On Finance: Prescription Drug costs-the reasons and potential remedies
Our nation's healthcare expenditures continue to increase rapidly and with each year consume a greater share of the U.S.'s total economy. As policy makers, healthcare providers and citizens dissect these rising costs, one thing has become clear: prescription drug spending over the past decade has been the fastest growing component of healthcare dollars in the country.
Americans continue to pay significantly higher prices for their prescription drugs than people in countries outside the United States because the United States does not limit the price that can be charged for drugs as most other countries do. The elderly are particularly affected by these costs, as they are more likely than any other group to use prescription drugs. For those seniors on traditional Medicare without any drug coverage-this is a heavy financial burden and has become a choice between their prescriptions and other necessities.
Price alone does not account for the drastic increase in spending on pharmaceuticals. The biggest cost drivers are:
With that in mind, it has become more important than ever for managed care organizations to find new ways to manage pharmacy utilization and costs. There are several ways to curb these costs. Many plans have introduced, or are planning to introduce, pharmacy cost risk-sharing arrangements with their providers. This includes clearly labeling the differences between that provider's prescribing patterns and local norms, and other information that helps the provider more efficiently utilize prescription drugs. To ensure optimal savings, providers must be fully informed about these issues. Other techniques like mandatory mail-order fulfillment requirements and four-tier pharmacy designs are effective and have been around for a few years but are used by a minority of payers. Continued increases in health premiums have led more employers to embrace these. Employers are also continuing to widen the difference between co-pays for second- and third-tier formulary medications. In addition, they are increasing the number of drugs subject to step-therapy requirements, in which a patient must first try a generic or lower-cost drug before a brand-name or higher-cost medication would be covered. Many employers are also entertaining the use of a flexible spending account for over-the-counter medications. In 2003, the Internal Revenue Service issued a ruling that authorized this use. Since then, employers have been evaluating what sort of structure might be used to determine coverage. For example, a company might cover just those medications that once had been offered on a prescription-only basis. A manufacturing company based in Pennsylvania with 2,000 employees and several locations across the country is a prime example of how instituting some of these programs can save money. This particular company was initially facing a 15% rate increase on their medical program, which would have resulted in a $1.2 million increase to their budget. They decided to take an aggressive approach to reduce costs; this included a comprehensive assessment of their current healthcare plan especially the pharmacy component.
The pharmacy component of the plan was modified as follows:
Through successful vendor negotiations and total plan modifications that company was able to reduce the proposed increase by 4.5%. As those of us in the healthcare community continue to work to find a more permanent solution for this prescription drug problem; more and more companies will have to entertain and pursue changes in their drug benefit programs like those instituted by the company mentioned above. Eventually, changes will most likely be more drastic, but companies must start somewhere. Peter C. Pedro, Jr. is senior vice president of The Bostonian Group, a benefits consulting firm based in Boston. |
Health News Headlines from the Wall Street Journal
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