10 ways to win the war on prescription drugs

Employers can take steps to impact the effects of rising pharmaceutical costs on their employee benefits plans

Story by John R. Ingrisano

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, anyway. 

You are not alone. The federal government reported in January that total health care spending in the U.S. topped $2 trillion in 2006, the latest year for which data is 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 percent between 1970 and 2007. Overall, prescription drugs cost more than $215 billion in 2007, accounting for between 10 and 17 percent of employer health care benefit costs.

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 or even recognized, such as Restless Leg Syndrome, Erectile Dysfunction, and anxiety or depression. Additionally, drug therapy is increasingly used for treatments that may have previously required surgery, which can often be more expensive and more risky. 

Finally, while health care costs are a major bottom-line factor for many businesses, 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, the rate of prescription drug cost increases for customers of Oshkosh-based BidRx declined from 18 percent a few years ago to less than 10 percent today, explained Tom Kellenberger, vice president of BidRx, a national prescription drug marketplace that enables consumers to view cost options online and make their own choices.

It’s also becoming a common practice to recommend generic drugs whenever possible. According to Wayne Kostka, marketing manager for West Bend-based prescription benefit manager ReStat, the biggest reason for the slowdown in drug cost increases has been increased use of generic medicines.

“With our company, generic utilization went from 47 percent to 58 percent in the last two years,” Kostka said.

Nonetheless, said 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.”

Kostka agrees. “We have gotten more cooperation from employers who are eager to install cost-containment measures.”

Ten ways to control drug benefit costs
Now let’s see where you can start cutting prescription drug benefit costs in your business. Here are 10 ways employers and individuals can win the war on prescription drugs. Some may slash costs significantly; others may nick off 2 percent here, 1 percent there. See which ones may work in your business.

1. Revise your prescription drug benefit program. This is the key to cutting costs. Nearly every prescription drug provider we spoke with agreed.

A company’s benefit program must be carefully managed. Companies cannot afford an open checkbook policy, pointed out Dr. Ralph Kalies, Jr., president and chief executive officer of BidRx.

“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 a 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 a price that is satisfactory.

“We create a marketplace,” explained 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 percent,” added Kalies. “We also make it possible to compare similar drugs.”

For example, Kellenberger said, a heartburn and acid reflux abatement 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, he said.

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, as well as 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-payments to drug choices. 
 
For example, explained Chuck Rynearson, director of pharmaceutical benefits at Network Health Plan in Menasha, one generic drug for hypertension – which tends to be highly effective – can cost as little as $10 a month.

“However, approximately five to eight percent 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. Often, health care providers will experiment with newer, more expensive medications, and often at the request of the patient. Because these can be very expensive, sometimes exceeding $1,000 a month, explained Rynearson, his staff thinks it’s valuable to require preauthorization for the use of some medications require preauthorization.

“The goal is to provide the right drug for the right patient at the right time,” Rynearson said, and not necessarily go for the newest, most expensive drug.

6. Provide quantity limitations. The goal with quantity limitations, explained Restat’s Kostka, is to provide the appropriate quantity for treatment, rather than large quantities of prescription drugs that may not be justified. As a patient, if you’ve 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 wasted 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, explained 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,” explained 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 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 the workplace. A healthier workforce is not only more productive because it has fewer sick days, but can also have a positive impact on drug and other health care costs. For example, said 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 health and wellness 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.



John Ingrisano is a Wisconsin-based marketing strategist and business journalist and a regular contributor to New North B2B. His monthly column, “Focus Small Business,” appears in Corporate Report Wisconsin. He can be contacted at john@TheFreestyleEntrepreneur.com.