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August 2005
Large Employers Push for Pricing Transparency
from PBMs
Fifty two large employers, who together spend $3.7 billion annually on prescription
drugs have joined forces to change the purchasing model used by most of the nation's
pharmacy benefit managers (PBMs). Prompted by concerns that PBMs do not always act in
their best interests, the proposed model would require PBMs to disclose to clients their
actual acquisition costs as well as any manufacturer rebates for retail and mail-order
prescriptions, and to pass those discounts on appropriately.
At present, PBMs use their large purchasing volumes to negotiate better prices, relative
to what individual clients could obtain, from manufacturers and retail pharmacies. But
employers are concerned that, because of financial incentives provided by manufacturers
to the PBMs to steer particular drugs to the market, PBMs do not always provide the best
rate possible to the client. Concerns are especially great in regards to mail-order and
generic prescriptions, for which mark-ups are steepest. PBMs have been particularly
reluctant to provide full details on pricing in these areas.
The employer coalition, organized by the HR Policy Association, issued an RFP earlier
this year explaining the model and transparency criteria. Out of more than 20 PBMs
responding, only 3 agreed to meet all criteria: Aetna Pharmacy Management, Walgreens
Health Initiatives and MedImpact Healthcare System, Inc. The coalition members expect
to save approximately 9% by contracting with one of these three PBMs, and plan to open
the bidding annually in hopes that more PBMs will comply. A similar initiative launched
last year, originally by 5 employers but now involving 50, imposed less stringent
transparency requirements, particularly for mail-order and generics. Those 50 companies
are saving an estimated $70 million annually in drug costs.
Source: The Wall Street Journal, August 10, 2005
USA Today Profiles Corporate Wellness Initiative
At American Cast Iron Pipe Company (ACIPCO) in Birmingham, AL, a blacksmith teaches aerobics classes and a painter was named "Mr. Extreme Makeover" after losing 18 pounds, 8% of body fat and his dependence on insulin. Employees and their families use onsite medical, dental and physical therapy clinics and pharmacies, and the company is among the 5% of workplaces nationwide with an onsite gym. The profile of ACIPCO in a recent USA Today article provides an example of what is possible in regards to creating a corporate culture of wellness and also details some of the costs and savings associated with such an achievement.
ACIPCO pays 100% of health premiums; employees pay $10 for an onsite office visit and
25% of the cost of prescriptions. If they visit a community doctor they pay a
percentage of the cost. Financial incentives for participation in wellness programs
include annual bonuses of $10 to $200, depending on which of 4 health levels (based on
blood pressure, weight, cholesterol, exercise and tobacco use) they achieve. Seventy
percent of workers participate in wellness programs with, at a minimum, an annual health
risk screening. The costs of the onsite gym and wellness-related bonuses are $266 per
employee per year.
In return for this investment, ACIPCO's wellness coordinator Rebecca Kelly reports that
employees in the top health level cost 20% less than those in the bottom level and that
physical therapy costs have been cut in half after being brought in-house. Health
insurance premiums this year are expected to be $3,450 for single employees (compared to
a regional average of $3,479) and $8,940 for families (compared to $9,621 regionally).
With an investment of $600,000 per year on wellness the company estimates it saves $1.2
million in productivity and health costs which, it says, has allowed to continue paying
100% of premiums for their employees. And, as Kelly adds, "...these programs have
enhanced individual quality of life at our organization, which means a lot. It really
is worth it."
Source: USA Today, August 10, 2005
Consumer Worries May Drive Overspending...
Fear that health insurance won't protect them from financial hardship and uncertainty
about navigating the health system to get appropriate care when needed drive employees
to spend more than they need to for coverage. To manage health costs, then, employers
should focus on educating employees about health plan alternatives and about how to
identify and obtain high quality care.
These conclusions come from a recent Towers Perrin survey of 1,400 employees in midsize
and large U.S. companies, part of a multiyear effort to explore behaviors in health
decision making. The current survey included a technique commonly used in marketing and
product research that aims to identify the "level and nature of emotions that drive
consumer decision making."
Towers investigators note that in the face of such worries and insecurities, employees
reason that more money will buy greater value; that is, that more care is better care
and higher priced providers are better providers. Understanding and addressing these
employee concerns, by highlighting how coverage options can meet their needs and by
creating dialogue about the value of managing one's health risks and treatment choices
over time, would be expected to mitigate the tendency to overspend in an attempt to buy
quality.
Source: Towers Perrin Press Release, June 14, 2005
But Concerns About Health Expenses May Be Justified
Consumer fears of inadequate protection from overwhelming health care expenses appear to
be well founded, according to a Commonwealth Fund study just released. In a new
analysis of their 2003 Health Insurance Survey, Commonwealth reports that 37% of working
age adults reported that they had difficulty or were unable to pay medical bills, had
been contacted by a collection agency regarding medical bills, had to change their life
significantly in order to pay medical bills and/or had accrued medical debt.
Although a greater percentage of low-income (200% of poverty or less) workers reported
medical bill problems, as many as 23% of higher-income workers reported such problems.
Lapses in insurance coverage do not appear to explain the phenomenon, with 35% of those
continuously insured still reporting some problem with medical bills and/or debt.
Looked at another way, nearly 70% of those reporting medical debt said they were insured
at the time the expense was incurred.
Not surprisingly, medical bill and debt problems are strongly linked to less-
comprehensive coverage. About half of adults who have annual deductibles of $500 or
more report medical burdens and debt, compared to just under one-third of those with
deductibles of less than $500. The percentages were nearly the same for those with and
without prescription coverage: 48% of those without a drug benefit reported bill and
debt problems compared to 33% of those with drug coverage.
Source: The Commonwealth Fund, Issue Brief, August 2005
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