Trends in Prescription Drug Costs

Rob Epstein, MD, Senior Vice President and Chief Medical Officer

Merck-Medco Managed Care

Dr. Epstein opened this year's conference with an interesting discussion about the causes of drug benefit cost increases. In his presentation, Epstein described the impact of the aging population on drug utilization. Because older people are subject to more diseases, age becomes a proxy for the burden of illness. In addition to the aging population, utilization increases are driven by the introduction of new therapies, the introduction of improved therapies, and increased direct-to-consumer advertising. Regardless of the reason, increased utilization is a major force behind benefit cost increases.

A shift to more expensive drugs also has increased costs as new therapies replace existing therapies. For example, one of the newest treatments for Type 2 diabetes is the prescription drug Avandia. It costs approximately $3.75 per day as compared with Glucophage at $1.95 per day. Another example of increased cost due to the availability of new therapies is osteoporosis; Fosamax, a recently approved drug, costs $1.98 per day, as compared with Estrogen at $0.47 per day.

One factor helping to restrain benefit cost increases is the ongoing movement of drugs from patent protection to generic availability. Some drugs currently scheduled to lose their patent protection in 2000 include Buspar, Pepcid, Procardia XL, and Vasotec. The introduction of generic forms of these drugs will exert downward pressure on the cost increase trend.
 
 

Utilization Management

Dan Segedin, Vice President of Corporate Accounts

PCS Health Systems, Inc.

Mr. Segedin set the stage for the discussion of individual utilization management strategies by talking about a number of general utilization management concepts. He identified utilization management as a tool to ensure that prescription drugs are prescribed and consumed correctly.

To help demonstrate the impact different management strategies have on beneficiaries, Segedin used the image of a pyramid. The base of the pyramid included plan design tools such as cost sharing and drug exclusions that affect the entire population and are relatively inexpensive to implement. These interventions are relatively impersonal. At the top of the pyramid are interventions that are focused more on individuals and have a higher degree of intrusiveness and higher administrative cost, e.g., case management.

Segedin made the the point that, "if you're going to develop programs with a high degree of intrusiveness then you need to make sure the targeting criteria are clinically sound and that the percent of false positives are minimized." Properly targeted utilization management programs balance financial savings with member impact. As PBM programs become more sophisticated, the impact to members will be reduced.
 
 

Formulary Management and Rebates

Joanne M. Sica, RPh, MHA, Assistant Vice President

Aon Consulting

Ms. Sica presented an overview of formulary design. Throughout her presentation she encouraged benefit plan sponsors to balance benefit costs with rebates. For example, she emphasized that the goal of plan sponsors should be to minimize costs and not to maximize rebates. The use of generic products, where appropriate, can be a very effective means for reducing benefit costs, even though rebates are not generally available for generic drugs.

Sica discussed the current state of the industry, noting that rebates currently average between $0.75 and $1.50 per claim. She explained that many PBMs are moving away from guaranteeing rebates based on a per-paid-claim basis and she indicated that some PBMs are now guaranteeing rebates upon a per-rebateable claim paid basis. As always, a plan sponsor's ability to negotiate favorable contract terms is affected by its size.

Sica emphasized the need to communicate fully with beneficiaries whenever implementing or modifying a formulary program. This will not guarantee that the beneficiaries will like these programs, but with repeated education, beneficiaries will eventually learn to accept a formulary program and adjust to the benefit changes.
 
 

Managing Lifestyle and Life-Enhancing Drugs

Susan Peard, Principal

Pharmacy Outcomes Specialists

According to Ms. Peard, a large number of drugs can be used for life-enhancing, lifestyle, or cosmetic purposes. The category that these drugs fall under is contingent upon how they are used. To illustrate this point, Peard presented a hypothetical case in which the use of a lifesaving drug could potential be viewed as a lifestyle choice. Consider for example, patients in whom exercise and diet do not decrease cholesterol levels, in this case cholesterol-lowering drugs can be categorized as a lifesaving therapy. However, the use of these same drugs could be considered lifestyle choices in patients with high cholesterol levels, who opt to take cholesterol-lowering medications without first modifying their diet or exercise habits.

Before rushing in and making uninformed decisions about drug coverage, Peard offered some recommendations for plan sponsors. The focal point of these recommendations is to conduct a self-assessment as it relates to a sponsor's philosophy and attitude about their medical and drug benefit coverage. She emphasized the need to review critical issues with legal counsel.

Rather than simply excluding selected drugs, Peard described a variety of techniques made available by PBMs to manage access to these drugs. Some techniques include special cost sharing categories, prior authorization, length-of-use limitations, and case management. The intent of these management tools is to provide appropriate drug access.
 
 

PBM-Based Disease Management Programs

Allan Zimmerman, RPh, MBA, Executive Vice President & General Manager

National Prescription Administrators

Mr. Zimmerman presented a case for the value of PBM-Based Disease Management programs. In addition to discussing the basic concepts, Zimmerman presented case study results documenting the value of these programs.

One of the most valuable aspects of disease management programs is the ability to collect and aggregate data. Zimmerman presented an asthma-related case study, in which 12.5% of patients with severe-persistent asthma thought their condition was mild. Over half of the patients with moderate-persistent and severe-persistent asthma have symptoms of cough, chest tightness, wheezing, and/or shortness of breath every day. The majority of these patients did not own a peak flow meter, an inexpensive tool for monitoring the quality of breathing. A number of additional statistics were presented identifying problems within the study population and pointing to the value of better-managed asthma for patients and their plan sponsors.

Zimmerman noted that PBMs have the ability to provide a number of tools that can be helpful in addressing many of the problems identified with this population. These include educational materials, assistance with health fairs, distribution of monitoring devices, such as peak flow meters, physician communication, and telephone outreach programs. According to the results presented, these programs can have a significant impact on the health of the patients; as well improve the bottom-line cost of the health benefit.
 
 

Case Management Strategies

Philip Hu, PharmD, Clinical Pharmacy Manager

Caremark Pharmaceutical Group

According to Mr. Hu, Case Management Strategies cover a gamut of activities ranging from automated, online interventions to individual patient management by pharmacists and nurses. These activities, although labor intensive in some cases, offer opportunities to reduce healthcare costs through reduced hospitalizations, leading to a positive return on investment.

Some of the diseases for which Hu recommends a more hands-on approach include high-risk diabetes, high-risk pregnancy, organ transplant, and pain management. Depending upon a plan sponsor's attitude toward patient and physician communication, these high-risk individuals can be contacted through a series of written or verbal communications.

Hu also recommends that management plans need to be based upon the needs of the individual as opposed to general ideas regarding treating a disease. He believes the result of this type of management is a better outcome for the patient.
 
 

Online Pharmacies

Don Dietz, Vice President

Pharmacy Healthcare Solutions, Inc.

Mr. Dietz presented a timely discussion of the state of healthcare services on the Internet. Focusing principally on Internet pharmacies, Dietz described the at-risk position of these pharmacies. Currently most independent Internet pharmacies are not profitable and their long-term survival probably depends upon their ability to break down barriers to participation in PBM networks or partnering with one or more PBMs. Some online pharmacies have successfully partnered with either a PBM or a drug store chain. The success of these partnerships will be known over the next couple of years.

Whether it is through an external partnership or the development of a homegrown service, PBMs are looking to the Internet to manage and grow mail service utilization. Most PBMs now offer patients the ability to request refills and check order status. Several PBMs have added personal data that require patient-level security.

A number of other technology-based opportunities face the industry. For example, physician connectivity provides physicians with the ability to submit prescriptions for preprocessing and transmission to a pharmacy. Based primarily on hand-held computers, physician connectivity would allow more effective patient utilization management.

Legal Issues Facing the PBM Industry

James G. Sheehan, Esquire, Chief Civil Division

United States Department of Justice

Mr. Sheehan's office has spent the past few years researching and reviewing PBM industry business practices. Sheehan's presentation focused on some of the concerns that this research has raised. These issues are related to the business practices of individual PBMs and not necessarily to the business practices of the entire industry.

Sheehan's primary concern is the misuse of the PBM formulary management process for financial gain by the PBM. Specifically, this concern involves the selection of drugs for formulary inclusion based upon financial interests rather than quality. This abuse may also occur in a PBM's attempt to switch a patient from a non-preferred drug to a preferred drug.

While not a "cure all," the full disclosure of the drug selection and decision-making process, as well as disclosure of all financial incentives to a PBM and any other parties may help eliminate some of the legal issues. During the question-and-answer session following Sheehan's presentation, it became clear that plan sponsors may have an obligation to their beneficiaries to both require full disclosure from their PBM and to communicate the PBM's business practices to their beneficiaries.

Group Purchasing Opportunities

Christine Entinger-Whipple, Executive Director

Pittsburgh Business Coalition on Health

Ms. Whipple is the Executive Director of a coalition of 37 large and mid-size employers in the Pittsburgh area. Her coalition recently contracted with a PBM to provide services to its membership. Whipple's presentation detailed the PBM selection process and the coalition's goals.

Through this new relationship, Whipple expects her members to achieve significant savings from prior arrangements. This will be accomplished through the pooling of purchasing power as well as the movement from an unmanaged, major medical environment to a managed drug benefit. By having some common benefit design components (e.g., formulary design), the coalition hopes to influence the prescribing practices of physicians in the metropolitan area. Additionally, the coalition hopes to identify sub-optimal practice patterns among physicians and intervene.

Although it is too early to measure the financial impact of this program, it has generated value by acting as a catalyst for the discussion of benefit design and management issues among the coalition members. Also, this new program has proven to be an effective tool for recruiting and retaining employers looking to provide value to their beneficiaries.

Evaluating PBM Contracts

Emilio Tieles, Regional Manager

Consultec Prescription Benefits

Mr. Tieles described a number of PBM business practices that may impact a plan sponsor's costs. The existence of some of these practices is not always obvious to a plan sponsor. Tieles identified them and encouraged plan sponsors to think about how these practices affect them.

The practices Tieles identified include differential pricing, pharmacy claim-submission charges, claim data sales, and non-rebateable revenue. All of these practices may generate significant revenue streams for PBMs. Tieles explained that his concern with these revenue sources is that they may establish financial motivations for PBMs that are not in the best interest of plan sponsors. Additionally, Tieles raised the specter that some of these practices may violate ERISA/Department of Labor rules.

Tieles identified how plan sponsors can determine whether these practices are being used by their PBMs. His suggestions include requiring specific contract language, periodic examination of certain data, and, if necessary, an audit.

Evidence-Based Decision Making

Raulo Frear, PharmD, Vice President, Clinical Services

Express Scripts

Mr. Frear discussed how PBMs, medical providers, and medical administrators could use clinical evidence to make medical decisions. In his presentation, Frear discussed the nature and quality of clinical evidence. He also identified some problems and issues with this evidence.

As part of his presentation, Frear identified the United States Agency for Healthcare Policy and Research (AHCPR) as a source for disease treatment guidelines. AHCPR publishes disease treatment guidelines for a variety of diseases.

While it may not be widely recognized, Frear discussed how cost benefit analyses affect medical decisions. Some health plans base their coverage decisions for treatments on the cost per year(s) of life saved. When the cost exceeds an arbitrarily selected point, e.g., $20,000 per year of life saved, treatments are less likely to be covered.

The importance of following treatment guidelines that are developed using clinical evidence is that they can then be followed by PBMs and other medical providers/administrators to design programs that encourage patients and medical providers to follow these same treatment guidelines.

Taking PBM Functions In-House

Terry Killilea, PharmD, Vice President of Pharmacy Services

Regence Blue Shield of Idaho

According to Mr. Killilea, organizations serving large numbers of beneficiaries may find it more cost-effective to develop and perform some PBM functions internally. Killilea recently completed a development project in which he did just that. Regence Blue Shield of Idaho developed a pharmacy network, created utilization management programs, negotiated formulary rebate agreements with several pharmaceutical manufacturers, and contracted with a company to provide claim-processing services.

Regence performed a number of analyses before embarking on this project. These included identifying savings opportunities that could be used to fund the additional internal support costs that would be incurred. The reduction of PBM administrative fees was one opportunity that was identified.

Bringing the PBM services in-house has been a success for Regence. Initially, a significant gain was achieved by negotiating better pharmacy reimbursement contracts. Since this initial savings, Regence has held the rate of drug benefit cost increases significantly below that of other plans across the country. Killilea credits this to locally controlled and managed utilization management activities and a formulary crafted more specifically to the needs of Regence.
 
 

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