Consumer Behavior Can Reduce Pharmacy Benefit Costs
by Henry R. Loubet

As the economy falters, medical plan sponsors face mounting pressure to reduce healthcare expenses. Increasingly, they are recognizing the critical role that consumers play in keeping costs down. Many healthcare organizations are working with pharmacy benefit management (PBM) companies to improve communication to help them make consumers more conscientious and economical prescription choices.

The theory is that patients who are more involved in their healthcare decisions and the associated costs will be more prudent in their spending.

But if they only have partial information, consumers cannot make the most cost-effective decisions, particularly about prescription drugs. Extensive direct-to-consumer advertising by the pharmaceutical industry often drives consumers to request prescriptions for branded drugs when the generic would treat their medical condition just as effectively. This brand-focused mindset contributes to the rising cost of prescription drug coverage. The trend is fueled by incomplete information about lower-cost options, such as generic drugs or mail-order prescriptions.

To help change behavior and educate patients, certain leading PBMs are embracing strategies that consumer product companies have developed over the past century, such as tailored messaging, multi-channel communication, and financial incentives.
These strategies have proven to help people make better decisions. For example, a study by Express Scripts revealed that patients on Lipitor were more likely to switch to the generic Zocor after receiving tailored messages when the statin went off patent in the summer 2006. The well-timed and carefully directed messages resulted in a 12% higher rate than normal switch to generics. With the switch to generic statins, plan sponsors and patients saved $230 million.

Involved consumers are more likely to improve their adherence to drug therapies and be more satisfied with their prescription coverage. The bottom line is that telling a compelling story through the right avenue can persuade patients to make sound choices about their medications.

Focusing on Total Net Cost

To maximize cost-saving opportunities, plan sponsors need to reconsider how they choose a PBM partner. In the past, plan sponsors focused largely on price-related assessments, such as the PBM’s percentage discount the average wholesale price of each wholesale drug, rebates that the PBM offers, and the administrative fees it charges. These are important measures, but they only give plan sponsors a narrow view of the costs. The price sheet has become a far less effective measure of cost as more brand drugs have lost patent protection. What a price sheet says in January may be very different from the final bill the following December.

The total net cost is the true long-term price of pre-scrip-tion drug benefits, which account for nearly 20% of annual health-care spending. Plan sponsors who choose their PBM based on total net cost are better positioned to control prescription expenses.
By focusing on total net cost, PBMs can analyze member data, anticipate future costs, and help change patients’ behavior throughout the plan year. This is a more effective approach than reacting to non-compliance or repeated high-cost brand drug utilization at the end of the year. Plan sponsors are better equipped to control the cost of drug benefits by leveraging this information as the plan year progresses.

Defining the Mix

Top PBMs focus on major factors that contribute to the total net cost including drug mix and channel mix. Simply put, drug mix is the percentage of generic versus branded drugs in a plan’s formulary. Channel mix is the percentage of retail versus mail prescriptions. These factors can be influenced by individual patients.

The ability to move consumers to generics is crucial to keeping the pharmacy benefit affordable. To encourage patients to switch to generics, innovative PBMs are using timely information, such as news of impending generic releases, combined with more traditional financial incentives, such as three-tiered benefit designs Clinically appropriate generic substitutions offer enormous cost savings for patients and employers. A generic drug usually costs 60% less than its brand name counterpart. The consumer sees significant cost-savings in co-payments, co-insurance, and deductibles. Generally, a 1% increase in generic fill rate equals at least a 1.5% decrease in a plan’s overall annual drug spending. Savings will continue over the next five years. More than 20 brand name drugs with more than $60 billion in combined annual sales will go off patent from 2008 to 2012. 

Home Delivery

Fewer plan sponsors immediately recognize the cost-saving potential and growing popularity of home-delivery pharmacy options. A prescription from a mail-service pharmacy costs about 10% less than the same prescription from a retail outlet, according to an analysis by the Lewin Group. Mail-order drug delivery is projected to save consumers, Medicare, and private health insurance plans $85 billion over 10 years.

Home delivery has become the fastest-growing sales channel for prescription drugs. According to IMS Health, mail service nearly doubled between 2002 and 2006, from $24.8 to $42.2 billion. This number will only continue to grow as more and more people become comfortable getting their prescriptions through the mail.

Influencing Change

Americans are spending $275 billion a year on prescription medicines. So consumers play a vital role when it comes to implementing any changes in the pharmacy benefit.
As a key resource to employers and their benefit advisors, the leading PBMs continue to encourage consumers to become more involved in their healthcare decisions. By delivering tailored messages that contain clear cost information and language, PBMs help patients change their behavior and realize the long-term impact of their decisions.
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Henry Loubet is senior vice president and chief strategy officer for Keenan & Associates, a consulting and brokerage firm based in Torrance, CA. For more information on innovative pharmacy strategies, email kppc@keenan.com.