New York ? It sounds counterintuitive: Give up discounts to save money.

Several insurers including Humana Inc. and WellPoint Health Networks are experimenting with new prescription drug plans that do exactly that in an effort to curb soaring costs.

Broadly known as reference-based pricing plans, the new programs forgo the discounts that pharmaceutical companies offer in exchange for guaranteeing their top-brand products a place on insurers’ preferred lists. Instead, the price a patient pays is based on a drug’s actual cost; insurers expect patients to opt for cheaper medications — and hope they choose generics.

Those pioneering the new plans say the change is necessary because current prescription programs — usually three-tiered copayment systems with patients paying one price for generics, one for a preferred brand and another for a nonpreferred brand — just aren’t curbing costs. The Segal Co., a benefits consulting firm, estimates drug costs rose 19.5 percent last year after surging 18.4 percent in 2002 and 16.9 percent in 2001.

For insurers, the problem with current plans is that many consumers buy more expensive brand-name drugs than they do generics.

“Obtaining discounts on brand name drugs doesn’t really help in increasing use of generic drugs and that is where the savings are,” said Robert Seidman, chief pharmacy officer of WellPoint.

The new plans are part of a broader trend in health insurance which stops shielding patients from the true cost of their medical care and makes them more financially accountable for their choices.

Typically, a reference-based pricing plan ties patients’ payments for a drug to either an average price or the lowest price of others in the same treatment category.

Humana sets example

Humana’s program divides drugs into four such categories: One is for drugs for one-time events such as antibiotics, or medicines that keep patients out of the hospital, such as insulin. The second is for drugs for chronic conditions such as high blood pressure. The third includes drugs that improve workplace productivity, such as allergy medications. The last is for lifestyle drugs such as Viagra.

Humana sets an allowance for each category and patients pay the difference between that allowance and the cost of the drug. Patients don’t have a set price for a drug, as different pharmacies charge different prices.

In one of Humana’s plans, patients purchasing drugs in the first treatment category get a $40 allowance toward the price of a drug. In the second category, the allowance is $30; in the third, it’s $20 and the fourth, $10.

There are caps on what patients spend: $75 per medicine or $1,500 a year.

Humana began offering the program to its employees last year and is currently marketing it to clients. Eighteen percent of its approximately 14,000 workers chose the new drug option, and their use of generic drugs is 8 percent higher than the rest of the company, Fleming said. He added that patients paid nothing for their drugs 51 percent of the time.

“They (employees) know they have an allowance and they pick the right drug for them within that allowance,” Fleming said.

Plan can help employers

Humana’s chief innovations officer, Dr. Jack Lord, said the program would appeal to employers because the allowances give them more control over drug spending, as they have set their responsibility for payments in advance. Under the three-tier copay programs, an employer only knows its share of drug costs after an employee purchases a medicine.

“In this plan, the marginal cost is on the employee, not the employer,” Lord said.

Segal consultant Ed Kaplan believes reference-based pricing could bring down costs, but he isn’t sure employers want to endure phone calls from employees who miss the ease and predictability of the current system. He said some employees might find Humana’s program bewildering, in part because the drug categories may seem arbitrary.

To some degree, the new programs reflect dissatisfaction with pharmacy benefit managers, middlemen that negotiate discounts and rebates from drug makers for employers and insurers.

Insurers and employers contend that pharmacy benefit managers frequently short-change them by keeping too much of the rebates for themselves to raise their own profits.

“Costs savings don’t go to the consumer, the rebates go to the pharmacy benefit managers,” said William Fleming, vice president of pharmacy management at Humana.

But Kaplan said this might not be the right time to abandon pharmacy benefit managers. He noted that the criticism of pharmacy benefit managers has meant they are becoming more flexible, giving employers bigger shares of rebates and lower fees.

“I’d love to see rebates go away, but you don’t want to see that happen unless is offset by price reductions from drug companies,” Kaplan said.

Rebates draw debate

Pharmacy benefit managers question the wisdom of discarding rebates, insisting their policies are designed to help insurers and employers save money.

“To me, removing rebates is removing a market force, a competitive force that can bring down prices,” said Dan Mandoli, vice president of Benefits Analysis and Consultative Services for pharmacy benefit manager Express Scripts Inc.

“Without rebates you have a free-for-all,” he said.

Wellpoint began selling it reference-based pricing program in Georgia last year, and plans to launch it next month in Illinois and Texas.

Seidman said Wellpoint opted to retain a tiered system, with the copayments based on the reference price. Under this arrangement, the number of drugs in the most expensive copayment category nearly doubles to 28 percent, excluding injectable medications such as insulin.

Drugs for HIV/AIDS, cancer and organ transplantation are never placed in the most expensive category.

We believe this is the next generation of drug design,” Seidman said. “There are no rebates to confuse the message.”