Driven by higher prices and increased usage, prescription drug spending by health care providers is expected to rise sharply in 2002, according to a variety of pharmaceutical monitoring services.

“LIUNA health and welfare funds should be aware of this trend,” says Armand E. Sabitoni, LIUNA General Secretary-Treasurer and Co-Chair of the Laborers’ Health and Safety Fund of North America (LHSFNA). “Funds that do not have managed pharmacy benefits need to consider redesigning their benefits or utilizing a pharmacy benefit manager to address higher drug costs and utilization.”

LaboreRx, developed by the LHSFNA in 1995, is one such option. Operating under an agreement with National Prescription Administrators, Inc. (NPA), the program is designed to help LIUNA health and welfare funds and their eligible participants control prescription drugs costs. Beginning with only 14 funds, LaboreRx now includes 39 funds and serves almost 100,000 LIUNA members. Since 1996, it has saved LIUNA funds more than $40 million.

Fund administrators or trustees interested in the LaboreRx program should contact Mary Jane MacArthur, Associate Director of Health Promotion at the LHSFNA for more information.

Express Scripts, which recently acquired NPA, released a data analysis in June that anticipates a 15.9 percent increase in drug spending in 2002. The Segal Company, a consultant to a number of LIUNA funds, projects a 19.4 percent increase for active members and retirees under age 65 who purchase prescription drugs at retail prices, and a 20.5 percent increase for those over 65.

Actual drug spending can be greater or less than projected. For instance, the actual prescription drug spending in 2001 showed a composite increase of 15.2 percent when an increase of 19.6 percent was projected (Segal). Hence, actual data for 2002 may not show as great an increase as projected. Nevertheless, given recent history, actual increases on the order of 15-16 percent are likely.

Contrary to this national trend, however, some funds, by relying on the cost-saving strategies of pharmacy benefit managers (PBMs), have seen significantly smaller increases in drug spending. These strategies combine formulary management with three-tier co-pays, mail service for maintenance drugs, generic incentive programs, managed drug limitations, prior authorization, drug utilization review and physician education.

PBM Cost Containment Strategies

Formulary Management
Three-Tier Co-Pays
Mail Service for Maintenance Drugs
Generic Incentive Programs
Managed Drug Limitations
Prior Authorization
Drug Utilization Review
Physician Education

Rising prescription drug costs are the largest part of the increased overall cost of health care from 2001 to 2002, according to a study by PricewaterhouseCoopers for the American Association of Health Plans (April, 2002). The increase in demand for health care services is driven by a number of factors.

Most fundamentally, the large baby boom generation is moving into its 50s and 60s; it is well established that older people have an increased need for health care services.

Another element is growing consumer demand for all services due to the rapid expansion of direct-to-consumer marketing of prescription drugs through television, radio, newspaper and magazine advertising. For the first time, consumers are immediately aware of new drugs-even before they hit pharmacy shelves. In combination with increasing access to drug information via the internet-a process known in total as consumer empowerment-this marketing increases office visits and, as doctors respond to patient pressure, the quantity of drugs prescribed.

Also, the use of drug therapies increased over the last two decades as several innovative, new drugs were brought to the market. New therapies tend to cost more than old ones. However, “when you look into the future of the drug pipeline, there are not many innovative drugs that are really going to come to market in the next several years,” said Fred Teitelbaum, Express Scripts Vice President, Research and Planning.

In addition, a number of significant drugs are losing their patent protections, and generic versions should reduce their costs. These include hypertension drugs like ACE inhibitors, Zestril and Prinivil. Generally, generic drugs are about one-fourth the price of brand name drugs.

[Steve Clark]