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Economy Prompts More Firms to Waive Drug Co-Payments

Ultimately, the thinking goes, making it easier for employees to pay for medicine that can keep them healthy will help them—and their employers—avoid costly hospitalizations in the long run.

June 19, 2009
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Related Topics: Benefit Design and Communication, Compensation
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Several years ago, the city of Asheville, North Carolina, and Pitney Bowes led the way in reducing or waiving prescription drug co-payments for employees who had certain health conditions.

While these employers remain outside the mainstream, the weak economy has spurred more organizations to waive co-pays to help employees manage their health care costs during the recession.

Ultimately, the thinking goes, making it easier for employees to pay for medicine that can keep them healthy will help them—and their employers—avoid costly hospitalizations in the long run.

While data is still being gathered to show that employers can reduce overall medical costs by cutting co-pays for chronic conditions like diabetes and asthma, other studies have shown that patients forced to pay higher co-pays are less likely to take the medicine they need to stay healthy.

As benefits managers face budget cuts, “it’s a little bit harder to get approval for reducing co-pays, especially when results are a little bit squishy,” says Hitesh Patel, vice president of Aon Consulting’s pharmacy practice in Chicago.

Co-pays generally range from $30 to $50 for brand-name drugs and $7 to $15 for generics, he says.

Some employers have limited their investment in this strategy by waiving co-pays only for generics, Patel says.

“Typically, what we tell them is to start out small, say with diabetes and asthma drugs, and expand as they see results and feel more comfortable,” he says.

Although human resources and benefits executives “get it, because they live with this every day,” Patel says, persuading senior management to eliminate drug co-pays “is a difficult sell and more difficult these days.”

“It’s one of the most talked-about subjects in pharmacy,” says John Malley, national practice leader, pharmacy benefit consulting at Watson Wyatt Worldwide in New York.

While consultants point to the results seen by Pitney Bowes and the Asheville Project, now called HealthMapRx, there’s not a lot of data on cost savings from reducing or waiving drug co-pays, says David Dross, national practice leader of Mercer’s managed pharmacy practice in Houston.

“There’s evidence out there, but there needs to be more,” says Andrew Webber, president and CEO of the National Business Coalition on Health in Washington.

Webber cites case studies of employers that have adopted the strategy on the Web site of the Center for Health Value Innovation, founded by Pitney Bowes and supported by other employers interested in innovative health benefits design that improves health and reduces costs.

Several Aon clients have begun reducing or eliminating drug co-pays, Patel says.

Watson Wyatt’s Malley says less than 25 percent of his clients waive or reduce drug co-pays.

Employers that have waived or reduced drug co-pays for certain chronic conditions include Marriott International; the city of Springfield, Oregon.; Mohawk Carpet Corp.; the state of Colorado; Hannaford Bros.; Procter & Gamble; and SCANA.

“What’s helping move along initiatives like this is that employers have already done all the basic things to control costs and they are looking to advanced strategies, such as implementing reduced co-pays for certain disease states to improve compliance,” Dross says.

“I think the pioneer employers are even more committed to maintaining the strategy of value-based design during the economic downturn,” Webber says. “This is an arena where you can pursue opportunity for increasing the productivity of your workforce and lowering your cost.”

However, consultants says, reducing drug co-pays is only one part of the strategy.

“Organizations that have adopted an approach like this already have a robust infrastructure in communications and disease management and health improvement initiatives. There’s a lot of focused outreach already,” Dross says. “Doing it just as a pharmacy iteration is not going to yield much success. It’s got to be part of an overall strategy to improve health.”

The strategy of reducing co-pays is not for every employer, consultants say.

“It’s very client-specific,” Patel says. “There are certain criteria we look for: significant problems with utilization, where drugs play a significant role in outcomes, and where there is an issue with compliance. In those situations, we suggest [employers] reduce or eliminate co-pays.”

“There are a couple of steps employers have to take in considering the move,” Malley says. “I’m a supporter if the need is there.” To establish that need, employers must take “a deep dive into pharmacy claims to determine if gaps in therapy exist or if there is noncompliance,” he adds.

Employers also should consider the nature of their workforce. Eliminating drug co-pays might not be sufficient incentive for higher-paid employees, Malley says.

Employers also must gauge employees’ response to communications about cost savings and the importance of taking their medications, he says.

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