A Philadelphia-based Medicaid health plan has saved millions of dollars a year by administering its own prescription drug benefits rather than outsourcing them to a pharmacy benefits management firm.

While using an outside firm, prescription drug spending by Keystone Mercy Health Plan increased 87 percent between 1996 and 1998. After regaining in-house management, it was able to control drug costs. Meanwhile, spending by other health plans is rising by more than 20 percent per year.

Some of the changes Keystone made include:

• Tracking physicians' prescribing patterns, limiting how long doctors' prescription orders were valid and comparing prescriptions to clinical practice guidelines.

• The company's computers flag 90 different scenarios involving possible drug interactions or prescription regimens that have gone on to long according to clinical practice guidelines; real-time monitoring software can automatically deny coverage when a physician's order violates one of the protocols.

• The strict oversight has resulted in over 1,200 coverage denials or alternative prescriptions in the past year; physicians have been contacted about protocol violation some 800 times; and the company's overall prescription count has dropped more than 9 percent.

After implementing to the proactive formulary restrictions:

• Keystone saved $9 million in 2000 by taking advantage of drug company marketing agreements and rebate plans.

• An aggressive fraud-monitoring program recovered over $1 million dollars last year.

• The company further cut costs by limiting patients to just one pharmacy to fill their prescriptions.

Beneficiary complaints dropped from an average of between 2 and 5 per month to just 1 per month after the "insourcing" plan was instituted. In the process, the plan was able to double its network of participating pharmacies while paying pharmacies more than any other competing plan.

Source: Reuters Health, "Medicaid Carrier Saves 'Tens of Millions' by Insourcing Pharmacy Benefits," January 24, 2001.