment

Communication
       •   PGIP Quarterly meetings
       •   Initiative team meetings
       •   Pharmacy sub-group meetings
       •   PGIP
           website:http://www.bcbsm.com/provider/value_partnerships/pgip/index.shtml
       •   Newsletters

V. Continuous Quality Improvement
The POs will develop an improvement plan based on the results of data analysis.




                                          17
                                              References
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  Kiefe, CI, Allison, JJ, et al. Improving Quality Improvement Using Achievable Benchmarks for Physician
Feedback: A Randomized Controlled Trial. JAMA, 2001; 285:2871-2879.
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  Prescription Drugs – Price Trends for Frequently Used Brand and Generic Drugs from 2000 through 2004.
U.S. Government Accountability Office, August 2005.
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  Zuvekas, S and Cohen, JW. Prescription Drugs and the Changing Concentration of Health Care
Expenditures. Health Affairs. 2007; 26:1; 249-257.
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  IMS Health Reports U.S. Prescription Sales Jump 8.3 Percent in 2006, to $274.9 Billion. IMS Health,
March 8, 2007. Available at
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  Robust Growth in Specialist-Driven Products, Including Oncology Treatments, Reflect Changing Market
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March 8, 2007.
8
  BCBSM 2007 Fact Book.
9
  IMS Health Reports, March 8, 2007.
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   BCBSM Quarterly Performance Trends: Year-end fourth quarter 2006, June 12, 2007.
11
   Robust growth in Specialist-Driven Products, Including Oncology Treatments, Reflect Changing Market
Dynamics. IMS Health, March 20, 2007.
12
   Cost Containment Strategies for Prescription Drugs: Assessing the Evidence in the Literature. Prepared for
Kaiser Family Foundation by J. Hoadley, Health Policy Institute, Georgetown University, March 2005.
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   IMS Health Reports U.S. Prescription Sales Jump 8.3 Percent in 2006, to $274.9 Billion. IMS Health,
March 8, 2007. Available at
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14
   Study Shows Generics May Save $5K a Year. Pharmacy Times, April 2006.
15
   Cost Containment Strategies for Prescription Drugs: Assessing the Evidence in the Literature. Prepared for
The Kaiser Family Foundation by J. Hoadley, Ph.D., Health Policy Institute, Georgetown University, March
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   Joyce, GF., Escarce, JJ et al. Employer Drug Benefit Plans and Spending on Prescription Drugs. Journal of
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26
   BCBSM 2007 Fact Book.
27
   Kiefe, CI, Allison, JJ et al. Improving Quality Improvement Using Achievable Benchmarks for Physician
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