The War on Drug Costs

Why health-care purchasers are fed up with swelling prescription drug costs, and what they're doing about it.

This year, General Motors Corp. will spend somewhere in the neighborhood of $1.4 billion on prescription drugs for its employees and retirees. And senior managers at the world’s largest private purchaser of health care are none too happy about it.

GM’s executives aren’t alone. Scores of employers and health insurers say they’re growing increasingly alarmed by what they spend each year to cover pharmaceutical purchases by plan members.

They’re right to worry. According to the National Institute for Health Care Management, spending for outpatient prescription drugs jumped nearly 19 percent in 2000 — a huge bump up in a time of relatively low inflation. What’s more, it doesn’t appear the pain is going to go away anytime soon. Spending on prescription medicines is expected to go up 16 percent to 17 percent this year. And Aon Consulting Inc., a human resources and benefits consulting firm, predicts that total prescription-drug spending will double by 2005.

Not surprisingly, many employers say they feel helpless in the face of rising prescription drug bills. And in truth, companies have little control over the root causes of these double-digit price increases. As observers rightly point out, there’s not a lot a plan sponsor can do about an aging population, the proliferation of expensive high-tech drugs, or the ever-increasing use of drug therapies.

But with health-benefit costs soaring, a number of employers are now beginning to zero in on prescription drug costs. Some companies are designing plans that penalize members for using high- cost, branded drugs when a low-cost alternative exists. Others are petitioning regulators to take action. Still others are targeting controversial marketing practices by drug manufacturers — practices which they believe are at least partially to blame for out-of-control drug costs.

Side Effects May Include Headaches, Nausea, and Swelling Budgets

Indeed, for many health-care plan sponsors, the biggest bone of contention is the barrage of direct-to-consumer (DTC) ads put out by drug makers. Employers say these television and print ads — for drugs like Claritin, Prilosec, and Prozac — create a demand for drugs that many employees simply don’t need. “Direct-to-consumer advertising drives unnecessary utilization,” says Robert Minton, manager of health-care communications at GM. “When someone walks into a doctor’s office and asks for a drug they saw advertised on TV, most of the time the doctor will prescribe it, even if the patient doesn’t need it. As long as it won’t do any harm, doctors don’t have time to argue with their patients.”

In fact, General Motors conducted a study of plan members that seems to back up Minton’s assertion. The report examined GM employees’ use of the acid-reflux drug Prilosec. The study showed that, over a three-year period, 92 percent of plan participants who received prescriptions for Prilosec had no prior prescriptions or treatments for gastrointestinal disorders or heartburn.

Surprising stuff. The fact is, many physicians agree that Prilosec, a “proton pump inhibitor,” is the drug of choice only when a patient exhibits a severe case of gastrointestinal acid reflux. In most other instances, generic versions of Tagamet, Zantac, or even over- the-counter Milanta would work just as well — at a fraction of the cost. “In most cases, the most expensive drug was the very first therapy when only a small percentage really needed it,” says Minton. The reason? Minton blames direct-to-consumer advertising.

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