How can employers manage rising prescription drug costs?

According to HR consultants Towers Perrin, employers need to take steps to manage rising prescription drug costs. Start by analyzing the company's pharmacy data. This will help employers understand the medical profile of their employee population. It will also identify the 50 most expensive drugs their employees are using and tell them whether their prescription drug dollars are being spent on expensive brand-name drugs or less expensive generic drugs.

After analyzing pharmacy data, employers should consider one or more of the following actions:

1. Introduce prescription drug plan design changes, such as coinsurance. This will increase employees' awareness of actual drug costs and motivate them to opt for less expensive generic drugs that are medically equivalent to pricier brand-name drugs.

2. Initiate Web-based components of consumer-driven health plans that encourage consumerism and provide employees with information and decision support such as health information and disease management tools, health risk assessments and drug efficacy and pricing information.

3. Work aggressively with pharmacy benefit managers to ensure the best contracting, pricing, due diligence auditing and quarterly monitoring of program cost components. See ¶40,085 regarding What questions should I ask when selecting a pharmaceutical benefits manager?

4. Counter prescription drug advertising by giving employees the unbiased information they need to make prudent, cost-effective decisions about the prescription drugs they use.

5. Consider tailoring formularies to better meet the needs of their employee population.

Towers Perrin warns employers to avoid quick-fix solutions because they may decrease pharmacy costs in the short term, but increase overall medical costs over the long term. A careful analysis is necessary.

Consider using generic brands.A careful analysis of generic prescription drugs may also be cost effective for your organization and your employees. U.S. consumers could have saved $20 billion in 2004 and even more during 2005 and future years by using more generic drugs, according to a report by Express Scripts, Inc, which was based on a random sample of approximately 3 million individuals. On average, a generic drug costs approximately $60 less than a brand name drug. Consumers also pay a lower co-payment for generic medications, saving $10 or more per prescription on average compared to branded medications.

The most dramatic savings potential exists for generic gastrointestinals, which are dispensed only 31 percent nationwide, but could feasibly reach as much as 95 percent adoption, the report finds. As such, greater use of non-branded gastrointestinals alone could drive down costs an additional $5.4 billion nationally. Similarly, in the anti-cholesterol category, generics are only dispensed seven percent of the time nationally. However, drug costs could be reduced an additional $5.1 billion annually if generic fill rates reach the 70 percent goal projected in the report.

The savings opportunity from increased use of generic drugs has never been greater. More than $50 billion worth of branded drugs will lose patent exclusivity over the next five years. In 2006 alone, $11 billion in drug sales are expected to lose patent, with generic alternatives becoming available for at least 15 branded drugs. Express Scripts provides steps that employers should consider taking to increase the use of generic drugs. These steps include:

• Recognize that using more generic drugs will free up resources to meet other pressing health care needs and help preserve the pharmacy benefit as we know it without impacting quality;

• Increase awareness of generic alternatives to brand drugs; and

• Adopt pharmacy benefit plan designs that encourage greater use of generic drugs, for example by using a program called step therapy where a generic drug is tried first, before a brand.