By JOSHUA CLIFTON, a Chicago-based writer who covers workers' comp and disability issues
A slew of factors ranging from utilization to pricing practices have helped drive up the overall cost of prescription drugs in recent years. While this trend isn't a surprise to anyone in the world of workers' compensation, one expert said new research shows that the gap is widening between aggressive payers that have programs in place to control costs and their complacent counterparts.
Joseph Paduda, principal of Health Strategy Associates and author of the popular blog Managed Care Matters, said that although his firm's latest report, the "Sixth Annual Survey of Prescription Drug Management in Workers' Compensation," found that cost inflation for pharmaceuticals rose 7.5 percent in 2008, it wasn't all doom and gloom for payers.
The findings, which included input from 18 carriers and third-party administrators (TPAs), noted that payers who have "committed the resources, expertise and systems support necessary to thoroughly understand their drug spend and the relationship between medications, medical costs and claims costs continue to make significant progress" in lowering overall drug costs.
Most startling, Paduda said, is that smaller payers are having more success in controlling costs than their larger competitors.
PBM TO THANK
Larger payers had previously outperformed smaller payers in Health Strategy Associates' annual survey. Paduda noted that smaller payers have gained ground with the proliferation of cost-reduction tools. Larger firms, he said, seem to be more interested in providing clinical management services internally, rather than partnering with pharmacy benefits managers (PBM).
"My speculation is that larger payers' ability to outperform PBMs isn't always justified," Paduda said. "PBMs focus strictly on managing pharmacy 24/7, while larger payers are attempting to do many things themselves."
Paduda also said that smaller payers--those with an annual workers' comp drug spend of $10 million or less--appear to be gaining a much deeper understanding of what drugs are driving their costs. The use of data-mining tools has led to a greater understanding of usage patterns, he said.
"Secondly, we are finding that smaller firms are really partnering with their PBM and asking them to take on a lead role in managing utilization," Paduda said. "Smaller payers may not have the same clinical personnel and staff resources available to them as the larger firms, but we have found that they are relying on the expertise of their PBMs and saying, 'We can see that there is a problem, let's work together to deliver a solution.' "
Paduda said that the payers in the study who were most successful in reducing workers' comp drug costs were those who grasped the simple key to success--understanding and managing utilization. According to the latest report, many respondents are continuing a three-year trend of having a greater understanding of the underlying forces that are having an impact on utilization.
Maria Sciame, director of clinical services at PMSI, a PBM and provider of specialty services for the workers' comp market, agreed. She said rising pharmaceutical expenses can't entirely be blamed on the price of drugs. Sciame said that the increasing trend of using multiple medications to treat pain increases utilization, but that utilization management programs can help control some of the factors, and that working with a workers' comp-specific PBM can result in price mitigation.
Paduda said that successful payers are partnering with their PBMs to encourage them to "develop better cost-savings reports, more effective data capture, stronger clinical programs and better communication with adjusters."
He also noted that understanding usage patterns and providing adjusters and claims managers with recommendations backed by solid clinical information is critical.
"You can have the best data in the world, but if it doesn't get to the person who can use it, it doesn't matter," he said.
The report also noted that significant opportunities exist to improve programs through first-fill capture rates, clinical intervention programs and mail-order penetration.
"Physician dispensing/repackaging is becoming more problematic in certain jurisdictions, and payers would do well to monitor it carefully," Paduda wrote in the report.
Third-party billers, however, remain a problem, and Paduda said that few payers are willing to partner with these firms. The perception in the payer community, he said, is that third-party billers "increase the cost per prescription inappropriately," and add paperwork and other administrative headaches to the process.
Regardless of the impact of the outside influences of fee schedules, new drugs on the market and claims frequency, Paduda said, payers with better programs will deliver lower loss costs. This will translate to lower combined ratios and higher profits for workers' comp insurers and lower workers' comp costs for self-insureds.
With the current economic turmoil impacting nearly every facet of the global economy, what impact is it having on the costs of prescription drugs in workers' compensation?
"The recession hasn't had much of an impact, but there are macro factors that will play a significant role," said Paduda.
The potential impact of healthcare reform and the recession may result in the Department of Health and Human Services negotiating drug prices for Medicare, according to Paduda. The United States is currently the only developed country where the government does not negotiate drug prices with pharmaceutical manufacturers.
"Cost-shifting is a distinct possibility," he said. "If one of the biggest payers of pharmaceuticals is suddenly paying them less, they're going to want to make up their revenues from somewhere else, like workers' comp."
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February 11, 2010
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