Select a State * NATIONAL MAP * Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware District of Columbia Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Puerto Rico Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming

• ISSUES
  • Budget & Taxes
  • Health & Safety
  • Health Care
  • Pension Security
  • Privatization
  • Women
• JOBS WE DO
  • Corrections
  • Early Childhood Education
  • Emergency Services
  • Environmental Stewardship
  • Health Care Workers
  • Higher Education
  • Home Care
  • Housing
  • Human Services
  • K-12 Schools
  • Law Enforcement
  • Library Workers
  • Nurses
  • Probation and Parole
  • Public Administration
  • Public Works
  • Transportation
• LEGISLATION & POLITICS
• MEMBERS ONLY
  Savings, Resources & more…
• PUBLICATIONS
• PRESS ROOM
• ABOUT AFSCME

Runaway Prescription Drug Costs: Trends and Strategies for Cost-Containment

There's a lot of talk about lowering prescription drug costs and the recent Medicare drug law. Yet drug costs for employers and working families are expected to far outpace inflation for the foreseeable future. U.S. spending on prescription drugs tripled from 1990-2001, and is on course to double again in the next 5 years. This issue brief explores current strategies for controlling drug costs and policy reforms under consideration.

The Rx problem

Employers pay twice as much for medical insurance than 6 years ago, and often cite the costs of medication as the leading cause. Drug costs are projected to rise by an additional 18.1 percent in 2004. In contrast, employer drug spending increased by about half this amount in 2003, with workers paying more and switching to generic drugs. Employers and health plans are raising premiums, co-pays, and deductibles. Most plans have multi-level drug co-pays, and some are capping benefits. Even mail order is charging larger co-pays for multi-month prescriptions. Surveys by Kaiser and Towers Perrin in 2003 show that at least 80% of large employers plan to increase cost sharing in the next few years for active and retired workers.

Workers and retirees without drug coverage will see more extreme increases. Nearly one out of three people under age 65, or 81.8 million people, were uninsured at some point during 2002 and 2003. By the end of 2003, the number of uninsured rose to the highest percentage in history, primarily due to the decline in employer-based health coverage. Now only 60.4% of workers have job-based health care.

Why are drug costs rising?

Technological changes in medical care are driving most cost trends, even as the U.S. lags behind other nations in health outcomes. Drug costs are impacted by this technology trend and are increasing due to two major factors: the rise in drug utilization (volume) and price. Both factors in turn are caused by a shift toward the prescribing of newer, more costly drugs. Not surprisingly, these are the drugs most aggressively marketed to consumers, doctors, and other health care providers. Marketing and lack of unbiased, public information contribute heavily to the current cost trends.

The volume of drugs sold is the biggest contributor to rising employer drug costs. More medications are prescribed than ever before, increasing by 74% from 1992-2002. This rise, in part, reflects the trend of patients using expensive drug therapies instead of medical care so there are some compensating benefits for the higher utilization. Still, for many consumers, the retail price of drugs is often the most noticeable problem. Drug companies have raised prices by an average 7.3% per year from 1992-2002 and 6.7% in 2003, exceeding the average inflation rate of 2.5%. Recently, these increases have slowed as more generics are prescribed and fewer new drugs have been released. We expect the use of super-specialty drugs and the aging of the workforce to be significant future cost-drivers.

Options for controlling Rx costs

There are a variety of options, both available and proposed, for controlling prescription drug prices. Most are reasonable with appropriate safeguards. This issue brief first focuses on cost control strategies now available to employees and bargainers at the health plan design level. Policy proposals that require broader systemic changes follow.

Traditional pharmaceutical cost control efforts available to health plans include the use of prescription drug cards, mail order maintenance drug programs, and generic drug substitution.

• Prescription Drug Card

  In a card plan, an insurance company, third party administrator or, most often, a pharmacy benefit manager solicits pharmacies to join the plan. The pharmacy agrees to reduce prices in exchange for the plan's block of business. Employees present the card and typically pay a co-payment. In most plans, co-payment amounts depend on whether the drug is a generic or a brand name drug and/or whether the drug is preferred or non-preferred, also referred to as formulary or non-formulary.
  
  

• Mail Order

  Through bulk processing and purchasing, mail order prescription programs can save money for the plan and the patient. Mail order programs are suitable for maintenance drugs, typically used to treat chronic conditions. Mail order co-payments are often twice the retail co-payment, although the days of medication supplied is typically three times that of retail.
  
  

• Generic Equivalents

  A generic drug has the identical chemical composition, and is therapeutically equivalent, to its brand name counterpart, and must meet the same government standards. Generic substitutions become available when the patent on a brand name drug expires and generics are almost always less expensive than brand names. In an attempt to encourage the use of generic medications, health plan designers usually propose an increase in the price difference between generic and brand name co-payments. Some plans have found that equal or greater savings can be achieved by increasing only the brand name co-payment, and even decreasing the generic co-payment. From AFSCME's perspective, the "gap" between the generic and brand name co-payments should be sufficient to encourage patients to use generic drugs and this is best accomplished by keeping the generic co-payment relatively low.
  
  

The above are reasonable cost containment methods provided that safeguards are built in to ensure, for example, that an adequate number of pharmacies participate in the drug card plan, that mail orders are filled on a timely basis, and that co-payments are not excessive. Newer approaches to controlling prescription drug costs can also be reasonable and effective, but are more controversial.

• Formularies

  Formularies, also referred to as preferred drugs, are lists of drugs that a plan will cover, or will cover for a lower co-payment. A formulary drug is therapeutically similar to another drug, but not necessarily equivalent in its chemistry. Formulary drugs are often referred to as therapeutic substitutions. Ideally, therapeutic substitutions are substantially equal in effectiveness to their counterpart drugs, but less expensive. Appropriate therapeutic substitutions can mean the difference between affordable and unaffordable medications. However, there may be situations in which substitution of the prescribed medication is inappropriate. Often, plans have a process by which the treating physician may provide patients with non-formulary drugs, when deemed medically necessary. In those situations, the formulary co-payment usually applies.
  
  
  While there are no established standards for the number of tiers in a formulary, most have three tiers of co-payments. Typically, the lowest co-payment applies to generics, the next highest co-payment applies to brand name drugs on the formulary list, and the highest co-payment applies to non-formulary brand name drugs. When generic substitutions are available and a non-formulary brand name is prescribed, plans may require members to pay the non-formulary co-payment plus the cost difference between the generic and brand name medication. A few plans have closed formularies under which non-formulary drugs are not covered at all. Closed formularies are most common in HMO settings.
  
  

• Step Therapy

  Under step therapy programs, following established therapeutic guidelines, a less expensive or generically available medication is prescribed first. If that medication is medically unsatisfactory, it is replaced with the more expensive medication. An example of step therapy might be an initial prescription for an older, generic, statin drug to reduce cholesterol (such as lovastatin) before a more costly name brand statin (such as Lipitor) is approved. Clearly, step therapy would not be appropriate in every situation but can be a reasonable cost containment measure in many cases.
  
  

• Over-the-Counter Drugs

  Recently, some of the most popular prescription drugs, such as Prilosec and Claritin, have been made available on an over-the-counter (OTC) basis. This development coincided with the availability of generic competition for the name brand drug. Prior to offering these "blockbuster" drugs on an OTC basis, the manufacturers began marketing next generation "improvements": Nexium for Prilosec and Clarinex for Claritin. The allegedly improved drug was initially priced slightly below the first generation drug to promote utilization and switching as part of the drug manufacturers' extensive marketing to both consumers and physicians
  
  
  Shortly after introduction of the newer drugs, the manufacturers successfully petitioned the FDA for OTC status for the older drugs as their patents expired and they became subject to generic drug competition. Because many patients were switched to the next generation drugs prior to patent expiration and OTC status, the generic versions of the older drug did not have the expected effect of reducing costs for health plans. Because most users of the older drug would not be insured for the drug once it was moved to OTC availability, patients and physicians had additional incentive to switch to the higher cost, newer generation drugs in order for the patient to receive insurance reimbursement and the physician to receive office visit revenue.
  
  
  To combat this profit driven bait and switch, a number of plans are considering covering some OTC drugs on their generic co-payment tier and moving the second generation drugs to non-preferred status or, alternatively, requiring the first generation drug be used first in a step therapy program. (Coverage of OTC has been permitted since September 2003 when the IRS issued ruling 2003-102. Under this ruling, OTC drugs are reimbursable under Flexible Spending Arrangements — FSAs — as well.) Because there is little evidence that the next generation of drugs, which are only slightly tweaked versions of their first generation counterparts, are any more effective than the first generation drugs, utilization of the first generation drugs may benefit both plan participants and plan finances.
  
  

• Medication Limitations

  Rather than not covering certain drugs, some plans limit quantities. In most plans, these limitations began when Viagra was introduced, but also may apply to medications that treat non-life threatening illnesses, such as migraine headaches.
  
  

• Prior Authorization

  Some plans require pharmacists to obtain approval from the Plan Administrator prior to dispensing certain brand name drugs for which there are less expensive therapeutically equivalent alternatives and/or drugs that have a high potential for misuse, such as dietary, pain, or growth hormone medications.
  
  

• Utilization Management

  Typically, utilization management is contracted out to a Pharmacy Benefit Manager. The PBM reviews data on individual prescriptions, either concurrently or retrospectively. Concurrent reviews focus on ensuring that the appropriate medication and dosage is dispensed, prior to the patient receiving the prescription. The goal is to identify potentially harmful interactions or side effects, over-prescribing, fraud or abuse and potential savings. If any of these situations surfaces, the PBM will contact the prescribing physician for resolution, possibly denying coverage if the plan's rules are not satisfied.
  
  
  Retrospective reviews occur after prescriptions have been filled. These reviews are used to identify doctors or pharmacies with inappropriate prescribing or dispensing patterns. The PBM contacts the providers to discuss the problems and to encourage change.
  
  

• Experimental Treatment

  Health plans often will not cover drugs or treatments that they consider experimental. Plans are increasingly refusing permission for patients to participate in clinical trials, even when the trials are of high quality and there is no conventional treatment that can improve or cure their conditions. This is of particular importance to cancer patients, where the treatment of choice is frequently a clinical trial. Ask about the plan's decision process on these types of treatments. The more narrow the list of exclusions the better.
  
  

Physician education and counter detailing

Pharmaceutical manufacturers spend billions of dollars each year to convince physicians to prescribe their medications. The salespersons, referred to as detailers, often influence physicians to prescribe unnecessary medications and expensive new brand name drugs, when less expensive medications are at least equally effective. Some plans and PBMs have developed "counter-detailing" programs to encourage appropriate drug usage. Counter-detailers visit physician offices and provide evidence-based information on appropriate prescribing of medications and information on generic equivalency. At least one plan has developed a generic drug sampling initiative. To encourage the use of lower cost generic equivalents, the program provides physicians with generic drug educational materials and access to free generic medication samples in four frequently prescribed expensive drug categories.

Pharmacy benefit managers (PBMs)

Pharmacy benefit managers (PBMs) manage prescription drug programs on behalf of plan sponsors. In addition to providing services such as formulary management and claims processing, PBMs negotiate discounts from retail pharmacies and often operate mail order pharmacies. PBMs may also operate disease management programs that attempt to control overall medical costs by encouraging those with chronic disease, such as diabetes, asthma, and cardiovascular disease, to monitor their conditions and use their drugs correctly.

Drug prices negotiated by PBMs are typically based on the listed "Average Wholesale Price" (AWP) or "Maximum Amount Charge" (MAC). AWP prices are arbitrarily set by the pharmaceutical manufacturers and do not necessarily represent true costs. It is impossible to know whether a charge of AWP less a specified percentage represents a fair price, since the real average wholesale price of the drug is not disclosed. PBMs also negotiate with drug manufacturers for rebates. The contract between the PBM and plan sponsor typically specifies the percent of discount off the AWP/MAC that the plan will be charged and the amount of rebate that will be passed to the plan sponsor. However, PBMs' price negotiations with drug manufacturers and pharmacies are not fully disclosed to the health plan sponsors. In other words, PBMs refuse to operate with transparency so plan sponsors do not know the true cost of the medications they are purchasing. PBMs have also been accused of inappropriately directing participating pharmacies to switch participants' prescription drugs to ones that increase costs to plan sponsors, in order to boost the PBM's profits.

These activities have led to lawsuits against PBMs, filed by AFSCME, consumer groups and states. These cases focus on the PBMs' business practices including whether PBMs owe plan participants a fiduciary duty. A fiduciary must act solely in the interests of plan members. Some plaintiffs in these lawsuits, including AFSCME, allege PBMs have violated their fiduciary duty by illegally retaining rebates, artificially inflating drug prices, and inappropriately switching drugs. PBMs argue that they do not have fiduciary obligations to the plans they manage. In some cases, PBMs agreed to a financial settlement, but admitted no wrongdoing.

Recently, plan sponsors have become more shrewd negotiators with PBMs. With limited success, plan sponsors have responded to the PBMs' business practices by demanding that their PBMs provide full disclosure of prices and pass through all discounts and rebates negotiated on drugs. However, the practice of "full disclosure" or transparency is not as effective as hoped. The complicated financial relationships between the PBMs, pharmacies and the drug manufacturers makes transparency very difficult to verify. Moreover, it is unclear if full transparency will actually save the plan any money as the PBM loses the financial incentive to be a "tough negotiator" with its suppliers (drug manufacturers) and dispensers (retail pharmacies). In addition, full pass through and transparency may shift the entire risk of increasing costs onto the plan as PBMs will no longer guarantee minimum savings..

For this reason, plan sponsors must take care to achieve both full transparency and pass through and meaningful incentives for the PBM to reduce and control costs. Transparency must also be accompanied by comprehensive audit rights and the plan sponsor should understand that this right must be carefully exercised.

Prescription drug importation

In the face of skyrocketing prescription drug costs, some governments have joined a growing contingent of advocacy groups and for-profit businesses looking across the border for cheaper drugs. In spite of warnings by the FDA and the pharmaceutical industry that obtaining medications from other countries is illegal and dangerous, at least a dozen cities and states have established programs that help residents and/or employees obtain medications from Canada. Studies performed by governments considering importation programs have found that Canada provides safety protections substantially equivalent to those in the U.S. Sponsoring governments provide further protections by channeling drug purchases through their PBM, using only certain Canadian pharmacies and/or testing imported medications themselves

Although health plans cannot import their own drugs, individuals can import drugs because the FDA's policy is to generally not enforce its importation ban against individuals. Although Congress has passed laws authorizing drug importation if approved by the FDA, the FDA has denied all state requests to establish pilot importation programs and they have indicated that they have no intention of approving future requests. Even so, the agency has done little to stop governments that have established programs. Vermont recently sued the FDA over its refusal to authorize a state drug importation program, and other states may follow suit. Current legislative efforts seek to eliminate the FDA approval requirement.

Following are some examples of public sector health plans that have established, or are seeking to establish in 2004, drug importation programs by making use of FDA's non-enforcement policy for personal use:

• Springfield, Massachusetts

  In July 2003 Springfield became the first city in the nation to launch an importation program. In one year's time, 3,200 city workers and retirees used the program, saving Springfield $2.5 million in the process. These savings resulted in spite of the fact that the city waives the co-payment and shipping charges for imported medicine.
  
  

• Minnesota

  The largest government-sponsored program is in Minnesota where the governor created an information web site for the public and a separate program for state employees. Like Springfield, the Minnesota program waives all costs for employees that use the program.
  
  

• Illinois

  Illinois recently announced an importation program that will help residents purchase medications from Canada, the United Kingdom and Ireland by directing them to specific on-line pharmacies in those countries. The program will be the first in the U.S. that includes medications from Europe, which has been made necessary partially by the drug industry's increasingly successful efforts to limit supplies to Canadian pharmacies that sell to American residents. In the future, Illinois plans to waive co-payments for state employees and retirees who purchase medications through the program.
  
  

In reaction to these programs, Pfizer and other companies are now reducing supplies to foreign pharmacists that serve U.S. customers. To fight back, federal legislation was introduced in 2004 to penalize drug firms that reduce supplies abroad, and more than 40 state bills promoting drug importation were also proposed.

Prescription drug purchasing coalitions

Some states have created prescription drug purchasing coalitions and many others are considering this option. One coalition, that purchases on behalf of public employees is the "RX Issuing States" (RXIS), lead by West Virginia. RXIS currently covers public employees in four states - Maryland, Missouri, New Mexico and West Virginia. In 2003 RXIS selected the PBM Express Scripts to purchase medications on behalf of 570,000 individuals with total annual costs of approximately $400 million. A central feature of the program is a similar preferred drug list for all four states. West Virginia estimates that it will save $25 million over a 3 year period, or at least 5 percent of the cost of their prior program. Other initiatives in the WV program include a generic co-payment waiver for certain antibiotics and a counter detailing program. RXIS has indicated that they are interested in gaining new members from other states and large local governments. Other state coalitions purchase medications for public programs, such as Medicaid (which requires a federal waiver), and for prison inmates.

Policy proposals for controlling Rx costs

In addition to strategies currently available at the health plan design level to control drug costs, policy proposals that involve larger systemic changes are under consideration at the state and federal levels. Such proposals require new legislation or regulations, legal action, a change in administrative policy, or the creation of new pooling mechanisms. Most are beyond the scope of the bargaining table but are important to long-term efforts to control drug costs and quality. Most key policy proposals include some form of government intervention.

Every modern nation except the U.S. has national and local oversight structures in place to regulate prescription drug pricing and costs. The U.S. does not need to enact universal health care to do the same, despite drug industry claims. Reform proposals have often focused first on mandating or accessing lower prices. The lowest U.S. prices available are federal prices, beginning with the Department of Veterans Affairs (VA) price, and followed by the Federal Ceiling Price, 340B price, Federal Supply Schedule (FSS) and the Medicaid price. The VA price is about 33% lower than the FSS, and is similar to brand name drug prices in Canada, which often range from 20 to 80 percent cheaper than the U.S. More recently, there has been a growing emphasis on the need to also create public oversight structures to regulate and publicize drug pricing, utilization, effectiveness and marketing.

The range of proposals to regulate drug prices continues to expand. In 2004, more than 320 state-level bills were filed on prescription drugs to expand discounts and access for residents, increase disclosure of costs and marketing, and/or focus on containing costs. Many target Medicaid. Congress has made similar attempts to lower prices, but has failed to introduce stronger bills that would require, for example, that the VA's negotiated price be offered to Medicare beneficiaries through pharmacies. In fact, the Medicare drug bill enacted in 2003 prohibits the federal government from directly negotiating drug prices with the manufacturers.

• Medicaid

  Medicaid drug spending is the first concern of states as drug costs have grown at twice the rate of overall Medicaid spending, pressuring state and local budgets. State proposals often focus on Medicaid pricing and utilization with the goal of reining in drug costs. In a 2003 survey by the HHS Inspector General, 39 states reported that they were using prior authorization programs, preferred drug lists, establishing generic substitution requirements, and requiring cost sharing by Medicaid beneficiaries. By law, all states receive industry rebates for each Medicaid drug sold. Now many states are also mandating that drug firms supplement these rebates in order to have their drugs on the program's preferred drug list.
  
  

• Uninsured

  States like California have also passed laws to extend Medicaid's price to retirees without drug coverage but not eligible for Medicaid. Maine extends both the Medicaid price and drug industry Medicaid rebate to the uninsured through a federal waiver, preventing illnesses from becoming more acute and reducing uncompensated care costs.
  
  

• Transparency in PBM pricing

  As mentioned earlier, states are filing legislation and lawsuits to ensure that drug industry discounts are actually passed on from PBMs, as well as from pharmacies and other third parties. In Maine, a leader on drug pricing issues, a law passed in 2003 (P.L. Ch. 456) requires that PBMs be designated as fiduciaries, disclose pricing information, and pass their discounts to consumers. It instituted monetary penalties for noncompliance. As of the summer of 2004, the law was set aside by the federal courts.
  
  

Studies show a direct link between heavily advertised drugs and a substantial increase in sales. Advertising also adds to the bottom-line price of drugs. In 2001, drug companies spent about $19 billion promoting their drugs, of which 86% went to physicians in the form of detailing and samples for consumers. In addition, the industry spent 30 times more on TV commercials in 2001 than in 1995. These expenditures are all above and beyond the hundreds of millions spent by the drug industry on political contributions and on direct and indirect lobbying of state and federal lawmakers.

Addressing these marketing excesses has been an uphill battle, pushing states to turn to publicizing information as the first step towards more regulation. As of 2004, Vermont had passed the nation's only law to require disclosure of gifts to doctors, hospitals, universities and other prescribing entities from pharmaceutical companies (2001 law, 33 V.S.A. section 2005). In 2004, the Vermont attorney general reported that 44 drug companies had spent $2.47 million in Vermont alone to market their drugs, including fees, travel expenses and other payments. This figure did not even include advertising costs or the salaries of Vermont drug sales forces.

Another marketing strategy deserving of scrutiny is off-label marketing. Off-label prescribing occurs when a physicians prescribes a drug to treat a condition for which it has not been apporoved by the FDA. Drug companies are barred from marketing the drug for off-label use, but they can "educate" providers. While off-label prescribing can be beneficial, it also allows abuses that cause costs to skyrocket. The practice is under scrutiny since Pfizer pled guilty in 2004 to allowing sales teams to incentivize doctors to prescribe its lucrative drug Neurontin off-label.

Drug manufacturers are given about two decades of monopoly patent protection for their brand-name drugs, preventing the use of generic drugs that save consumers and hospitals billions of dollars each year. The drug industry uses legal maneuvers to stretch this time period, and recent Congressional proposals have attempted to curb these practices.

Patent reform efforts include legislation to amend patent law, the Hatch-Waxman Act, to limit the extensions filed automatically or for firms that agree to test a drug on children, called "pediatric exclusivity". Other proposals allow generic firms to challenge patents more quickly, or prevent brand drug manufacturers from colluding with generics to stall competition. Funding for regulators to review new drugs is also inadequate. Institutions such as the World Trade Organization are an additional obstacle in patent reform and have set international standards outside the public eye. Thus far, little headway has been made to reform the patent system.

Legislative and federal "waiver" efforts to allow states to collectively purchase prescription drugs have been pursued by lawmakers and private entities over the past 5 years, especially for Medicaid, kicked off by a 1999 Massachussets' plan to enact a statewide drug buying intiative. Still, as of July 2004, there were only two multi-state bulk-buying pools in effect in the U.S., including the "RX Issuing States" (RXIS) project covering public employees in four states, and the first multi-state Medicaid drug purchasing coalition, established in April of 2004. The Medicaid pool allows Michigan, Vermont, New Hampshire, Alaska and Nevada to collectively purchase medications for 900,000 people, projected to save about $12 million in 2004. Hawaii, Minnesota and Montana have pending applications to join the pool.

States are making headway with legislation to establish "evidence-based" review committees, which can be the basis for stronger oversight and government regulation. Information is an important tool for policymakers trying to control costs and establish approved drug lists. For states and plans that reward companies that agree to lower prices and give supplemental rebates for Medicaid, using evidence to purchase or approve a prescription drug is needed to protect patients and be most cost-effective. In 2003, the Oregon Legislature took a major step and passed legislation mandating a permanent commission to research and report on the comparative effectiveness of medications and prices, such as how the patented drug Celebrex compares to over-the-counter Tylenol. Evidence-based review can also monitor other issues, such as the trend of states allowing non-physicians to write prescriptions.

Evidence based review and therapeutic effectiveness studies can provide valuable assistance to plan designers in their efforts to develop cost-effective and high quality formularies. At the national level, evidence-based review has taken a jump forward. For 2004, Congress allocated $50 million to the U.S. Department of Health and Human Services' Agency for Health Care Research and Quality (AHRQ) to create the first national clearinghouse for evidence-based data on the effectiveness and appropriateness of prescription drug and health care therapies. While AHRQ cannot set national standards, employers and health plans will soon be able to use official data, rather than backroom deals, to design their drug plans. More public dollars should be directed towards this kind of process at the local and national levels.

The pursuit of long-term legal remedies for corporate wrongdoing has intensified over the past several years, and labor has been an important partner. Court cases can result in direct savings for states, workers, and health funds. Successful lawsuits have been filed against PBMs by states, health plans and patients charging that they fail to pass on discounts, hide information, and abuse Medicaid. Other suits focus on drug industry business practices. There have been successes. A 2004 settlement between 20 state attorneys general and Medco (a PBM) distributed $20.2 million to states. Pfizer pled guilty in 2004 to illegally marketing the drug Neurontin for unapproved uses and boosting its profits by $2.7 million. A 2004 anti-trust suit filed by AFSCME was settled with the maker of Augmentin.

The controversial, $534 billion Medicare Prescription Drug, Improvement and Modernization Act of 2003 or "MMA" (P.L. 108-173) began providing a meager drug discount program in 2004 to a small segment of uninsured Medicare beneficiaries. It also created a new drug benefit in Medicare for 2006. However, among the many criticisms of the law, it threatens to intensify the squeeze on workers and employers currently providing coverage for active employees and retirees. The MMA gives inadequate subsidies to encourage employers to continue their retiree drug plans, and allows employers to receive a subsidy even if they reduce coverage. It prohibits Medicare from bargaining for better drug prices, enriching the drug industry and giving them a green light to raise prices elsewhere. Many bills to "repeal and replace" the MMA have been introduced in Congress.

Legislation that includes incentives for employers to offer voluntary workplace disease management (DM) and care management programs is a growing area of interest. Such programs can produce significant savings, yet experience is limited and the reviews are mixed. Prescription drug records are often used to identify plan members with specific illnesses or conditions by plans or even by the drug companies. Individuals are given tools and education to control, improve, alleviate or prevent illness. DM is often focused on high cost or risky areas such as heart failure, asthma, and diabetes. Obesity care and smoking cessation are part of these efforts. Yet some plans prefer other strategies like "intensive case management" to reach more people, like Regence Blue Cross in Seattle. In 2004, Florida ended its 2001 DM contract with Pfizer due to disappointing savings. Yet conversely, California PacifiCare reported savings in 2004 of $114 million in 12 months with its DM heart program. Medicare itself instituted several new DM programs in 2004, including heart care management.

Summary

Prescription drugs are playing an increasingly important role in health care. Over the past decade, advancements in drug therapies have created substantial improvements in quality of life and have provided hope for many who suffer from chronic conditions and dread diseases. Drug therapies, when used properly, have also played a role in holding down medical costs as wellness is promoted and more expensive procedures and hospitalizations are avoided. Unfortunately, the news has not been all good. Abuses by the pharmaceutical industry including both the manufacturers and the PBMs, has led to inappropriate utilization and avoidable escalating costs. Physicians, who get most of their information on medications from the drug companies themselves, have proved to be unreliable guardians of the system. For this reason, intervention at both the policy and health plan design level is essential to restore affordability to prescription drug programs.

For more information about prescription drugs, health care benefits, and health care policy issues, contact the Department of Research and Collective Bargaining Services at 202/429-1215 or by e-mail at research @ afscme.org.

September 2004.
 

Print Version Email This Page

What's This?