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Benefit Manager Gives Advice on Cutting Costs

Cheryl A. Thompson

Employers and health plans can cut their drug expenses the most by better managing the formulary and drug utilization and persuading patients to request generic drugs and mail services, advises Merck-Medco Managed Care, L.L.C.

Potential savings range as high as 10 percent to 12 percent for each of these four solutions to high drug expenses, reports "Managing Pharmacy Benefit Costs—New Insights for a New Century," the newest drug trend analysis from the New Jersey-based pharmacy benefit management company (PBM). 

The 72-page report notes that the more aggressive approaches to cutting expenses yield higher cost savings than the milder options. 

For example, by refusing to cover brand-name drugs that have generic equivalents, employers and health plans can potentially reap a 12 percent savings. A milder option, such as offering a lower copayment for generics than for brand-name drugs, might save only 5 percent. 

No single strategy will resolve an employer's or health plan's struggle to contain drug expenses. From 1995 through 1999, the average annual drug cost per member served by Merck-Medco increased by 21 percent each year. The gross annual cost per member in 1999 was $507 for about 45 clients whose members had continuous pharmacy benefits for five years. 

Merck-Medco attributes this 113 percent total rise in drug cost, from $238 to $507, to three factors that contributed somewhat equally to the increase: 

  • Number of users, particularly members who had not filled prescriptions before, 
  • Days of therapy per user, and 
  • Drug cost per day.

Health plan sponsors' reluctance to take the more aggressive approaches, notes the PBM, stems partly from the fear that members may not understand the rationale behind the change. This fear, says the company, is overrated. 

A change in the amount members paid at community pharmacies increased calls to Merck-Medco's customer service centers by about 55 percent for the first three months, peaking at 34 calls per 1,000 members per month. Call frequency dropped dramatically in the subsequent three months, to 26 calls per 1,000 members per month, or only 18 percent above baseline. 

On the basis of its experience in making changes to health plans and handling the consequences, the PBM offers the following suggestions: 

  • Allow enough lead-time, perhaps 90 to 120 days, for making and communicating a change. This gives a PBM enough time to train service representatives and communicate to members and health care providers. 
  • Use more than one communication vehicle. A letter is not sufficient notice. 
  • Communicate before and after the change goes into effect. Repeating a message works well. 
  • Explain to members the clinical and economic rationale behind the change. A change can be made more palatable if a member understands that quality will not be sacrificed for the sake of cost. 
  • Tell pharmacists and physicians, as well as members, about a change to the formulary. Confusion among health care providers does not help the situation.

As for savings from technological advances, the PBM estimates that it can cut about $3 to $6 in drug costs per member in the first year when physicians electronically access the company's databases and transmit prescriptions during patient visits. 

The current year holds bad news for employers and plan sponsors that do little to manage their pharmacy benefit and serve a population with an average age of 50. Merck-Medco expects those groups to spend 19 percent to 23 percent more on drugs in 2000 than in 1999, mostly due to increased utilization. 

To view the full report, go to, select "For Clients," and then scroll down to "Managing Pharmacy Benefit Costs Year 2000."