RSM Resources

When it comes to health-care costs, midsized employers haven’t had much good news during the past several years. Most companies have seen their health-plan expenditures skyrocket, often triggered by double-digit annual price increases in their prescription-drug benefits. But thanks to new cost-management strategies and shifts in the pharmaceutical industry, that trend may finally be changing —bringing much-needed relief to businesses and their workers.

Growth in generics helps stabilize drug costs

"There’s a misconception out there that prescription-drug expenses are continuing to climb, when costs have actually been moderating," says Al Heaton, director of pharmacy for Blue Cross and Blue Shield of Minnesota. "That stabilization is largely due to the availability and acceptance of generic drugs — which come at significantly lower prices than their brand-name equivalents — and the expansion of over-the-counter medicines that work the same as the drugs you’d get with a prescription."

A new study by Orlando, Fla.-based Medco Health Solutions, one of the nation’s largest drug benefit managers,echoes those observations. "Drug trend" reflects the annual rate of change in spending on prescription drugs and is a key indicator of employer prescription-drug costs. According to Medco’s 2006 Drug Trend Report,the national trend fell to 5.4 percent in 2005. This marks the fourth straight year of declining drug costs and is about 70 percent lower than the 16.4 percent growth rate in 1999.

The U.S. Government Accountability Office (GAO) foreshadowed these developments in an August 2005 report on price trends for frequently used brand-name and generic drugs. The GAO found that, from January 2000 through December2004, the average "usual and customary" price for brand drugs increased 28.9 percent, while prices for generic drugs grew only 9.4 percent. Medco expects this generic trend to continue, with some key brand-named rugs losing patent protection in the next four years. These drugs could include Ambien, Zocor and Zoloft. That shift in patent status for these top sellers would open the market to more competitively priced generic versions.

New dosing strategies support cost management

Health-plan providers are also working with physicians to find new ways of lowering costs while ensuring patients get the drug therapies they need.UnitedHealth Pharmaceutical Solutions, a division of Minnetonka, Minn.-based UnitedHealthcare, recently launched a first-of-its-kind pill-splitting program designed to make medications more affordable for consumers and employers. The cost savings are possible because the medications included in this program have flat pricing across dosages and are generally prescribed for one dosage daily. For example, a20-milligram tablet of Lipitor, a cholesterol-lowering drug and the most commonly prescribed drug in America, is priced the same as a40-milligram tablet. Plan members can purchase a 40-milligram tablet and then split the medication for their daily dosage amount.

The Half Tablet Program can save plan members up to 50 percent on the 16medications included, and the company has already distributed 28,000 free pill-splitters.

"This program is an excellent example of how health-care consumers can easily lower what they spend on prescription drugs and help ensure ongoing compliance with important therapies," says Dr. Lewis Sandy, UnitedHealthcare’s executive vice president for Clinical Strategies and Policy. "It also encourages people to continue an open dialogue with their physicians regarding their health, which is a critical component of a patient’s overall well-being."

Drug plans as health investment

While taking advantage of generics and other clinical solutions can make an immediate, bottom-line difference, innovative benefit designs are equally important in managing long-term health-care costs.

"We’re seeing companies adopt benefit structures that focus on drug plans as

an investment in their employees’ health and ongoing productivity,"Heaton says. "For example, companies are identifying health risks among their employee population — such as obesity, hypertension, diabetes and high cholesterol — and are working with those employees to ensure they are taking the appropriate drug therapies. By proactively treating these chronic conditions, employers are actually lowering their overall health-care expenses and helping employees avoid more serious, and more expensive, complications. The real cost is not in the drug, but in the health consequences."

These new drug-plan structures also support proven best practices in health care.

"Employers are becoming less focused on the list of drugs covered by their plan and are asking for individual, evidence-based coverage decisions,"Heaton says. "They tell us, ’I’m willing to pay if the drug works,’meaning, if it lowers my overall costs, if it keeps employees healthier and on the job, it’s worth it."

These new attitudes also take into account the big picture of managing your health-plan expenses.

Prescription drugs are, on average, 15 percent of total health-care costs, Heaton says. While that’s an important chunk of what you pay, it’s far less than the costs to your plan for hospital stays or emergency-room visits. Employers are realizing that they can prevent some of those major expenses by encouraging employees to stick to their drug regimens. Even though it means some ongoing cost to the plan for the prescription drugs, it’s a much smaller price to pay in the long run,he says.

Tactics for lowering drug costs

So, how can you better manage your prescription drug costs and overall health-plan expenses? Consider these approaches:

Encourage generics.The average price for an employer drug plan to fill a generic prescription is $22, while the average cost of the name-brand version runs as high as $113. "Once employees understand that, they tend to get on board with generics right away," Heaton says. Make sure employees know the real cost of these drugs, emphasizing that generics offer the same safety and effectiveness as their branded cousins.

Try tiered copays.To encourage employees to use generic drugs, many plans provide incentives such as lowering or waiving co payments. Conversely,employees may have to pay the entire cost of a name-brand drug unless there is a compelling clinical reason to take the more expensive medication.

Open up to OTC medications. While historically excluded from health plans, many over-the-counter (OTC)medications offer full, prescription-strength therapies at much lower cost. Using OTC medications also cuts out a visit to the doctor’s office, adding convenience for the employee while eliminating cost.

Offer mail-order discounts.By using a mail-order pharmacy, employers and employees can take advantage of volume discounts. Some programs encourage mail-order participation by offering a 90-day supply at the cost of a 60-day quantity.

"Just like how modern medicines are helping us better manage our own personal well-being, new drug benefit strategies are changing the way we approach managing health-care plans," Heaton says."By understanding how your employees use their drug benefit, by tracking utilization and drug selection, and by working with your plan provider to provide employees with incentives to make savvy choices, employers can really take charge of their drug expenses today while controlling future spikes in their health-plan costs."