Human Capital & Careers

Containing Drug Costs a Priority: Survey

Spending on prescription drugs grew faster than overall health-plan costs last year, so more employers are requiring their employees to share a gre...
Craig SchneiderOctober 31, 2005

At one in five companies last year, employees paid as much as 30 percent of the cost of prescription drugs in their health plans, according to a new survey by Mercer Health and Benefits. That’s “about as high as most employers are willing to go,” says Debbie Martin, a member of Mercer’s pharmacy benefit specialist team, in a press release.

The consultancy surveyed 529 large companies on pharmacy benefits, on subjects including plan design, vendor selection and management, satisfaction with pharmacy benefit managers, price transparency, and cost management. Spending on prescription drugs rose by double digits in 2004, Mercer found, even though overall health-plan costs grew by just 9 percent.

As a result, more employers are redesigning drug benefits so employees share a greater amount of the total expense. Nearly two-thirds of respondents have implemented a three-tier co-payment structure — which offers one price for a generic drug, a higher price for a preferred brand-name version, and a still higher price for an equivalent but non-preferred brand-name drug. By encouraging employees to choose generics, employers hope to lower their costs as well.

Employees might be further persuaded to opt for generic drugs, noted Martin, if their out-of-pocket cost included not only the co-pay but also the difference in price between the branded and generic versions. Nearly half of survey respondents have implemented this practice when an employee chooses a brand-name rather than a generic version; one-quarter of respondents require that the employee pay the difference even if it’s the physician who requests the brand-name drug.

“Step therapy” can also be used to promote cost-effective choices. The strategy requires that certain drugs be used only after preferred drugs have been tried and proved ineffective. About one-fourth of the respondents require step therapy for asthma and arthritis treatment; one-fifth use it for anti-depressants and cholesterol medications. “Uptiering,” which removes all brand-name drugs from the formulary, is used by about one-fifth of respondents to manage the costs for antihistamines.

Other findings:

• Nearly three-quarters of respondents said that better management of costly specialty and biotech drugs, such as those used in treating rheumatoid arthritis and multiple sclerosis, was a priority. In many employer programs, these drugs are covered through a medical plan rather than a drug plan, the survey noted.

• Four-fifths of respondents indicated that they are satisfied or highly satisfied with the account and member services provided by their pharmacy benefit managers, or PBMs. (On the other hand, see “Drug Discount Peddlers” for a look at how PBMs might be hiding revenue, to the detriment of the companies they serve.)

• Employers are less active in seeking out transparent pricing arrangements with pharmacies and pharmaceutical manufacturers, the survey found. Only 6 percent use a pharmacy benefit administrator or a “transparent PBM,” perhaps out of concern that they lack the “critical mass to provide a consistently high level of service” and are “a partial solution,” Martin explained.

• Collective purchasing of pharmacy benefits is being considered by about one-third of respondents using a PBM; those using a health plan were “significantly less interested.”