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There are perhaps as many strategies for treating escalating prescription drug costs as new medications entering the marketplace.

In spite of those efforts, prescription drugs are likely to remain one of the costliest components of group health plans, as doctors implement more aggressive drug therapies and workers get older.

Exactly how much are drug costs going up?

Well, "the trend for 1998 was 12% to 15% over 1997, and in 1999 we're projecting drug costs to increase 20% over 1998," said Rich Sinni, health care practice leader for Watson Wyatt Worldwide in New York.

One reason for the increase is the introduction of many new -- and often more expensive -- drugs. Reforms at the Food and Drug Administration have expedited the government approval process, so that while perhaps fewer than 20 new drugs were introduced in 1993, 62 new drugs were launched in 1997, and 120 entries are expected this year, according to Mr. Sinni.

The fact that drug manufacturers have begun directing their marketing campaigns at patients rather than physicians also is expected to heighten demand.

"Patients for years have gone to their doctors after talking with their neighbors about their drug therapy. Direct-to-consumer advertising just really expands the chitchat. So doctors are hearing a lot more requests for drugs by name," observed Bridget Eber, a pharmacist and prescription benefit practice leader for consultant Hewitt Associates L.L.C. in Lincolnshire, Ill.

Add to these developments the undeniable fact that the overall U.S. working population is aging and that the older people get, the more likely they are to need medication, and employers have a real cost-containment challenge on their hands, pharmacy benefit experts say.

Indeed, the medical treatment standards for many diseases are more aggressive today than in the past, observed John Voris, executive vp of PCS Health Systems, a PBM based in Phoenix.

For example, when the American Diabetes Assn. lowered the blood glucose level threshold for diabetes last year, "that's about 2 million people they added just to be treated for diabetes rather than just controlling it through diet and exercise," he said.

Likewise, the American Heart Assn. has proposed lowering the cholesterol level treatment threshold to 200 from 240. "That could increase the number of people eligible (to be prescribed medication) from 38 million to 97 million people," Mr. Voris estimated.

If doctors adopt these more aggressive medical standards, "there's more potential to spend more on pharmaceuticals than there would have been in years past," he said.

So what can employers providing prescription drug coverage do to keep these costs in check?

According to consultants, the most popular strategies are:

* Instituting multitiered copayments that encourage the use of generics and less expensive brand name drugs.

* Offering mail-order programs for maintenance drugs, which would mean lower prescription costs because the drugs are purchased in bulk.

* Requiring utilization review for certain high cost drugs.

* Excluding or limiting coverage for so-called "lifestyle drugs," such as the anti-impotence drug Viagra and the anti-baldness medication Rogaine.

While some strategies, such as the multitiered copayment strategy, are not really new, they're getting a second look because of drug cost inflation, said Hewitt's Ms. Eber. Employers are "starting to think about why their current copayment structure is the way it is," she said, especially when employees are paying the same copayment for expensive brand name drugs as for less expensive generic drugs.

"A lot of people are starting to examine this, because it still maintains physician and patient choice and yet it puts a little bit of the burden of the expense back onto the member or the employee," said PCS' Mr. Voris. The tiered approach is much like the point-of-service plan, which provides higher benefits for using in-network providers than for out-of-network providers, he explained.

The most common tiered approach is a $5 copayment for generics, a $10 copayment for formulary brand name drugs and a $25 copayment for non-formulary brand name drugs, according to David D. Halbert, chief executive officer of Advance Paradigm Inc., a PBM in Irving, Texas.

A recent William M. Mercer Inc. survey of employers using PBMs found that retail copayments averaged $5 for generic drugs and $10 for brand name drugs, while copayments for mail-order prescriptions were somewhat higher, averaging about $6 for generics and $13 for brand name drugs (see chart on next page).

But many consultants and PBMs recommended there be at least a $10 differential between copayments for each of the three tiers -- generic drugs, brand name formulary drugs, and brand name drugs not on the formulary -- to provide a real deterrent from using the more expensive drugs.

"You need a $10 differential to really influence physician and consumer behavior," observed Mr. Voris.

In some cases, employers are implementing co-insurance provisions, such as covering a fixed percentage of a drug's cost. This way any inflationary increases are shared equally by the employer and employee, explained Andrea O'Boyle, an employee benefits consultant with Buck Consultants Inc. in New York. It also gives employees a better idea of the drug's real cost, she added.

While a multitiered approach may work for influencing retail prescription drug purchases, a flat copayment structure still is recommended for mail order purchases, according to Ms. O'Boyle.

That's because these prescription medications are purchased and filled in bulk and cost a lot less. "Employers can save money with mail order because the discounts are higher," Ms. O'Boyle said.

Indeed, "there are more clients asking about mail order," said Hewitt's Ms. Eber. "And occasionally we see clients consider mandatory mail order provisions for maintenance drugs."

Some employers, particularly those that self-insure, are restricting coverage for certain expensive drugs that usually are approved for restricted use by the FDA, according to Ms. Eber. "These are drugs that are usually included on formularies but can be abused if they're not given for their intended use," she said. For example, growth hormones prescribed for children often are sought by athletes wanting to build muscle.

In other cases, if certain "lifestyle drugs" such as Viagra or Rogaine are included on formularies, employers are either seeking limits on what quantity of a drug they will cover or are choosing not to cover them at all, according to Ms. O'Boyle. "This is likely to occur more with the increased direct-to-consumer advertising of these drugs," she said.

"All of these lifestyle drugs are adding tremendously to drug plan costs," pointed out Watson Wyatt Worldwide's Mr. Sinni.

For the most part, employers are not involved in selecting the drugs included on PBM formularies, pharmacy benefit experts say. But some of them are beginning to question why certain drugs are included or excluded.

"Employers want to know what the formularies are and may want certain drugs included, but for the most part, they're leaving the formularies up to the health plans," said Mr. Sinni.

"We have 20 clients with their own P&T (pharmacy and therapeutics) committees, but they're mostly health plans," said Advance Paradigm's Mr. Halbert. This year marked the first time an employer client set up such a committee, he said.

Besides implementing these cost-containment strategies, employers also are beginning to audit PBMs to evaluate their performance and implement guarantees, according to Mr. Sinni. "They're putting their PBMs' feet to the fire just as they did with health plans," he said. "While perhaps 15% of employers did this five years ago, now 35% to 40% are doing it today."

As part of performance guarantee negotiations, some employers are asking to share in the volume rebates prescription benefit managers receive from drug makers, according to Buck's Ms. O'Boyle.

Major-brand pharmaceutical companies pay an estimated $2 billion in "incentive payments," or rebates, annually to the PBM industry, according to an article in the April 1997 issue of Pharmaceutical Executive.

Employers and health plans also are pressing PBMs to provide data on prescription drug use, according to Hewitt's Ms. Eber. "What I see are written performance guarantees that PBMs make drug utilization data available to health plans to use at the health plans' discretion," she said. She explained that health maintenance organizations in particular want the data to see what their providers are prescribing.

As a result of this pressure to keep drug costs in check, the PBMs themselves are instituting cost containment measures internally as well, according to Advance Paradigm's Mr. Halbert. For example, "we profile physicians and pharmacists every quarter, comparing their prescribing habits with formularies and the practice of their peers," he said.

In addition, the computer system accessed by the 52,000 pharmacies online with Advance Paradigm automatically alerts pharmacists about generic substitutions, as well as possible drug interactions and allergic conditions that could add to medical treatment costs, Mr. Halbert explained.

"We have a complete arsenal of cost-effectiveness programs," said Jeffrey Jones, executive vp and chief operating officer of Brookfield, Wis.-based PBM ProVantage Inc.

Perhaps the most innovative program is the use of computer algorithms to identify potential savings in pharmaceutical spending. For example, "many patients are on drugs longer than they should be, or a patient may be taking redundant drugs prescribed by two different physicians," Mr. Jones explained.

In some cases, "we can predict that certain drug combinations will increase the risk of a patient going to a hospital," he added. Based on data derived from its own database as well as that ProVantage obtained through the recent acquisition of Arlington, Va.-based PharMark Inc., "between 7% and 10% of hospital stays are drug-induced," he said.

PharMark designs, develops and licenses software products, providing access to a proprietary database containing more than 75 million patient years of U.S. and international health care encounter data.