What to do About Mounting Prescription Drug Costs

Workers Comp Drug Trends

When reviewing our clients’ loss data it has become obvious: the cost for prescription drugs is increasing as a percentage of their total workers’ compensation (WC) medical expenditures.

Historically, most medical costs were composed of physician office visits and physical therapy. Today, pharmaceuticals equate to roughly 20% of a client’s total WC medical spend. More alarming is that this percentage is increasing each year and it’s likely to get worse.

Drug Prices Rising

Today, pharmaceuticals equate to roughly 20% of a client’s total WC medical spend.

I recently spent some time reviewing Helio’s 2015 WC Drug Trend report, and it’s sobering. From 2013 to 2014, there was a 3.9% increase in costs of combined generic and brand name drug. Also, the average wholesale price (AWP) for both generic and brand name drugs rose 11.4%. Helio’s report also points out that this trend is not going to improve anytime soon, but will continue to deteriorate further.

Opioid Use Falling

Although the AWP is up 11.4%, there is some positive news: the abuse of opioids prescribed for WC injured workers appears to be becoming less widespread:

  • The number of opioid prescriptions is down 2.9%
  • The daily morphine dose equivalent (MDE) is down 7.4%
  • The number of injured workers using opioids fell by 1.6%.

Despite this progress, we still must address what the future holds for drugs and WC.

Some Drug Prices Soaring

From 2013 to 2014, we saw several brand-name drugs with astronomically escalating AWP costs:

  • Deuxis: 101.4%+
  • Lunesta: 36.2%+
  • Percocet: 26.6%+
  • Lyrica: 20.5%+
  • Celebrex: 20.5%+

Also, several generic drugs experienced similar inflation:

  • Oxycodone-acetaminophen tablets: 96.9%+
  • Baclofen tablets: 114.7%+
  • Ibuprofen: 79.3%+
  • Oxycodone tablets: 72.5%+
  • Morphine sulfate ER tablets: 57.4%

Why?

Certainly the price of our clients’ products and services haven’t increased by the same factor, nor have their production costs. Why is this happening?

Average wholesale prices will likely rise by 50% over the next 2-3 years.

Helios’ report theorizes that overall spending increased for the following reasons:

  • Lower patent expirations
  • Lack of substantial innovations
  • Price increases for some single source/manufacturer generics
  • Tightened FDA oversight
  • Products liability concerns
  • Product shortages
  • Increased shipping costs of materials/final products
  • Mega-consolidations of generic providers
  • Delays of new drugs entering the marketplace

All of these factors probably are affecting the costs of drugs simultaneously, which explains why the costs are escalating so quickly and so dramatically.

We’ve all heard how the research and develop of the pharmaceutical companies is necessary to search for new cures and treatments. This certainly comes with a cost. If there is less competition and more demand, the price rises. This is needed for future R&D activities.

Pharmacy benefit management (PBM) professionals say the price escalations are just beginning and the average wholesale price will likely rise by 50% over the next 2-3 years.

What to do

How can you prepare for this?

Use Your Pharmacy Benefit Management Provider

First, you need to ensure that you are using your current pharmacy benefit management provider whenever possible. The more penetration you can have into your PBM, the greater the savings to your company. By going through your PBM, you’ll be better able to control price and utilization, have the benefit of having drug utilization reviews, and identify drug abuse earlier.

Mail Order

Mail order prescriptions average 19.8% cheaper than those traditionally dispensed.

You can also take advantage of having your injured workers take advantage of “mail order” services which are typically more cost effective than traditional pharmacy dispensed drugs. As the Helios report states, the average cost per day of mail order supply is 19.8% cheaper than traditionally dispensed prescriptions.

Generics

You’ll also want to increase the percentage of generic drugs used in the management of your workers. Many of the PBMs have “first-fill” programs, which provide the first prescription to the injured worker in an attempt to get earlier participation into the PBM. All of these are great methods of keeping your drug control and costs in check.

I’ve found that many companies are just looking at the overall medical costs when reviewing their claims. They need to dig deeper as the drug costs are likely going to be dramatically escalating over the next 3-5 years.

What to Ask Your Pharmacy Benefit Management Provider

Get engaged now with your PBM and ask them:

  • What is my PBM network penetration rate (you want to be in the 90%+ range)?
  • What is my percentage of generics to brand name drugs (a 1% increase in generic usage results in a 2.2% reduction in total spend according to Helios)?

Also, start asking your PBM to supply you with a report showing the average cost per script (for both generic and brand) and also the average number of scripts per claim (for both generic and brand name).

You don’t want to start this analytical process in 3-5 years as you’ll lose the opportunity to control your costs now.

I hope I haven’t painted too bleak a picture of what is to come, but picture the price escalation in an environment of an aging workforce, increasing obesity, and an increasingly deconditioned workforce. This issue will not be going away anytime soon and therefore mitigation needs to start now.

 

About Joe Picone

Joe Picone is Claim Consulting Practice Leader in Willis' Risk Control and Claim Advocacy Practice, with more than …
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