Okay. We pay Rite Aid, as I think is already on the record, at the rate of 72 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 $65 per member per month for all covered employees. In terms of what that total amount is, I don't have it here, but it's certainly available, and I will be happy to provide it for you.
Miss Seyda. Let me ask you this question: By way of some other letters that are floating around, would it be accurate to calculate that at $65 per month times, I believe, 8,322 non-represented employees, this is -- There is a letter, a copy of a letter dated October 1, 1997, from a Charles Schneider, at Eagle Managed Care to a Mr. Manuel Stamatakis, President and CEO of Capital Management Enterprises. That letter indicates that in group numbers 19000 and 19001, the average number of members is 8,322. The increase for the 1998 subscriber period is supposed to go to $65 per month per member. Is it accurate to say that we should multiply 8322 times 65 times 12, and that would give us the first indication of what the Rite Aid 73 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 contract is worth?
And then, in that letter, there is a group called 19002. And that may be the individuals that Mr. Volpe was referring to -- I could be incorrect.
Times 12 would tell us the annual value of that. That figure is $7,047,978. Would you say that that was fairly accurate?
In terms of what the revenue relationship is between the City of Philadelphia and the Rite Aid Corporation?
That's $7,047,978 that's covering approximately 9,010 or 9,015 and some employees; is that right?
Yes. I'm trusting your arithmetic. 74 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
Does that include the copay income of Rite Aid? Do we have any figures on that?
Councilman, I do not believe that that includes any copay figures; although the Rite Aid representatives are here, and I certainly plan to ask them those questions. I believe that that's just the City --
We can, you know, certainly estimate it from the utilization analysis that we receive from Rite Aid on a regular basis. They do provide information to us in terms of the number of prescriptions that they fill on a monthly basis. We get that information, so we can certainly develop that number very easily.
Miss Seyda, from another conversation you and I had, is the 75 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 standard on that Rite Aid estimates that our employees typically get 1.8 prescriptions per month?
Subsequent to that conversation that we had, I did review the utilization analysis and the number that -- that 1.8 is a little bit low. For 1997, the utilization level was actually two prescriptions per covered subscriber per month.
All right. So we might arrive at the figure that my colleagues are asking about by multiplying 2 prescriptions per month time 9,000 employees times 12? Would we arrive at that figure?
That's assuming that utilization for 1998 is consistent with utilization for 1997.
That's 2 scrips a month, 9,000 employees, 12 months at, now, $5. Correct?
Okay. We'll have a figure shortly. Are there any other questions for Mr. 76 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 Volpe? I think he was trying to scoot out of here.
I have a matter, and I don't know whether it's for Mr. Volpe or Miss Seyda. Can you outline what happened to the change in the copay prices that began at $1 and have now multiplied by 500 percent? How did that happen, how was it negotiated? Who made the decisions that employees were to pay the increase rather than the City? Whatever was involved in that, how did it all come about?
I believe that in my testimony, that I do address that issue. Prior to restructuring the City's prescription program in 1993, there were several -- there was a varied copay structure with employees generally paying from $3 to $6, depending upon the type of drug that was prescribed. There were a few employees who had a $1 copay. But for the most part, it was a $3 or $6 copay. At that time, we restructured the 77 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 program. We were able to achieve substantial savings, savings of approximately 40 percent; and at the same time that we reduced the copay to $1 per prescription. That was increased to --
Well, let's -- I'm awfully sorry. Is that how you arrived at the $1 cost? I'm trying to figure out what -- how did you first arrive at that dollar cost, and I can't relate what you said to that.
And I realize that I must have missed something. How did you first arrive at the $1 cost? Was it a come-on to convince City Council that this is a great plan and, therefore, you don't have to bother discussing it at such a great bargain? Or was it an effort to determine what the copay really ought to be based on industry experiences? We were told when it was presented the first time that this had been very scientifically studied, everything had been studied in the field, and this $1 pay was not a come-on, this was genuine. 78 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 To my knowledge, the costs -- the employee usage has not been multiplied by since 4 that first time. So I just don't understand -- or 5 any other basis for evaluation. I know of nothing that's increased 500 percent. Were you not telling us the truth? Or was the analysis faulty in the beginning?
Before you respond, let me do two things: One, why don't we, at this point, get the Rite Aid Corporation up to the table because I know, out of this question, we're going to lead into a number of Rite Aid questions.
Why don't we get the Rite Aid representatives up at the witness table.
And, secondly, for the record, Council DiCicco has joined the committee as well. Miss Seyda, please respond.
Okay. Well, in 1993, when we were able to achieve significant savings, we 79 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 felt it was appropriate to --
From what the prescription costs had been prior to that. Prior to 1993, our prescription costs were running about $63 per person per month. With the restructuring of the plan, we were able to achieve substantial savings, and we thought it was appropriate to pass some of those savings on to the employees. And so that basically was the reason that we wanted to reduce the copay. And we did that and it became, as you know, $1.
It was -- for most employees, it was $3 for a generic drug prescription, and $6 for brand-name drugs.
And then this plan was proposed? This was good for the employees because they were going to save money and the 80 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 copay was going to go down to $1, right?
Yes. We thought it was appropriate to share those savings with the employees.
Mm-hmm. Now tell us how it came from 1 to 5. And you got a warm response, everybody was very happy about the reduction and the copay. Now then what happened? Now the honeymoon is over and we're well into the plan and now we find that the copay has increased by 500 percent. Would it be accurate to say, in a sense of fairness, that the costs to the City had increased 500 percent also on medical plans since 1993 and, therefore, you felt that it was only fair that the employees should also share the same percentage? Tell me what has happened from 1993 to currently with respect to the City's cost. Has it multiplied by 5?
The copay was increased from $1 to $2.50 at the time that the City, after consultation with Council, did agree to expand the network. 81 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
There never was any consultation with Council with respect to the increase from $1 to 2.50, none of us knew of it. I'm talking of Members of City Council.
Mr. Chairman, my cochair, let me put at least one piece of information on the record. In 1993, as a result of very active City Council hearings on the prospect of Rite Aid coming to provide the service for the City, there were a host of discussions primarily directed at not only the service that they would provide but the impact or potential impact on a large number of independent pharmacists. Before the Rite Aid contract, I believe our prescriptions were handled by PAID Prescription Drug Program, which hosted a large number of independent pharmacies throughout the City to participate. The conditions of the Rite Aid contract called for Rite Aid to primarily have the exclusive prescription plan for the City but there were 10 independents -- 10, no more than 12 independent pharmacies that were allowed to 82 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 participate in the program, primarily to cover areas where Rite Aid had no stores. Subsequent to that, there were numerous discussions about the RFP and total dissatisfaction with the limited number of independents participating in the program. What Miss Seyda is referring to is as a part of some general agitation by a number of members, the network was opened to a much larger number of independent pharmacists. What Miss Seyda's is putting on the record is that as a result of those discussions and the agreement by the City to open it up to a larger number of independent pharmacists, the City's response or Rite Aid's response or the joint response was that the copay would also increase. Those two incidents certainly did happen at the same time, but I would probably disagree with her slightly that there was general agreement about that or the one necessarily had to precipitate the other.
Or that there were discussions or an agreement with Council. 83 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
Or that there was a general agreement with City Council. Certainly some members who were involved in the issue could have been aware. But, as we all know, notwithstanding that we don't take the position that that means that all members were notified or that the body somehow participated in it. There was no contract for members to vote on, there were no briefings, there were no 11 general discussions, there was no resolution or any other mechanism that Council, as a body, would utilize to express its opinion or approval or disapproval. Is that accurate, Miss Seyda?
But that reduces the percentage increase to 100 percent from 500 percent. 84 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
The copay was increased in 1996. And that was the time when we, as the Councilman indicated, that we opened up the network and the independent pharmacists were invited to --
And that was at the time when we expanded the network and the independent pharmacists were invited to participate in the program. And at that time, in order to ameliorate the additional costs that we expected and did incur at that time, we did increase the copay from $1 to $2.50.
So, Miss Seyda, the City's position is that the copay was only increased from the $1 to the 2.50 to accommodate the independent pharmacists when the network was 85 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 expanded to cover costs of having the independents in the network. Is that your testimony?
At that time, the City went from a capitated plan to a fee-for-service plan, and it was anticipated that there would be additional costs that the City would have to absorb and that we -- therefore, we felt it appropriate to increase the copay from $1 to $2.50 in order to absorb some but certainly not all of those costs.
And if the City had not increased the copay, what would it have meant to the City? In other words, was it a City decision to increase the copay, say, from $1 to $2.50? What were the cost that were involved, how much? What was the amount of costs?
I can't give you -- I can't give you a number, you know right now, but it would -- the number would represent the $1.50 difference for each prescription that was filled. Those were costs which would have had to have been 86 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 absorbed by the City in addition to other costs which the City absorbed.
You mean costs levied by the Rite Aid and independent pharmacist groups? Would you be able to recapture those costs by your records and give that information to the committee, either at a subsequent hearing or in written form prior thereto?
I assume so. We would have to go back and look at records from 1996, I assume those records are available. And it would be a fairly straightforward computation.
All right. We would like to, and would you let Chairman Nutter know about that, about how soon you might be able to get that material prepared after you go over the records. So let's start now with the 2.50 as of January 1996.
If I can for one second, Councilman. 87 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
Miss Seyda, can you explain the difference briefly and with as little technical terminology as possible, the difference between the capitated plan and the fee-for-service plan. And what was the reason that the City switched from the capitated plan? Rite Aid presented or the City requested in an RFP, I believe, a capitated plan. Rite Aid believed that they could control utilization, keep costs down. Then the network expanded to the independents, and the City switched to a fee-for-service plan, as I recall, because either the City or Rite Aid did not believe that they could exert the same level of control over the expanded independent network as they could with a narrower Rite Aid-controller network; is that correct?
But your question, Mr. Chairman, said the City or Rite Aid. Maybe we 88 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 could see which one it was.
Right. Why don't we have the Rite Aid representatives introduce themselves to the record, and let's talk about that and also the expansion from 2.50 to $5 . Please identify yourself for the record.
Chairman Nutter, Chairman Cohen, thank you for having us. My name is Elliot Gurson.
Sorry, sir. My name is Elliot Gurson, and I am Senior Vice President, General Counsel, and Secretary of Rite Aid Corporation. With me is Mr. Edward Hushen, and he is our Regional Manager in the Philadelphia area.
Okay. Thank you and good morning. Can you explain to us both the decision to switch from a capitated plan to a fee-for- service plan and also give some explanation as to why the copay was increased from 2.50 to $5. 89 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
I can't do that of my own knowledge, sir, because it happened at a time that I was not at the Rite Aid Corporation. However, generally, our plans --
Well, I assume you must have gotten some background information or material in order to assist you to come to this hearing today.
But, generally, the difference between the two plans, as you know, is that one is, in effect, an insurance plan, a capitated plan, where we charge a per-member per-month rate without regard. And then having agreed to that rate, no matter how many prescriptions go through the system, that is what is paid per member per month. And it is totally our risk, if you will, if utilization is above that, which we thought it would be. 90 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
In a fee-for-service plan, the City, or the customer, if you will -- in this case, it's the City -- is charged an agreed price per prescription and pays for each prescription no 10 matter how many prescriptions run through the system. So the economics of the two different types of plans dictate different rates and sometimes different copay. Copay is a -- copays are used for a variety of reasons. Sometimes, as indicated in this plan, between brand and generic to encourage people to use generic drugs as opposed to brands drugs where that is medically feasible. In a --
Although in our plan, for the active employees, I thought the plan was -- or the program was a generic-driven program with the only exception being the doctor indicating on prescription.
That is correct. What I'm 91 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 suggesting is on a more general basis. You asked why an increase in the copay. And I'm saying, on a more general basis, it's in part the economics of the plan. And the decision was made at that time by the participants -- being the City and Rite Aid -- that we were in a position to go to a fee-for-service plan on a basis that was economic for us, and the City was willing to accept. Or you could look at it the other way, a plan that the City was willing to offer and we were willing to accept that required a $2.50 copay.
Okay. So now you've had a couple years in fee for service, we're at 2.50. What is the basis for the increase from 2.50 to $5.
The network certainly cannot be expanding. There are probably fewer independent pharmacists in the City of Philadelphia today than when Rite Aid came on the scene in '93. You would have to agree with that, right?
I would agree with that. 92 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
When we were asked the proposed rates for this year, our initial rate for groups 19000 and 19001 was $69.30. The City opted and we were asked to advise what the effect on that rate would be if the City were to institute a $5 copay. The effect of that was to reduce that proposed rate by $4.30 to the $65. In effect, we were prepared to -- Rite Aid was prepared to do this plan for the City and continue at it at $69.30 per member per month for the groups 19000 and 19001, with the $2.50 copay.
Hold on, Mr. Gurson. You can't say that you were prepared to continue at 69.30 because you weren't at 69.30, you were at $63.
I stand corrected, but to continue providing service but at the new rate of --
Right. And what's the basis for that? 93 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
The basis for that was utilization, costs of drugs continue to go up, costs of operations continue to go up.
Is it the cost of drugs have continued to go up or that there's been increased utilization or both?
It's probably all of that, and I cannot give you a specific answer, sir.
Okay. Are you having difficulty calculating what our yearly utilization is?
No, we are not. I just cannot give you a specific answer today.
I can tell you -- I imagine -- I can tell you that the costs of drugs have gone up. I do not know whether the City's utilization rate has gone up; I can find that out for you.
I do know that there were many new drugs. 1997 happened to be a year where 94 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 there were 50 new drugs introduced, at very high costs. Now, I don't know that people in the City used them or used them to any great extent, but generally, the price of drugs has gone up.
By way of the contract. So whatever the maximum allowable increase in the contract is over the past couple years, Rite Aid has sought that maximum increase.
Mr. Chairman, just for clarification. I'm confused on the fee for service and the monthly payment. Are we back now away from fee for service onto a per-capita plan? It seems to me to be not a fee-for-service 95 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 program.
So how long were we on a fee-per-service plan? I mean, that was experiment that failed, the fee-for-service plan?
And why did that -- what did your studies show? Or did you make studies? What caused you to change and go back to a per-capita figure again? To a capitated figure, is that the technical word?
It sounds like beheading to me. I don't like to use the word, yeah.
Because we felt that the City was in a better position with Rite Aid holding the risk.
Being an insurance policy as Mr. Gurson said, you wanted to convert, again, Rite Aid to be the insurer and to run the risk if there was an overusage. 96 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
So the experiment did not work? Did we make any studies to show that it was more expensive to have it on a fee-for-service basis?
Well, yes, the City's cost did increase. And, in fact, last year, we were under a capitated arrangement. Last year, we were under a capitated arrangement. And I believe that in 1997, the per-capita cost was $67 per member per month. So that, in fact, it was to the City's advantage to go on a capitated basis.
67. And what had it been on the fee for service? What was the cost to the City then?
Could you get that information to the chairman, Chairman Nutter?
Mr. Gurson, I 97 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 wanted to talk a little bit about some of these contracts.
The City has, over the past couple of years, signed a number of either contracts or amendments to contracts. Have you had an opportunity to review them?
I have had an opportunity to review the contract as it was originally signed. And I know about the amendments that have been signed since then.
And that would be contract -- for our purposes, Contract No. 15 96-6287.
That's okay. There's a subsequent agreement of amendment which, for our purposes, is No. 97-13094. Now, in the 1996 contract, which was effective January 1, 1996, that contract was a one-year contract. And I'm reading from item 10, term of agreement. The City may, at its sole option, renew 98 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 the contract on an annual basis for up to three successive one-year renewal terms. So that's a one-year contract with three one-year renewal options.
Do you read it that way? Miss Seyda, we had some discussion back and forth. You seemed to think that it was a one-year contract with two renewals. The contract reads: The initial term of this contract shall commence on January 1, 1996 and shall terminate on December 31, 1996 or such date as the City determines in its sole discretion. Next paragraph: The City may, at its sole option, renew the contract on an annual basis for up to three successive one-year renewal terms. That's from the contract.
I agree with you, sir. It's three one-year terms. It would take you through 1999, if you will.
Exactly. But subsequent to that, on June 11, 1997, the City 99 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 signed a contract with Rite Aid called "An Agreement of Amendment" that changed that section 4 to read: The term of this agreement of amendment shall commence January 1, 1997 and shall terminate on December 31, 1997 or such date as the City determines, on its sole discretion. Is that correct?
So you're anticipating that the 1996 contract -- one year with three one-year renewals -- which could have gone to 1999 was effectively being capped or terminated, for these purposes, on December 31, 1997 unless renewed at the discretion of the parties.
I don't have that in front of me. And I'd like to refer to it because I think the substance was that the change wrought by the amendment would run for that period, not terminate the contract. But without having it in front of me, I cannot tell you that.
Okay. I'd be glad 100 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 to get you a copy. Let's go back to the 1996 contract for a second and you'll have a chance to read over that one.
Attachment 1 to the 1996 contract, there's a section called "Member copayment." It reads: 2.50 for each employee or recent retiree. And for each optional retiree, the greater of percent or $5 for generic $10 11 for brand name. 12 That's in the '96 contract. 13
Did the 1997 15 contract reflect any change to the copay amount or 16 authorize any change in the copay amount? 17
But you did, in 20 fact, change the copay amount on January 11, 1998; is that correct?
Okay. Did you have a signed contract with the City on that date? 101 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
We had a signed letter from the City that indicated we should do that.
Did you have a signed contract with the City for that purpose?
Mr. Gurson, I don't want to argue law with you, but I'm sure you took a contracts class
Did you have the same kind of document that we've been going over for 1996, with a long list of terms and conditions of that contract, either for '96 or for '97? Did you have one that covered the time period starting January 1, 1998?
Because we formalized the letter which was legally binding when it was 102 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 signed in December.
Okay. So your position is that some series of letters starting somewhere either back in September of '97 or October of '97 leading through to December of '97 constitutes a contract.
Well, if you'd like me to, I could sign the letter the City sent us today, and I don't mean to be cute. The exchange of letters together signed by both parties, and I will--
One party sends a letter to one party saying, "We'd like you to do something," and you send a letter back saying, "We'll do it" or "It's okay" or whatever.
But from our earlier discussion, I think you and I would 103 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 generally agree that a contract is usually a document has the signatures of both parties on the same document on the same piece of paper.
Okay, all right. So your position is that you did, in fact, have authorization, on January 1, 1998, to institute --
My position is that after the City accepted our change, I had a legal obligation at that time to charge the $5 copay.
And that's what our position is, that we had a legal obligation as a result of these changes on the --
And the City accepted your change by writing you their acceptance of that proposition.