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No Quick Fixes for the Spiraling Costs of Prescription Drugs

Increases of 14.4 percent in the cost of prescription-drug benefits are likely this year. A key to reining in costs lies with education for both patients and doctors on the value of generics and the pernicious effects of direct-to-consumer advertising.

July 30, 2004
Related Topics: Benefit Design and Communication, Compensation
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At about $10 per dose, Viagra isn’t cheap. But that isn’t stopping consumers from making the drug, which is used for erectile dysfunction, a runaway best seller. Today, many insurance plans cover the expense of the drug--along with other so-called "lifestyle enhancing" medications for problems ranging from male-pattern baldness to wrinkles. Combine these drugs with a new wave of ultra-expensive biotech drugs designed to treat everything from epilepsy to cancer, and it isn’t difficult to understand why some industry observers are sounding the alarm. Prescription-drug costs have climbed at a steady double-digit rate for the last decade. "It’s an alarming situation," says Connie Perry, a vice president at Aon Consulting.

    Today, some medications run $15,000 or more per month, and even with a 25 percent copayment, a person can drop a few thousand dollars per month on a prescription. Who foots the bill and how copayments and deductibles are set is a point of growing debate. The question, Perry says, is this: "What can employers, employees and others afford? What is reasonable for people to expect?"

    Breakthrough therapies don’t come cheap. Developing a major drug takes seven to 10 years and costs somewhere between $300 million and $1 billion. What’s more, for every success story, pharmaceutical companies typically endure several failures. So when a firm has a major breakthrough, it typically goes after financial rewards aggressively. Today, spurred by television and print advertising--which costs more than $2.5 billion a year--consumers are gobbling up little purple, red and yellow pills with growing fervor. Although 46 percent of physicians view "direct-to-consumer" prescription-drug advertising negatively, according to a 2002 study by the National Health Council, many feel that they’re standing in the path of a loaded freight train.

Swallowing a bitter pill
    For employers, employees and the rest of society, these changes represent a sobering dose of reality. The federal Agency for Healthcare Research and Quality reports that the cost of overuse and misuse of prescription drugs is billions of dollars annually. Aon Consulting’s Spring 2004 Health Care Trend Survey reports that employers can expect to see double-digit increases for all types of medical coverage, with HMOs and POS plans forecast to increase by a hefty 14.1 percent for 2004. What’s more, the rise in pharmacy costs--though down slightly from 2003--will likely be 14.4 percent this year.

    "It is questionable whether large populations of people will be able to afford prescription drugs if the prices keep climbing," says Michael Deskin, president of the Pharmacy Benefits Management Institute, a research organization in Tempe, Arizona.

    The 2004 Drug Trend Report produced by pharmacy benefit manager Medco Health Solutions found that:

  • Spending on treatments for rheumatoid arthritis increased 80.6 percent, and utilization increased 71.2 percent in 2003. Overall, spending for rheumatologic conditions rose 64.5 percent in 2003, driven by a 28.8 percent increase in unit costs and new drug introductions.

  • In 2003, specialty medications represented the largest proportion of total prescription-drug expenditures--8 percent--among children under 19 years of age. The 35-to-49 age group had the second-largest proportion of specialty spending, at 5 percent. Only 1 percent of the outlay for those age 65 and above was for specialty drugs.

  • Spending on drugs used primarily to treat attention-deficit/hyperactivity disorder surged 369 percent for children under age 5.

    At the root of this upsurge are changing ideas and expectations about prescription drugs. "There are highly motivated and demanding patients who walk into a doctor’s office and push for particular medications," Perry says. "Even if a doctor isn’t enthusiastic about having the person use the drug, he or she will often go ahead and write the prescription." The issue is particularly tricky when people ask for drugs such as Viagra and Cialis that aren’t essential to life and well-being. "The question is: Are these essential medications or merely lifestyle enhancers?" Perry asks.


"It is questionable whether large populations of people will be able to afford prescription drugs if the prices keep climbing."


    The answer is determined largely by which side of the examination table you’re sitting on. At the same time, other conditions, such as high cholesterol, are undertreated--often because physicians aren’t familiar with the pharmaceutical options available, Perry says. Some individuals believe that society should bear the cost of their treatment, regardless of price. Trying to find a way through this netherworld of health-care issues and prescription costs is nothing less than a Herculean task. Yet a growing wave of pharmacy-benefit managers such as Medco, Express Scripts and Caremark are trying by developing strategies that they believe will counteract the potent effects of today’s prescription-drug culture.

Dealing with the diagnosis
    Changing behavior starts with understanding motivations. When Medco surveyed consumers about their preferences for prescription medication, it found that 79 percent would use generic medications for minor conditions such as a cold or the flu, but that the figure dropped to 50 percent for serious conditions such as asthma. Interestingly, 57 percent of patients surveyed said they would be more likely to use a generic if they saw it advertised. Yet here is the catch-22: generics cost less in part because manufacturers spend almost no money advertising them.

    Medco also found that when presented with the same copay for using either a brand-name medication or a generic, 59 percent would choose the brand medication and 33 percent would choose the generic. Not surprisingly, as the cost of the copayment rose for the brand-name medication, consumers were more likely to choose a generic drug. "It is essential to design drug plans that take advantage of cost-saving opportunities," says Glen Stettin, vice president of clinical products at Medco Health Solutions.

    That is easier said than done. Optimizing copayment schedules, deductibles and the use of generic medications presents formidable challenges. It requires PBMs and others in the industry to educate the public and doctors about key cost and performance issues. "In most cases, generic medications are just as good, if not better, than branded products," he says. "It is possible for employers to design their plan with incentives for members and doctors to choose generic drugs." At Express Scripts in St. Louis, a 48 percent increase in the use of generic prescriptions among its 50 million members helped keep the average cost of a prescription at $55.86 in 2003, up from $51.76 the year before. "Generic drugs are the key to managing the growing cost of prescription drugs and thus making it possible for plan sponsors to continue providing an attractive prescription benefit," says Barrett Toan, chairman and CEO. An Express Scripts "Drug Trend Report" found that plan sponsors that introduced two or more trend-management tools in 2003 saw their drug costs decline by 4.6 percent. Those that introduced one or more tools for the first time in 2003 witnessed a 5.9 percent cost increase. Overall, plan sponsors that used at least one trend-management tool in 2003 saw their drug costs grow by 10.4 percent. Cost-containment strategies include promoting mail-order delivery, which can cut costs by 10 percent; placing a greater emphasis on over-the-counter drugs; developing more clearly defined coverage rules; and using patient medical and health-plan information to identify potential drug interactions--thus averting additional treatment.

Rx for managing costs
    Another area that some PBMs and employers are homing in on is overprescription or misprescription of certain drugs. Some observers say that the rate of increase in the use of some medications–such as those used to treat hyperactivity and ADHD in children–is cause for concern. "The risk we take is that we create an entire generation which believes that when in doubt, take a pill," Stettin says.

    Some PBMs and employers are making it more difficult to obtain drugs such as Viagra and Propecia (which combats male-pattern baldness). In many cases, a request for a prescription for these medications automatically leads to a review. If the pharmacist, case specialist and prescribing physician agree on the need for the prescription, the PBM will approve its use. Otherwise, it is up to the patient to purchase the medication.

Workforce Management, August 2004, pp. 74-76 -- Subscribe Now!

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