Here's what usually happens when we get sick.
We go to the doctor, get a prescription and, before too long, we're in recovery – managing our condition and getting back to work. Prescription drugs can help us get back on our feet, but they can also be a pain to our employers’ and health plans’ bottom lines.
Employers and health plans this year will spend around one in five health care dollars on prescription drugs and pharmacy benefits. In some cases, that's more than the annual spending on either hospitalizations or private practitioners.
This situation is likely to get worse before it gets better. Prescription drug prices are increasing at an average annual rate of about 8 percent. That's almost four times the rate of annual wage-growth and inflation, and is an unsustainable situation, health-care economists warn.
Signs of innovation are on the horizon. In the short term, however, the rate at which prices are increasing is unlikely to come down. More and more of us are taking drugs for chronic conditions that are the result of longer lives and unhealthy lifestyles, and new drugs for conditions such as hepatitis C can cost tens of thousands of dollars a year.
“We're in a world where there's no price constraints for prescription drugs,” says Mark Lowenthal, managing director of Integrity Pharmaceutical Advisors. “Nor is there a rational basis for supply and demand.”
This is not new. Yet, these same experts say proverbial chill pills are out there for employees, employers and health plans to digest and help manage the pain. They include generic substitution, therapeutic substitution, financial incentives, value-based insurance design and mail order.
Generic substitution refers to the replacement of a brand name product with an unbranded version of the same drug. Many groundbreaking drugs are now available as generics, including Lipitor for lowering cholesterol and Plavix for preventing blood clots. The FDA estimates that generic drugs cost up to 85 percent less than their brand name counterparts.
“We already know how to get our clients to use generics,” says Rick Amundson, a wellness consultant with Smola Consulting in Rochester, New York. “We have generic fill rates of more than 85 percent and in some cases more than 90 percent.”
For Amundson, who in a previous life served as an athletic coach and school superintendent in the Finger Lakes region of Western New York, the key to generics conversion is communicating up-to-date developments about drug pricing to local doctors, and merging that data with the claims history of an individual patient.
“These are enormously data- and communications-intensive services,” Amundson explains. “Our (insurance) carrier, Excellus, is in a unique position to do this and does a very good job of it.”
According to Nicole Dawley, director of pharmacy strategy and policy for Excellus BlueCross BlueShield, her organization began to promote generics more than 10 years ago with its “Generics are Real” campaigns. The regulatory climate for these campaigns improved in 2010 when the Affordable Care Act encouraged insurers, providers and pharmacies to form Accountable Care Organizations (ACOs), which qualify stakeholders to be paid by Medicare for holding down costs.
Here is how generic substitution works: Excellus BCBS shares new drug information and pricing changes with its ACO providers. When new generics become available, Excellus BCBS can utilize claims information to inform providers which patients have lower-cost generic options.
“It’s a system that is far from perfect,” explains Dawley. “Since we are interested in the total quality of care, we don't want to get in the middle of a doctor-patient relationship. But we can and do recommend alternatives to costly, brand name drugs or expensive generic drugs.”
Recommendations are not binding. They can be ignored and can trigger disagreements. So, the next time you visit a doctor, ask if there is a cheaper, generic substitute for what you are being prescribed.
That’s because when drug companies develop a new medicine, they spend a lot of money studying and testing it. Drug companies also spend a lot of money on marketing and advertising. In exchange for that initial investment, United States law allows drug companies to patent their new medicines.
Patents give drug companies the right to be sole seller of a particular medicine for the first several years it is on the market. Later, when the patent runs out, other companies can produce exact copies of the medicine, but must sell it under a generic name.
When no generic equivalent is available, we can ask our doctor if a brand name drug can be replaced with one that is chemically different but has a similar efficacy and results. This is known as therapeutic substitution.
Highmark Inc. of Pittsburgh recently launched a therapeutic interchange program, with the intent to inform members and providers about prescription drugs for which there may be cheaper alternatives.
“The program basically mines the data about new drugs and reaches out to providers and members,” says Sarah Marche, vice president of pharmacy services at Highmark.
A key target is educating pharmacists with teams of in-house pharmacists, a capability Highmark has developed since it transitioned itself from merely an insurer to an insurer and provider. This came about with the 2015 acquisition of the Allegheny Health Network.
Networking, however, is no substitute for staying informed. Many health plan benefit designs offer financial incentives in the form of lower co-payments to encourage us to select generic drugs rather than the more expensive brand name versions.
The co-pay is the amount we pay out of pocket each time our pharmacist fills a prescription. Lower co-pays are not the only reason to switch to generics. Many insurances and Medicare Part D plans limit what they pay to a portion or a percentage of the cost of the drug, or to certain drugs. If we exceed that limit, we have to start paying for our medicines on our own. But, if our medicines cost less, we may never reach that limit, or at least reach it more slowly.
Some insurers also require us to spend a certain amount of our own money on medicines before they start paying for them. The amount we pay is called a deductible. We can make the most of that deductible by using low-cost generic medicines.
“We do have surveys which show that patients are sensitive to out-of-pocket costs,” Excellus BCBS's Dawley adds.
Value-based insurance design, or benefit design, also uses incentives to encourage us to make healthier and less expensive choices. When we have a choice between different prescription plans, we can get a list of medicines that each of the plans cover, called the “formulary,” and co-pay levels, called “tiers.”
Most insurance providers have a three-tier system:
- Tier 1 usually has the least expensive co-pay and includes mostly generic medicines.
- Tier 2 has a higher co-pay than Tier 1 and includes "preferred brand-name medicines." These are brand-name medicines that the insurance provider has approved because they are proven to work and be cost-effective.
- Tier 3 has the highest co-pay and includes "non-preferred" or non-formulary brand-name medicines that, according to the insurance provider, can usually be replaced with Tier 1 or Tier 2 medicines without any problems.
Employers typically communicate these tiers in benefit guides that are distributed during open enrollment. Most often, the benefit guides also refer us to the websites of insurers for a deeper dive into the list of drugs which are insured, and under which tiers these drugs can be found.
Scouring these dense lists takes concentration and patience. Imagine shopping for a bottle of ketchup at a local supermarket without being able to instantaneously compare the cost of Heinz, Hunt's or a private-label brand.
"Most members don't know what drugs cost and many doctors don't always know what things cost," says IPA's Lowenthal. "And it's too much work to find out."
Consider that for each medicine prescribed outside of Tier 1 or Tier 2, we can call our insurer's hotline and ask which covered medicines might work for us instead. Then, we can give that information to our doctor.
Excellus BCBS's Dawley believes innovation will eventually chip away at this barrier, which technology is helping us navigate. Most health plans offer web services or apps where members can sign in to their profile and see what their costs will be. Provider electronic medical records systems have the capability to alert providers about specific formularies and drug coverage information.
There is also the issue of delivery. Insurers often offer the option of ordering prescriptions by mail. Not only is mail order convenient, it saves money and helps bring down the total cost of prescription drugs.
But mail order works best after we know for sure that we will be taking a given medicine at a specific dose for at least three months.
That's because the mail-order option with prescription drug coverage usually has a discounted co-pay for a 90-day supply of generic medicines and preferred brand medicines. To use this benefit, we may need to register for the mail-order option in our plan and may also need to ask our doctor to write prescriptions that cover a 90-day supply with each refill.
“We are really looking to expand this option for our members,” says Smola's Amundson. “There's not a huge amount of savings left to wring out of generics.”
If generics conversion yields fewer economic benefits than in the past, and prices are still increasing at 8 percent a year, the prescription drug industry is ripe for disruption in ways we cannot yet imagine, health care economists contend.
There are plenty of signs this is the case. Amazon, in June 2018, purchased an online pharmacy called PillPack, a relatively small acquisition that sent the price of drug retail stocks plunging. Amazon has also joined venerable companies like J.P. Morgan Chase and Berkshire Hathaway in a joint venture that will directly provide medical services to employees as Apple is already doing. And 300 hospitals nationwide have come together in a consortium to manufacture generic drugs.
Start up company GoodRX is reportedly a buy-out target of well-heeled health care companies. GoodRX offers people without health insurance, or with high-deductible plans, a way to shop for drugs at lower prices. The company provides a mobile app that allows member to compare prices, and it issues drug discount cards and coupons at pharmacies or online.
“Resources such as GoodRx are particularly helpful if you don't have insurance or a high deductible plan," says IPA's Lowenthal. "Anything that helps members take a deeper dive into pricing helps at the margins."
However, GoodRX cannot, in its current form, be used in combination with benefits. That means health plans and employers who value the data-mining and outreach capabilities of an insurer to help manage a members’ care are unlikely to enroll.
“When you give up the data, you lose the ability to make recommendations based on a members' complete history,” says Highmark's Marche.