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Manage drug costs globally, not in isolation
The best political theater in Washington, DC, this summer may have nothing to do with the brewing presidential campaigns. Experts say the issue to watch in health care is how Congress and Medicare officials handle prescription drug coverage.
"As Medicare goes, so goes private-sector insurance," is a common refrain among veterans of health care management. But will that be the case this time? Can the nation afford it? Can private-sector insurers afford it? Will the market demand it regardless?
Capitated providers are well aware that "pharm-cap," the practice of incorporating prescription drugs within the per-member-per-month payment in capitation contracts, is about as risky as the health care business gets. Drug costs are volatile and almost impossible to predict. Drug utilization patterns can lead to either savings or major expenses in the long run, and they are subject to both visible and obscure market influences. Still, pharmacy capitation is virtually standard in markets where capitation is mature, such as Massachusetts, Texas, and California.
Donna Shalala, secretary of the Department of Health and Human Services, recently hailed the prospect of expanding drug coverage to the elderly. "A prescription drug benefit is good health care," Shalala said. "It’s prudent policy. It’s compassionate government. And the time for action is now," she said in a speech to the National Press Club in Washington, DC.
How can the nation afford it?’
There is no doubt the expanded benefit is in high demand, shown dramatically by the popularity of Medicare risk contracts that offer free or reduced drugs, notes Gary Plank, MD, director of pharmacy services for Security Health Plan, a physician-owned HMO operated by the Marshfield (WI) Clinic. "But how can the nation afford it if Medicare solvency already is an issue?" he asks.
Will the rest of the private sector follow Medi care’s lead? "Regarding Medicare risk, I’d say yes," Plank predicts. "The private-sector risk will continue to incorporate pharmacy." Beyond that, however, "I don’t know how the nation could afford it."
Given all the attention paid to prescription drug benefits today, chances are these benefits will remain a prominent feature of capitation and other managed care and fee-for-service arrangements for the foreseeable future, Plank and other experts predict. Here are three explosive reasons why:
• Advertising rules consumers. The pharmaceutical industry increased its spending on direct-to-consumer advertising by 16% between March 1998 and March 1999, according to a report published in June by the London-based information firm IMS Health. Estimated expenditures came to $1.53 billion. This increase was smaller than the 24% increase reported for the 12 months that ended in December 1998, according to IMS analysts, but they say consumer-oriented drug advertising is here to stay because it is effective at stimulating consumer demand.
At the same time, generic drugs aren’t wholeheartedly embraced; after all, they aren’t advertised. Most Americans still prefer brand-name drugs over lower-cost generic drugs, according to a June survey by CareData Reports, a White Plains, NY-based consumer and health research organization. Based on a sample of 20,000 Ameri cans, the survey indicates that only 45% of respondents are satisfied when switching from a brand name to a generic drug.
• Consumers rule the market. Even as brand-name drugs go off the patent list and on to the generic domain, pharmaceutical manufacturers will continue to make more than they lose, say IMS officials in a separate report. Overall, the industry generated revenues of $302 billion in 1998. Some $70 billion is expected to be lost in patent expirations in 1998, but consumer demand will continue to drive new development as well as sales of off-patent drugs.
• Voters rule politicians. Medicare proposals for prescription drugs are multiplying. As election season picks up, Congress knows that seniors favor financial support for pharmacy costs. A host of ideas and bills are flooding Congress already. The following four proposals would have Medicare provide:
— up to $1,700 per year for drugs with a $200 deductible and a 20% copayment for all beneficiaries;
— a pharmacy benefit strictly for low-income elders;
— comprehensive pharmacy coverage via group purchasing policies, such as rebates, price ceilings, discounts, or competitive bidding for drugs;
— specific outpatient prescription drugs for several chronic disease conditions, such as hypertension, major depression, diabetes, rheumatoid arthritis, and congestive and ischemic heart disease. The thinking is that pharmacy expenditure over the long term would reduce inpatient and outpatient admission cost.
Don’t separate drug costs from overall costs
How do physicians handle this chaotic mix of market and economic influences? "What many people are trying to do is to look at the drug benefit independent of total health care cost," says Plank. However, that approach gives a false picture, he warns.
For example, Marshfield’s second-highest drug expenditure reduces cholesterol levels, which in turn reduces heart disease and stroke. "Increasingly, we’re moving out of treatment of a disease to prevention," Plank says. The costs are high on the drug end, but lower in hospital and outpatient admissions.