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Components of a “Smart” Drug Program
Session 8

Moderator: Thomas S. Tomczyk, Mercer Human Resource Consulting
Presenters: David Dross, Mercer Human Resources Consulting; Nick Vasilopoulos, Medco Health Solutions, Inc.
Recorder: Richard H. Bailey, Mercer

The discussion was framed around 3 major components: Background on where we are today, marketplace factors influencing smart drug programs, and what’s on the horizon.

Background:

Pharmacy trends declined from 16% in 2000 to 6% in 2006. The panel acknowledged that the introduction of Part D/RDS did create a one time adjustment in annual trend that will not repeat in the future. Medco data showed an actual trend of 2.8% in 2006, but it would have been effectively 6.6% without the impact of Part D. They foresee trends of 7-11% going forward (2007-2009).

There are 300 biotech drugs on the horizon. Increased use of generics is helping offset costs here, but the effect on each employer depends on many factors including demographics of the covered population, formulary decisions, etc.

Mercer survey results indicate that employers can’t (or won’t) cost-shift any more. Trends dropped to 11-12% in the 2007 survey, but these still exceed medical trends. Nearly ¼ of plan sponsors said they would reduce co pays on compliance medications.

Medco data suggests that for 2006, the top Rx spend categories were Cardiovascular, Central Nervous (neurology, mental health, pain), and Gastroenterology, covering more than 55% of Rx spend. Immediate opportunities for improving appropriate utilization and/or compliance with medications exist in the asthma and diabetes categories.

$27 billion of single source brand Rx spend will be coming off patent between 2007 and 2009. Generally a 1% increase in generic dispensing rate translates to a .6% reduction in employer Rx spend. The panel felt that 5-10% employer savings were possible due to generic increased generic utilization.

Marketplace factors:

Transparency. The reasons for seeking transparency to this point have been primarily philosophical. The financial benefits are unproven. The panel felt there was not a lot of difference between a “true run rate” (transparent arrangement) and a well-negotiated PBM deal. While transparency has focused on rebates, it also needs to focus on discounts and fees. Four approaches were discussed for balancing these considerations. Mercer has seen 60% of large employers leaning toward “baking in” the rebates in return for higher discounts.

New measuring stick. The industry is in search of a new standard for ingredient cost. AWP is on the way out and a replacement will likely come from a litany of “alphabet soup” baseline prices (WAC, ASP, AMP). When negotiating on behalf of clients, consider how performance guarantees will apply if AWP is no longer available to measure against and ensure that it is spelled out in the contractual agreement!

New Service Models. Caremark and CVS have developed a vertically integrated model. It contemplates more push to retail than mail and considers the retail pharmacist the healthcare manager. Another model is the big box retailer, like Wal-Mart and Target, where the retail Rx focus helps to increase foot traffic in-store.

New PBM models. Medco is transforming the “general” practice of pharmacy into distinct, specialist pharmacist roles. Pharmacists will focus on patients with specific disease and medical conditions and medication therapy associated with these diseases/conditions.

What’s Next?

Generic alternatives, not just generic substitutes. However, some generic savings may be lost when new brands come in and disrupt the move to generic alternatives. Plan sponsors need to plan ahead to counteract direct to consumer advertising in order to optimize the introduction of new generic products.

Personalized medicine. Individuals metabolize drugs at different rates. Prescribing patterns may change as more information becomes available about individual metabolic rates, which may allow for “precision” management opportunities. Testing is needed to determine one’s metabolic capacity – this testing is a one-time occurrence. If testing becomes required prior to a physician being willing to prescribe a drug, who should pay for the testing? How will test results be portable as an employee changes jobs and plans? Requires a re-look at plan design and assessment of potential costs and savings.

Evidence-based design. Generally, this is the idea of targeting a certain group of individuals who are or should be taking a medication and reducing member out-of-pocket costs to improve compliance with the regimen. Costs are offset and often projected to be exceeded by the medical cost savings arising from improved compliance. Mercer’s Dx-Rx Pairings™ was described as one approach to improved compliance and appropriate utilization.

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