[The following article originally appeared in the February 2008 issue of NEW North B2B: www.newnorthb2b.com.]

Are skyrocketing prescription drug costs destroying your benefit package and your bottom line … and giving you an ulcer (not that you can afford the medicine)?
 
You are not alone.  The federal government reported in January that total health care spending topped $2 trillion in 2006 (the latest figures available).  In real-people dollars, that means every man, woman and child in this country pays an average of $7,000 per year for health care.  Drug cost increases have played a significant role, increasing 1,700% between 1970 and 2007.  Overall, prescription drugs cost more than $215 billion, accounting for between 10% and 17% of employer health care benefit costs.
Rising Prescription Drug Costs
Year Average Prescription drug cost
1970 $3.80
1995 $35.15
2006 $68.50
Source: New York Times 1/8/08

The Good News About Drug Costs

There are lots of reasons for increased drug costs, not all of them bad.  First, pharmaceuticals are often used today to treat conditions that previously had not been addressed at all, such as Restless Leg Syndrome, Erectile Dysfunction, and anxiety/depression.  Additionally, drug therapy is increasingly used for treatments that may have previously required surgery, which is more expensive and more risky.
 
Finally, while health care costs are a major bottom-line factor, employers have a wide range of weapons in their arsenal to turn the tide – and maybe even win — the war on prescription drug costs.  For example, explains Tom Kellenberger, Vice President of BidRx (www.bidrx.com), a national prescription drug “auction” business that enables consumers to view cost options online and make their own choices, the rate of increase for customers of their company has declined from 18% a few years to under 10% today.
 
Also, it’s becoming a common practice to recommend generic drugs whenever possible.  According to Wayne Kostka, Marketing Manager for Restat, a prescription benefit management (PBM) company located in West Bend, Wisconsin, the biggest reason for the slowdown in drug increases has been increased use of generic medicines.  “With our company, generic utilization went from 47% to 58% in the last two years,” he says.

Nonetheless, says Kellenberger, “very often, the costs are increasing faster than revenue.  As a result, “almost every employer we talk to is looking for ways to reduce drug costs.”  Kosta agrees.  “We have gotten more cooperation from employers who are eager to install cost-containment measures,” he said.

Ten Ways to Control Drug Benefit Costs

Now let’s see where you can start cutting costs in your business.  Here are ten ways employers and individuals can win the war on prescription drugs.  Some may slash costs significantly; others may nick off two percent here, one percent there.  See which ones may work in your business.

1.   Revise your prescription benefit program.  This is the key to cutting costs, pretty much every prescription drug provider we spoke to agreed.  A company’s benefit program must be carefully managed.  Companies cannot afford an open checkbook policy, Dr. Ralph Kalies, Jr., President and Chief Executive Officer of BidRx, pointed out.  “You wouldn’t expect employers to buy first-class airplane tickets and top-of-the-line vehicles for employees.”  They also cannot afford to provide unlimited drug benefits, without checks and balances. Benefits must be provided in a more measured, balanced way.

The goal is to get everyone involved in the decision process, which includes a shift in how and who pays for the costs.  “We must add consumerism back into the equation,” said Kalies.
 
Plan design changes that can make significant difference include raising deductibles and linking employee co-pays more directly to the type of drug to promote increased use of less expensive generic medicines.

2. Explore competitive price shopping via prescription bidding.   One revolutionary approach enables consumers to shop around via the internet and request cost bids from pharmacies.  BidRx describes itself as a web-based system that brings consumers, manufacturers, and pharmacies together in an open, competitive marketplace for prescription drugs. Customers see the bids from all the pharmacies in the system and choose the pharmacy they prefer, with the services they need and the price that is satisfactory.

“We create a marketplace,” explains Kellenberger.  “Imagine a farmers’ market and you are looking for potatoes, and you can walk around to all the different vendors so you can compare before you buy.  That’s what we do at BidRx.”

“Many people do not realize that pharmacy prices can vary by as much as 600%,” adds Kalies.  “We also make it possible to compare similar drugs.”

For example, Kellenberger said, a drug like Nexium may cost $140 a month.  However, several alternatives cost $20 or less.  Similarly, with cholesterol medications, a name-brand drug may cost $300 for a 90-day supply, while a non-patent alternative may cost as little as $7. 

3. Consider the use of Health Savings Accounts.  HSAs combine high-deductible health insurance with tax-deductible savings accounts. Deductibles are paid out of the account, with the insurance picking up major medical costs.  At age 65, the account (and the money remaining in it) is transformed into an IRA.

4. Build Step-Therapy Provisions into your program.  Step therapy provides an incentive to first try more cost effective drug choices initially, adjusting the prescription if there are side effects or the drug does not work effectively.  This also links employee co-pays to drug choices.

For example, explains Chuck Rynearson, Director of Pharmaceutical Benefits at Network Health Plan in Menasha, Wisconsin, one generic drug for hypertension, which tend to be highly effective, can costs as little as $10 a month.  “However, approximately 5-8% of patients develop a cough. In that case, they switch to a patent drug, which costs $60 a month.  Still, most people can use the less expensive drug. The cost savings can be dramatic, with no loss of quality care for the patient.”

5. Include prior authorization for certain drugs.  Very often, providers will experiment with newer, more expensive medications, very often at the request of the patient.  Because these can be very expensive, “sometimes exceeding $1,000 a month,” explains Rynearson, we think it is valuable to require that the use of some medications require preauthorization. “The goal is to provide the right drug for the right patient at the right time,” and not necessarily go for the newest, most expensive drug.

6. Provide quantity limitations.  The goal with quantity limitations, explains Restat’s Wayne Kostka, is to provide the appropriate quantity for treatment, rather large quantities that may not be justified.  If you have ever ended up with a medicine cabinet full of unused prescription drugs because the doctor prescribed a 30-day supply for a 10-day condition, imagine how much wasted medications might be adding to overall costs.
 
7. Explore volume discounts.  At the same time, when long-term treatments are required, prescribing 90-day rather than 30-day supplies can be more cost effective.
 
8. Encourage dosage optimization.  There are times when, for example, a dose of one 60 milligram pill a day will be just as effective as three 20 milligram pills, explains Restat’s Kostka, “but the cost may be as low as one-third that of the original prescription.  So, we always seek dosage optimization when possible.”

9. Select your program based on service, not just price.  “Selecting the right plan for a business should involve more than the spreadsheet cost,” explains Kostka.  “Discounts offered by benefit managers are only one factor.  The real cost comes from utilization by employees.  The more uncontrolled utilization, the higher the costs.  That’s why plan design and utilization cost controls are so important.”

10. Encourage employees to become actively involved in their health and health care. This is very often just a matter of encouraging consumers to take more control of their own health care decisions, explained Richard Bond, Vice President of Sales, with Network Health Plan.  “We encourage employees to engage their physicians and discuss their options, including costs.”

This also means promoting wellness in your workplace.  A healthier workforce is not only more productive, with fewer sick days, but this can have a positive impact on drug and other health care costs. For example, says Network Health Plan’s Rynearson, “if your employees lose ten pounds, many would enjoy reduced risk of diabetes, hypertension, and gastro-intestinal problems.   This is the number one way to cut costs over the long term.”

Perhaps the ultimate bottom line is that employers, employees and individuals can take proactive steps to control and take responsibility for their medical care in general and their drug expenses in particular.  Just as important, winning the war on prescription drug costs can add that much to your bottom line. — JRIngrisano

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