Drug Co-Pays Hit $100 To Curb Rising Costs, Companies Try Range of Tactics to Push Employees to Cheaper Medicines

By BARBARA MARTINEZ
Staff Reporter of THE WALL STREET JOURNAL

June 28, 2005

CARROTS AND STICKS

How health plans are encouraging the use of cheaper drugs: . Raising co-payments.

• Using co-insurance, where patients pay a percentage of cost, rather than a flat amount.
• Requiring doctors to get permission before prescribing an expensive drug.
• Refusing to pay for a costly drug until a less-expensive medicine is tried first.
• Cutting co-pays for generics.
• Offering discount coupons for over-the-counter medicines.

Get ready for the $100 co-pay. That is how much state workers in Georgia will soon pay for certain brand-name drugs, in what may be the highest drug co-payment anywhere in the country.

It is the starkest demonstration yet of employers' aggressive efforts to rein in the rising cost of prescription-drug benefits by driving employees to lower-cost medicines. Employer drug costs rose 83.4% over the past five years, an average of 16.7% each year, according to Mercer Human Resource Consulting, New York. And some estimates predict these costs will continue to rise at an 11% to 12% annual pace over the next several years.

As a result, consumers are seeing a variety of changes in their prescription-drug benefits. The most popular is tinkering with co-pays -- a set portion of the pharmacy bill that patients pay out of their own pockets -- to give patients a financial stake in what drugs they and their doctors choose. Just a few years ago, co-pays were rarely higher than $30, and most were much lower. Now, raising co-pays is a commonly used stick to discourage high-cost drug use. There also is a new carrot: making generic drugs free to patients by eliminating the co-pays altogether. Some plans divide drugs into two and three tiers, with less-expensive drugs requiring lower co-pays.

Also gaining steam is the use of "co-insurance," whereby the patient pays a percentage of the pharmacy bill rather than a flat amount. A few are experimenting with something called reference pricing, where patients typically pay extra if a prescription price exceeds a set "reference" level for the drug's category. And increasingly, plans are refusing to pay for a costly medicine unless patients first try less expensive alternatives or the doctors gets prior authorization from the health plan.

Many doctors have expressed frustration with such efforts, saying that less expensive alternatives aren't always the right choice medically, and they find patient are sometimes forced to pay for drugs out of pocket because the ones insurance will pay for just aren't effective.

Employers and health plans say they have little choice but to find ways to reduce their ever-rising outlays for prescription drugs. "We had a projected deficit of $466 million in the state health-benefit plan for fiscal year 2006," says Julie Kerlin, spokeswoman for the Georgia state plan, which covers 640,000 workers, retirees and dependents in Georgia. In fiscal year 2005, the state spent $405 million on prescription drugs, up from $338 million in 2003.

Like many employers, Georgia segments prescription drugs into tiers -- generics with $10 co-pays, less expensive branded drugs with $30 co-pays, and pricier branded drugs with the new $100 co-pay -- to encourage employees to choose lower-cost alternatives. The third-tier co-pay is so high that in some cases it will exceed the retail cost of the medicine at many drugstores. For instance, antidepressant Zoloft and blood-pressure medication Altace are listed on the Georgia plan's highest co-pay tier, but at online retailer drugstore.com, a 30-day supply of each medication is less than $85. The Georgia spokeswoman said that if the co-pay exceeds the drug's costs, employees pay only the cost.

Co-pays have been rising steadily in recent years. According to Hewitt Associates, consultants to employers, nearly 40% of employers had co-pays of more than $30 this year, up from fewer than 10% 2001.

"Many employers have increased co-pays to the point where it actually equates to employees paying about 35% of the cost of drugs," says Debbie Martin, a consultant to major employers at Mercer. "That's about as high as they can go" and still have a competitive benefit that will attract employees.

Some plans have axed co-payments altogether on generic drugs used to treat certain chronic conditions, such as diabetes or asthma. One reason is that regular use of medicines to control chronic conditions keeps patients from having more serious and costly health issues down the road. Ms. Martin estimates that about 5% of plans have adopted such a practice recently and many more are thinking about it.

Some plans also are looking ahead for ways to take advantage of drug-industry cycles, such as when a drug is about to lose its patent protection, allowing for less expensive generic versions.

WellPoint Inc. of Indianapolis, which provides medical benefits to 28 million people, is encouraging use of the anticholesterol drug Zocor now -- a full year before it loses patent protection. Late last year, WellPoint put Merck & Co.'s Zocor on its second tier, which has a lower co-pay than the third tier it was on previously. The company is sending out letters to doctors to "reacquaint" them with the clinical studies about Zocor, and to patients to tell them that when Zocor goes generic next year, they can get a four-month supply for zero co-pays. Once patients are on Zocor, they can be easily switched to a generic when it becomes available. "There's no greater cost saving event in this decade than generic Zocor," says Robert C. Seidman, WellPoint's chief pharmacy officer.

Another increasingly popular approach to making patients more aware of drug costs has been to require "co-insurance," where a patient would pay 10% or 20%, even 50% of a drug's cost rather than a flat co-pay.

"We really want to impart to our employees that drugs cost a lot of money and you have to be aware of what you're taking and ask a lot of questions," said Nancy Tostanoski, senior vice president of global compensation and benefits at Starwood Hotels & Resorts Worldwide Inc. of White Plains, N.Y., which did away with flat co-pays for its employees in 2004. For most generic drugs, the co-insurance now is 25% and for brands 35%.

Starwood, whose pharmacy-benefits manager is Cigna Corp., also adopted a complicated co-insurance formula called "reference pricing" in five major categories of drugs. In reference pricing, a category of drugs -- such as cholesterol fighters -- have one "reference price," which each company determines differently. In the case of Starwood's cholesterol drugs, the reference price is set at $70 for a month's supply, which is about the price of Lipitor, the most popular statin among Starwood employees. Workers pay 25% of the reference price, and anything above the reference price. If a particular statin costs $100, workers would pay 25%, or $17.50, plus $30. Ms. Tostanoski says Starwood, which spends about $17 million on drugs annually for its 30,000 eligible employees, expects to save $250,000 to $350,000 this year with the reference-pricing method.

Several insurers, including Humana Inc. and WellPoint also are using some form of reference pricing in the plans they sell.

Moves toward co-insurance and other efforts to make co-pays so high means patients don't always take the medicine the doctor ordered. "Frequently, there are [less expensive] alternatives, but we may not consider it the best choice," said Judi Woolger, an internist who practices in Miami. "So we're forced into writing a prescription for second best."

Plans also are adopting "step therapy," that requires patients to try less-expensive products for a specified period of time before "stepping up" to something more expensive. For Express Scripts Inc., the giant pharmacy-benefit-manager, step-therapy use has nearly tripled among its employer, health-plan and labor-union clients in the past three years. About 13 million Americans covered under Express Scripts plans must go through step therapy for certain medications, up from 4.5 million in 2002.

In order to get the expensive medicine covered by the plan, a patient's doctor has to call for permission and show that less expensive options have failed. Recently, Mark Multach, a primary-care physician in Miami, has been trying in vain to get a patient's health plan to approve the use of a brand-name prescription nail-fungus medicine. "I called four different numbers before I was put on hold for 15 minutes" and finally had to hang up, says Dr. Multach, chief of the division of general internal medicine at the University of Miami Miller School of Medicine. Following the patient's drug-plan rules, Dr. Multach first tried a generic, then a less expensive brand on the patient's fungus problem -- both to no avail.

Dr. Multach said he tried calling again and was told to take a culture first to check for the presence of fungus. Such cultures take three to four weeks to grow, if they grow at all, Dr. Multach says. In the meantime the patient, whose condition has spread, is in pain and without the roughly $280 monthly medication.

For all the efforts so far, "I accomplished nothing," Dr. Multach says. "That takes away from my seeing patients."

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