Tiered Plans Attack Rocketing Drug Costs

A 70 percent vault in pharmaceutical costs from 1995 to 1998 made the University of Arkansas woozy. So it swallowed a three-tiered pharmacy co-payment plan, and in just one year shaved 3.4 percent off its drug store costs.

Barbara Taylor, the University of Arkansas’ associate vice chancellor for human resources, said the plan’s premise is simple — it requires higher co-payments for name brand drugs. The trend toward tiered plans is a national one, but evidence of local success has popped up in several camps.

Taylor said UA pharmacy costs in May of 1999 were 21.7 percent of its total premiums. The tiered-plan was implemented on July 1, 1999, and as of June, pharmacy costs had dropped to 18.27 percent.

“You don’t try to reduce health insurance rates,” Taylor said. “You just try to keep the increases down. I know that prescription drug costs are the highest-rising element in our coverage, and it’s good to see that this has made some difference.”

The University of Arkansas System in Little Rock, which handles the UA’s risk management and employee benefits, is self-insured. QualChoice of Arkansas Inc. in Little Rock acts as its third-party administrator, and Pharmacy Associates Inc. in Little Rock administers the drug plan. It was the UA System, however, that decided to change its co-payment structure.

Arkansas Blue Cross & Blue Shield’s tiered plan works basically the same as the UA’s. It requires a $10 co-payment for generic prescriptions, a $20 one for preferred brand-name drugs and a $30 co-pay for prescriptions deemed “non-preferred” because of their high cost or rare use.

Blue Cross’ regional medical director, Dr. Ray Bredfeldt, supervises a nine-county area from the Oklahoma state line to Baxter County that includes about 100,000 insured lives. He said its too early to tell how well his company’s version of three-tiered co-payments is working financially. But after a year of use, he said more insured members are choosing the flexible program.

“Our costs went up 24 percent from 1999 to 2000,” Bredfeldt said. “It’s because of the price of new drugs and the number of prescriptions each group member is getting keeps going up. The biggest catalyst for this is people seeing ads on TV and going to the doctor and asking for specific drugs.

“Studies show mass market pharmaceutical advertising has resulted in 17 percent more doctor visits in recent years. And about 70 percent of physicians will give patients what they ask for, even if there’s an equally affective alternative.”

Bredfeldt said consumers should realize that just because a drug is advertised on TV, doesn’t mean it’s necessarily the best medication for them.

TV marketing

Drug spending soared 17.4 percent last year, according to Express Scripts’ 1999 Drug Trend Benefit Report — the highest jump in seven years. Carl Collier, owner of the largest private drugstore chain in Northwest Arkansas they said there’s no ignoring the fact that the statistic coincides with the proliferation of national pharmacy campaigns.

Collier said he believes expensive mass market promotions for drugs like Prilosec — which wholesales for $5,000 per 1000-pill bottle because of research and advertising overhead — are totally unnecessary. He even wants the U.S. government to pull the reins on “Big Pharmacy’s” marketing practices.

“If the product has merit, it will sell,” Collier said. “Pharmaceuticals should be marketed professionally, not by the pharmacy companies. It’s the same scenario as ‘Big Oil’ and the filling station owners. When the owner has to charge $1.89 for a gallon of gas to operate his business, he’s not the one making the big margin.

“Pharmacists are the ones who have to come back with a red face and tell a customer that a prescription they need is $237.50.”

Collier said the problem is with third parties, and not between pharmacists and their customers. He said the goal of Collier Drug Stores Inc. is to provide customers with quality service, but like most drugstores they have to go through a third party.

“That puts someone between the patient and the provider,” Collier said. “What we’d like to do is make price the absolute irrelevant part of pharmacy service. We want to concentrate on telling the patient, ‘Now, you need to take this with food,’ or ‘watch your other medications on this prescription.'”

Big ticket pills

There are numerous drugs on the market that come with $1,000-per-month tabs. Enbrel, a treatment for rheumatoid arthritis is one. Bredfeldt said statistically, Blue Cross’ local HMO, Health Advantage — which insures about 20,000 members — should have about 200 people with rheumatoid arthritis. Even if only one third of that number were on Enbrel, that would still raise everyone in the pool’s pharmacy costs by 15 percent.

“It costs a lot to develop new drugs,” Bredfeldt said. “But their profit margins are pretty high as well. It truly looks to me like we’re rapidly getting to the point where all the new technology is going to be more than society can afford to pay for. There’s probably another dozen $1,000-per-month drugs in the pipeline as well.”

Bredfeldt, who represents about 500 employers in his region, said insurance companies’ only form of recourse against such pricing is to pass the cost for high-dollar drugs on to consumers. The highest category of triple-tiered pricing then becomes a product for people who want the most expensive drugs.

Collier said although pharmacy prices have hit the roof, drug store margins are on the decline. Collier, who owns five local stores, said his profits are down 15 percent from recent years.

M.D. Motivation

Blue Cross’ solution takes alternative pricing one step further. On Aug. 1, it established a sliding-scale reimbursement plan for physicians who write more generic drug prescriptions. The thinking is that the doctors who take more time to explain how less expensive drugs work as well as name brands should be compensated for their effort.

That can also translate into lower co-pays for companies, since people often don’t realize how expensive the drugs they’re getting actually are.

Taylor, the UA human resources director, said she’s even heard that pharmacy development costs could be coming down thanks to another recent development. The Human Genome Project, an International undertaking led by the U.S. Center for Disease Control in Atlanta, Ga., successfully mapped out the specific proteins in DNA that create each of the segments of human genes.

“The hope is that once we know more about how drugs work on the molecular level, we’ll be able to design them less expensively,” Taylor said.