Risk Management

Farewell to Brand-Name Drugs

More over-the-counter substitutes for common drugs are becoming available, promising to take a chunk out of spiraling heath-care costs.
David McCannJuly 28, 2011

Companies on the leading edge of effective health-care cost management are paring down prescription-drug outlays by ceasing coverage for brand-name drugs when there are legitimate over-the-counter substitutes.

For drug categories as diverse as antacids, antidepressants, hypnotics, and cholesterol medications, employers should take a look at what they could save by refusing to pay for brand-name drugs, said Ron Fontanetta, a panelist at the recent CFO Core Concerns Conference in Chicago. “Companies are still paying hundreds of millions for these brand names,” he said.

For example, one notable opportunity lies in antacids, which account for about 8% of the typical employer’s prescription-drug outlay, according to Towers Watson, where Fontanetta is leader of the health and group benefits practice. Historically there have been many prescription antacids, but patents are expiring for some of them, leading to increased over-the-counter options.

Employers should also look at the cost of such outpatient services as MRIs and colonoscopies, added Fontanetta. In Chicago, for example, employees can get such services from outpatient clinics for perhaps $600 to $800, whereas having the procedure done at a hospital often costs thousands. “Employers right now tend not to differentiate between those prices,” he said. “But getting smarter about what’s driving our health-care spend can go a long way toward mitigating the health-care cost increases we’ve seen the past few years.”

Those rising costs affect a wide scope of corporate interests beyond health care, pointed out another panelist, George Pantos, executive director of the Health Care Performance Management Institute. Resources devoted to keeping up with the ever-inflating health tab then can’t be used to expand hiring, for example.

The nonprofit institute’s mission is to develop an innovative technological solution for predicting health-care cost risks based on the health profiles of an organization’s employees. “There are tested principles of [technology-driven] performance management for many areas, like enterprise management, supply-chain management, and talent management. Why not health care?” asked Pantos.

Most self-insured employers, he said, are sitting on a gold mine of an untapped asset: data based on employees’ historical medical and prescription-drug claims. He said that one company, with only about 1,500 employees, has generated cost avoidance of $1 million in a year using an early version of the institute’s technological approach.

Employers that are covered by insurance carriers, on the other hand, often have a hard time getting their hands on plan data. Their carriers’ revenue model is based on premiums, so efforts to reduce costs are contrary to that model. “The carrier is a barrier,” said Pantos. “If you’re self-insured, you’ve taken control of your plan.”

Meanwhile, there is a disconnect between how wellness professionals tally the value of wellness programs and how CFOs are inclined to, said a third panelist, wellness expert Dee Edington, director of the University of Michigan’s Health Management Research Center. “Wellness professionals rely on ROI calculations, and most CFOs discount those pretty heavily — and so do I, because there are biases in those calculations,” he said.

CFOs also tend to be skeptical of such calculations because they usually show the hypothetical results of a proposed wellness program as participating employees get sick less, said Edington, noting that he has interviewed many finance chiefs. “We need to change to something CFOs can actually see, like trend analyses,” he said. “Wellness and HR people need to get on the same page as the financial people as to what is measurable and believable.”

Other wisdom dispensed during the session included the following.
• Edington: “We clearly lost the 20th century in terms of health. We don’t have any fewer diabetics than we had in the 1950s, or fewer obese people, or any more people exercising. If all you do is wait to treat defects as they arise, you never get to the fundamental issues around the problem.”
• Fontanetta: “The growing emphasis on wellness and mitigating clinical risk is good news, because we have a ton of epidemiologic data that suggest our health risks are getting considerably worse.”
• Pantos, on the role social media can play in mitigating health-care costs: “It can let individuals interact with everybody in their health-care lives — doctors, labs, pharmacies — as well as get easy access to the repository of information available on the Internet on health conditions. And then the last mile of that is, why shouldn’t a health plan have its own operating system that integrates all those components on a single platform?”
• Edington: “I don’t believe in best practices. They’re a waste of time. People have been doing best practices for the last 10 years, and why the hell should they keep doing that? What I want to think about are the next practices.”