Meeting the Prescription Drug Cost Challenge

Led by Mayo Clinic cancer specialists, a group of prominent physicians sounded an alarm about the high cost of cancer drugs, proposing specific policy recommendations to the federal government. That was a year ago.

Mike Eckstein, Health Tradition Health Plan

Drug prices are escalating far faster than other medical costs

Specialty drugs such as cancer and hepatitis C medications are rising the most. But price spikes have become more frequent and dramatic across all medication types. They seem random, affecting certain dosages but not others.

Already, pharmacy benefits account for about 30 percent of employer group claims nationwide. With expected price increases of 12 percent this year, the prescription drug share of health care spending is projected to keep growing.

Generics have really been hit

Generic drugs have long been a useful tool in moderating costs. They now account for around 80 percent of prescriptions. But generics are no longer the bargain they once were, so further savings will have to come from somewhere else.

In the heyday of generics, numerous manufacturers and strong competition kept prices low. But soon, low profits spurred consolidation, leading to shortages, price spikes and the volatility we now see.

A unique U.S. market

Patent law, the FDA approval process and drug company business decisions have converged in ways that exacerbate supply problems. Manufacturers often cease production when a more profitable investment presents itself. Plus, fewer manufacturers are now vying for medications going off-patent.

The U.S. does not have a pricing policy, as Canada and other countries have. Our largest payer, Medicare, is expressly forbidden to negotiate drug prices. Among suggested remedies is indexing, which would tie U.S. prices to the lower prices in other countries rather than controlling them directly.

Group health benefits are affected

Efforts to address rising costs have resulted in additional prescription drug tiers. Plans with four or more tiers grew by 58 percent over past two years. Even six-tier prescription drug plans are likely to be seen. Other adaptations involve coinsurance, which is more elastic than fixed copays since both the plan and the individual absorb increased costs.

A practical approach

Smart cost containment strategies can help preserve the value of health benefits, even in this environment. Health Tradition employs multiple strategies, all of which contribute to the stability of our plans. These protocols are applied to both fully insured and self-funded plans.

1. Active formulary management
Many payers outsource to a pharmacy benefit manager that issues a new formulary once a year. The Health Tradition formulary is Mayo Clinic’s own and updated throughout the year–incorporating the latest research, responding to price changes or shortages faster, and adding newer, more effective drugs sooner.

2. Medical management
Mayo Clinic Health System and other Health Tradition network prescribers are impacting costs through clinical best practices like step programs that look for best outcomes at least cost. One in four people have problems affording their prescriptions, underscoring the relationship between cost and outcomes.

3. Reducing the need for prescription drugs
Behaviors that can be changed are linked to the four chronic diseases responsible for about 50% of deaths. Treatment of these diseases is costly, since medications like cholesterol and diabetes drugs are taken long-term. Helping a pre-diabetic person improve his lifestyle makes much more sense. Wellness benefits developed in partnership with Mayo Clinic experts–including Wellness at Work challenges and the Eat Well Move More rebate–are helping reduce the need for medications.

4. Purchasing power
We focus on total cost rather than limited devices such as rebates. In addition to accessing the latest research and clinical practices, our close relationship with Mayo Clinic affords Health Tradition considerable purchasing power. We also leverage the resources of our pharmacy network, OptumRX.

Consumers themselves can help by participating more actively in their health care decisions and becoming knowledgeable about the cost of their prescriptions.

About the author
Mike Eckstein, MBA, PAHM, is the director of sales and marketing for Health Tradition Health Plan. Mike has degrees in health care administration and business. He is a licensed intermediary and has achieved the designation, Professional, Academy for Healthcare Management (PAHM). Mike has been with Health Tradition and Mayo Clinic Health System for 19 years.